Relationship between revenue and cogs

What Is the Difference Between Net Revenue, Net Sales, Cost of Sales & Gross Margin? |

relationship between revenue and cogs

What Is the Difference Between Net Revenue, Net Sales, Cost of Sales use the term "cost of goods sold," commonly abbreviated as COGS. For more information about the difference between Revenue and Profit, you can visit this link . Gross profit is revenue minus the cost of goods sold (COGS). difference between a company's listed cost of goods sold (COGS) and Cost of sales, also known as the cost of revenue, and cost of goods Cost of sales and COGS are subtracted from total revenue to yield gross profit.

The Difference of Net Sales & Cost of Goods Sold |

Your company income may get some income from other sources, but if it's not from your core business, it's not sales. Net Sales Net sales, or net revenue, is your total sales revenue, minus a few things: Most people are familiar with returns.

Net sales allowances are rebates or credits to customers to compensate them for problems with an item without actually taking back the item as a return. Sales discounts are price reductions offered to customers who purchase on credit but pay off their balance quickly.

relationship between revenue and cogs

For example, a company may give customers 90 days to pay, but if they pay within 14 days, they get a 2 percent discount. Cost of Sales "Cost of sales" refers to the direct costs involved in generating your net revenue. If you own a clothing store and you sell a jacket, it's typically the cost you paid for the jacket; if your employees work on commission, the commission would be part of the cost of sales.

The Difference of Net Sales & Cost of Goods Sold

This relationship is sometimes express as the cost volume profit, or CVP relationship. Profit Measurements Gross profit is a common financial measurement that appears on your income statement, and is calculated as the difference between sales and the costs of goods sold, or variable costs.

relationship between revenue and cogs

Net profit, or income, is your remaining income when fixed costs are subtracted from gross profit. These are costs you incur regardless of how many items you produce or sell. Common fixed costs include insurance, interest, rent and labor costs not directly died to production.

Costs Association Profit equations have two basic factors -- costs and revenue. The same data can derive the gross or net profit margin which gives the information in terms of percentages. The higher the margin, the more profit there is. The higher the gross profit margin, the more efficient the operations department is. The higher the net profit margin, the more efficient the entire company is.

If financial data suggests that gross or net profits are declining, then management may implement cost controls. If gross profit margins are declining, the first area to reduce costs is in unit production, literally, in the production of each unit. This means that making products must cost less by reducing materials costs, by improving labor efficiency or in finding ways to reduce the utilities cost or in reducing rent costs.

If the net profits are not showing efficiency, business leaders could look at several areas of cost-cutting strategies. One might be with the COGS and operational efficiency. Another area to consider is how efficient sales staff are in selling units. The company may also be overweighted with administrative expenses.

  • Gross margin
  • Relationship of Costs & Sales Volume to Profit
  • What Is the Difference Between Net Revenue, Net Sales, Cost of Sales & Gross Margin?

Business executives analyze the data, and then develop a strategy to improve gross profitability and net profitability.