What % of my revenue should I spend on COGS?
Wednesday, January 25, 2023
The percentage of top line revenue that a business should spend on cost of goods sold (COGS) will vary depending on the type of business and the industry in which it operates. For example, a retail business that resells products will have a lower COGS percentage than a business that manufactures its own products, because the manufacturing business has the added cost of raw materials and labor.
For a business, typical COGS percentage are in the range of 20-50% of their top line revenue, but this can vary greatly by industry. For example, a software company will have very low COGS, while a bakery will have a higher COGS because they are producing physical goods.
A good way to determine what percentage of your top line revenue should be allocated to COGS is to look at industry benchmarks and compare your business's performance to that of similar businesses in your industry. Additionally, keeping an eye on the COGS percentage over time can indicate where the business may need to improve, such as looking for cost savings in the production process, or increasing prices to maintain margin.
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