The direct costs attributable to the production or delivery of the goods or services sold by a company. For software, this includes hosting, third-party data APIs, and customer support.
Why it matters: COGS is the foundational variable that determines gross margin. Startups must fiercely optimize COGS as they scale to maintain software-like margins.
In practice: For a GenAI startup, the API costs paid to OpenAI or Anthropic for every user query represent the primary COGS.