Key takeaways
- In accounts, cost of sales covers only direct costs tied to what was sold.
- Revenue minus cost of sales gives gross profit.
- The cost of selling, which includes sales salaries and tools, is a different number and sits in operating expenses.
- When you choose sales software, its cost belongs in the cost of selling, so weigh it against the work it removes.
How do you calculate cost of sales
For a business that sells stock, cost of sales is opening stock plus purchases minus closing stock. For a service or software business, it is the direct costs of delivering what customers paid for in the period, such as delivery staff, hosting and third-party fees per customer.
Here is an invented example. A small furniture maker starts the quarter with £4,000 of timber and fittings, buys £10,000 more and ends with £3,000 left. Its cost of sales for the quarter is £11,000. If it sold £25,000 of furniture, its gross profit is £14,000.
Is cost of sales the same as operating expenses
No, cost of sales and operating expenses are separate lines in the accounts. Cost of sales rises and falls with what you sell. Operating expenses, such as rent, marketing, sales salaries and software subscriptions, keep the business running whether or not a particular order comes in.
The split matters because gross margin, which comes from cost of sales, tells you whether each sale is worth making. Operating expenses tell you whether the whole business can afford itself.
What is the cost of selling
The cost of selling is everything a company spends to win revenue: sales and marketing salaries, commission, travel, events, advertising, data and the software the team uses. Sales leaders often call this "cost of sales" in conversation, which is why the term gets confused.
A simple way to track it is to add up a quarter's sales and marketing spend and divide it by the new revenue won in that quarter. Watch the trend over several quarters rather than any single figure.
How does cost of selling affect software choices
Cost of selling affects software choices because every tool adds a subscription and a share of each rep's time. Before buying, list the tools the team already pays for, what each one does and how much copying between them happens every week.
Then compare like with like. A single tool that replaces two may cost more on its own but less in total once you count the second subscription and the admin of keeping two systems in step. Check pricing pages for seat rules and what counts as usage before you commit.
Where Pebbles Ai fits
- CapabilityAI workspacePebbles Ai brings research, prospecting, outreach content and email into one workspace with the Marketing and Strategy assistants. The Strategy assistant can also build a spreadsheet you download, such as a model of what each tool costs your team.
- CapabilityProspecting & customer recordsContacts, segments and deals sit in the Pebbles Ai CRM (in Beta) beside the assistants, so there is one less place to copy records between.
Common questions
Is cost of sales the same as cost of goods sold?
Mostly, yes. Cost of goods sold is the usual term for businesses selling physical products; cost of sales is the broader term that also covers services.
Does cost of sales include sales salaries?
Not in the accounts. Sales salaries are operating expenses. Only staff who directly produce or deliver what was sold, such as a delivery team, sit in cost of sales.
Is sales commission part of cost of sales?
Usually not. Commission is normally an operating expense, though accounting rules may spread it over the life of a contract. Ask your accountant how your business treats it.
About this page. Written by the Pebbles Ai team for people who run sales, marketing and growth. Last updated .
