Cost of Revenue
The total direct costs incurred to deliver a product or service, used primarily by service and technology companies.
What is Cost of Revenue?
Cost of revenue is the aggregate of all direct costs a company incurs to deliver its goods or services to customers, reported as the first expense line on the income statement. While manufacturing companies use 'cost of goods sold' (COGS) to capture only production costs, service and technology companies use cost of revenue, which may include hosting infrastructure, third-party content licensing, customer support labor, and other delivery costs. Gross profit is calculated by subtracting cost of revenue from total revenue. A rising cost of revenue as a percentage of revenue (declining gross margin) signals efficiency challenges, while a falling ratio indicates improving unit economics.
Example
Netflix's FY2024 cost of revenue of approximately $9 billion includes streaming content amortization, licensed content costs, and delivery expenses (CDN and bandwidth). Revenue was about $39 billion, yielding a gross margin of roughly 77%—higher than many traditional media companies because Netflix's content costs are spread across its global subscriber base.
Source: Netflix Inc. Form 10-K FY2024