COGS vs. Expenses: What Every Restoration Contractor Needs to Know

Jun 14

When you're running a restoration company, understanding the difference between COGS (Cost of Goods Sold) and operating expenses is key to knowing your numbers—and protecting your profit.

What Is COGS?

COGS represents the direct costs you incur to perform a job. In restoration, this typically includes anything that is:

Consumed on a job
Only incurred because of the job
Traceable to a specific project

Examples of COGS in the restoration world:

Subcontractor labor for a specific job
Drying equipment rental billed to the project
Mitigation supplies (antimicrobials, PPE, zip walls)
Dumpster and debris haul-off directly tied to a job
Technician wages only if they’re billed per job and not on standby

What Are Operating Expenses?

Operating expenses, on the other hand, are your overhead costs—the things you pay for regardless of how many jobs you do this month.

Examples include:

Office rent
Salaried admin staff
Marketing and advertising
Software like Encircle or Dash
General liability insurance
Vehicles (unless usage is tracked per job)

These are the costs of running your company—not of completing a specific job.

Why It Matters

Your gross profit depends on this split.

Here’s the basic formula:

Revenue
– COGS
= Gross Profit
– Expenses
= Net Profit

If you classify costs incorrectly—like putting job supplies into office expenses—your gross profit margin will look inflated, and that can trick you into thinking you're doing better than you are.

On the flip side, if you dump all your technician labor into COGS without job tracking, you’ll lose visibility on which jobs are profitable.

Tips for Better Tracking

Use classes or customer/job tags in QuickBooks Online to track job-level costs accurately.
Split technician labor between billable hours (COGS) and downtime or non-job activities (expenses).
Review your Chart of Accounts with your bookkeeper to ensure your categories reflect how you operate in the field.
Run gross profit margin reports by service line (e.g., mitigation vs. rebuild) to identify which type of work is more profitable.

The Bottom Line

Accurately separating COGS from overhead isn’t just about bookkeeping—it’s about better decision-making. If you're not confident that your books are showing the true cost of doing work, it’s time to take a closer look.

Want help identifying your true job costs and improving your margins?
📅 Schedule a call with us here to learn how Kiwi Cash Flow helps restoration contractors understand and grow their bottom line.

Michele Gray