Cost of goods sold, or COGS, is the direct cost of producing or delivering whatever a company sells: materials and direct labor for a physical product, or hosting and support costs for a software product, but not overhead like marketing or rent.
COGS is subtracted from revenue to calculate gross profit, and gross profit divided by revenue is gross margin. Getting the line between COGS and operating expenses right matters, since misclassifying a cost as COGS versus overhead changes gross margin, one of the first numbers an investor checks, without changing the company's actual profitability at all.
What belongs in COGS varies more by industry convention than by a strict universal rule, part of why gross margin comparisons across very different types of businesses can be misleading. A hosting cost that one SaaS company includes in COGS might get classified as a general operating expense somewhere else, even though the underlying cost is functionally the same.
Add your revenue and website for a full diligence brief, reviewed by a CPA who ran EY's West Coast R&D Tax Credit practice for 13 years.