COGS Variables
This article explains COGS (Cost of Goods Sold) variables in Model Reef.
You will learn:
What a COGS variable represents.
How COGS variables are typically driven by revenue or units.
How COGS affects P&L, working capital and cash.
Patterns for modelling unit cost, margin and inventory like behaviour.
What a COGS variable is
A COGS variable represents the direct cost of delivering revenue, for example:
Cost of materials or goods sold.
Direct labour that can be directly tied to production.
Payment processing fees tied to revenue.
Hosting costs closely linked to user activity.
Each COGS variable:
Lives in a branch alongside its related revenue where possible.
Has a category such as
COGS - DirectorCOGS - Platform.May use units, revenue or both as its basis.
How COGS variables use drivers
COGS variables are often tied tightly to revenue or units via drivers, for example:
Unit cost pattern
COGS = Units * UnitCostDriver.UnitCostDriver may itself change over time based on scale or inflation.
Margin based pattern
COGS = Revenue * COGSPercentDriver.Or equivalently
Gross Margin = Revenue * MarginPercentDriver.
Hybrid patterns
A fixed cost component plus a variable cost per unit.
Separate COGS variables for different product lines or channels.
Operational drivers supply units or activity levels. Economic or modifier drivers supply unit cost or percentage patterns.
COGS in the P&L
In the P&L:
COGS variables reduce Gross Profit.
Categories and subcategories let you see COGS by product, channel or function.
Gross Profit and Gross Margin are calculated from the combination of revenue and COGS variables.
This creates a transparent link between unit economics and headline margins.
COGS, working capital and Accounts Payable
In the Balance Sheet:
If COGS is paid in the same period as incurred, there is no payable.
If there is a delay (for example supplier terms of 30 or 60 days):
COGS is accrued in P&L when the cost is incurred.
An Accounts Payable balance is created to reflect the unpaid amount.
Accounts Payable decreases when cash is paid.
Although Model Reef does not model inventory as a separate stock account by default, delayed COGS combined with payables can approximate many inventory timing patterns.
COGS in the Cashflow Statement and Cash Waterfall
In the Cashflow Statement:
COGS variables feed into Payments to suppliers as cash outflows.
Timing reflects payment terms rather than accrual timing.
In the Cash Waterfall:
COGS is shown as a line directly under revenue, matching the P&L.
Changes in working capital then adjust for timing differences before capex, debt and equity flows.
This makes it easy to see both accrual margin and cash impact in one view.
Common COGS modelling patterns
Examples:
SaaS or software
COGS driven by user count or traffic, for example hosting and support.
Margin drivers showing COGS as a percentage of revenue.
Retail and ecommerce
Unit cost driven COGS with volume discounts.
Supplier payment terms representing trade credit.
Manufacturing
Material and direct labour cost per unit.
Capacity driven costs related to machine hours or production runs.
Each pattern uses COGS variables to encode the direct economic cost of delivering revenue.
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