If you’ve ever scratched your head wondering, “Does software development count as COGS?” — don’t worry, you’re not alone.
Many people hear accounting terms like COGS (Cost of Goods Sold) and instantly feel like they need a calculator, an accountant, and a good cup of coffee to understand it.
But let’s break this down in simple, real-world language, especially when it comes to things like content creation and software development.
You’ll learn what COGS actually means, how content and development work fit into it, and why it matters for your business (or your boss’s sanity).
1. First Things First—What Exactly is COGS?
Let’s get our definitions straight before we dive deeper.
COGS, or Cost of Goods Sold, refers to the direct costs involved in producing goods or services that a business sells.
In traditional industries, it’s easy to understand. For example:
- A bakery’s COGS includes flour, eggs, sugar, and packaging.
- A clothing brand’s COGS includes fabric, thread, and labor.
But when you’re working in digital industries—like software development, content creation, or SaaS—it’s not always so clear.
Where do intangible things like code, content writing, or UX design fit in? That’s what we’re here to explore.
2. Does Software Development Count as COGS? Sometimes Yes, Sometimes No
Now to the big question: Does software development get baked into COGS?
The answer is: It depends on how your business uses that software.
Yes – Software development is COGS if…
- You’re creating a software product you sell directly (e.g., a SaaS platform or mobile app).
- Your software is the core product your business sells or licenses to customers.
- The development work is directly tied to delivering the product or service your customer pays for.
In this case, software development is a direct cost, just like raw materials in a physical product.
No – Software development is not COGS if…
- You’re building internal tools or platforms that support the business but aren’t sold to customers.
- The development work is for marketing, analytics, or support—not the product itself.
- It’s part of general operations or admin work.
In this case, development becomes an operating expense (OpEx) rather than a cost of goods sold
3. What About Content Creation? Where Does That Fit In?
Just like software development, content creation can be classified differently based on how it’s used.
Content is COGS if…
- You’re selling that content directly—like digital courses, eBooks, premium articles, or subscriptions.
- The content is the product the customer is paying for.
- Content creators are producing material that is central to the customer’s purchase.
In that scenario, content creation is a production cost—not just marketing fluff.
Content is NOT COGS if…
- It’s part of your marketing strategy (like blog posts, social media, or SEO content).
- It supports your brand or customer engagement, but isn’t the product itself.
Marketing content is usually classified under SG&A (Selling, General & Administrative) costs or OpEx in financial statements.
4. Why This Distinction Matters (Especially in Software Development)
You might be thinking, “Okay, but does it really matter where we categorize software development or content?”
Yes—it absolutely does.
How you classify software development and content creation impacts:
- Your profit margins
- Your gross vs. net income
- Your financial reporting accuracy
- Your tax deductions
- And even how investors view your business
In product-based businesses, high COGS = lower gross margin. But if software development is an operational investment, not a product cost, your gross margin may appear higher, and you’ll track expenses differently.
For SaaS companies especially, correctly categorizing development costs is crucial for budgeting, growth forecasting, and attracting potential investors.
So yes, it’s more than just an accounting technicality—it’s business strategy.
5. Common Scenarios: Real-World Examples of COGS in Tech
Let’s look at some real-life examples to help you apply this concept easily:
Scenario A: You run a SaaS platform. Your development team builds and maintains the platform. Their work is considered COGS because it directly supports the product your customers pay to use.
Scenario B: You hire a software development agency to build your client portal. If that portal is the main feature your clients use (and pay for), it’s COGS.
Scenario C: You build a CRM tool just for internal use. That’s OpEx, not COGS. It supports operations but isn’t sold to anyone.
Scenario D: You create premium content for your paid online course. The content creation team’s work is COGS, because the course is your product.
Scenario E: Your marketing team writes blogs and social media posts. That’s not COGS—it’s a marketing expense (important, but not directly tied to revenue generation).
6. How to Track COGS in Your Software Business
If you’re running a business that sells software or digital content, here’s how you can start tracking COGS effectively:
Separate development costs tied to product delivery from internal or marketing projects. Create clear budget categories: Product Dev (COGS), Internal Dev (OpEx), and Marketing Content (SG&A). Use project management tools to tag work hours and costs by project type. Consult a tax advisor or accountant to make sure your financials align with local reporting standards.
And yes, even if you’re a small business or a solo developer, tracking COGS can help you understand your true profitability.
Final Thoughts: Yes, Software Development Can Be COGS (But Only When It Should Be)
So to wrap it up: Does content and software development get baked into COGS?
The answer is yes—but only when it’s a direct cost tied to your product. When used for internal tools, support systems, or marketing, it falls under other expense categories.
Understanding how to properly classify these costs helps you make smarter business decisions, avoid accounting confusion, and present cleaner financial reports.
Whether you’re a developer, a founder, or a content creator—knowing where your work fits financially is part of building smarter digital products.
Want to learn more about smart financial planning in software businesses? Check out our Software Business Operations Blog Series for more guides and insights.
