Is cost of goods the same as operating expenses?

Cost of goods sold… operating expenses… are they the same thing? Honestly, I used to mix them up, big time! I mean, aren’t they both costs? Right? Wrong! Turns out, they’re about as different as night and day.

COGS – that’s cost of goods sold – that’s the stuff that actually goes into making my product. Think of it like this: I make artisanal candles, okay? So my COGS includes the wax, the essential oils – I splurged on some amazing lavender from Provence once, that was expensive – the wicks, the pretty little jars, and even the time I spend actually pouring and making them. That’s all direct costs, directly tied to each candle I sell. It’s the lifeblood, as they say, totally essential.

Operating expenses? That’s a whole different ballgame. That’s the rent for my little studio space – way more expensive than I anticipated, let me tell you! – my website hosting, the marketing I do on Instagram (which, let’s be honest, could use some improvement), and even my own salary. Stuff that keeps the business running but isn’t directly attached to selling a single candle. It’s all the overhead, keeping the lights on, but it’s not a direct cost of making a candle.

Seriously, I almost crashed my business once because I didn’t understand this difference. I was pricing my candles way too low, thinking I was only accounting for the materials. I was losing money hand over fist, utterly clueless, while I should have been covering all my costs! Learning the difference between COGS and operating expenses was a major wake-up call. Now, I’m much better at pricing – and making a profit! It’s a crucial difference, one that can make or break you. Don’t be like me – learn this early on, or you’ll be kicking yourself later.