Direct costs
Direct costs are expenses you can clearly link to a specific product, job, or service. Typical examples are materials, parts, and the labor that makes or delivers that item. These costs often appear in cost of goods sold (COGS) or cost of sales. They differ from overhead, which supports the whole business and can’t be traced to one item.
Quick example
Sell custom T‑shirts? Fabric, inks, and the printer’s time on that order are direct costs. Your shop rent and electricity are indirect.
Tracking direct costs helps you see gross margin and set prices. In project or job work, record them to the right job so you know which work is profitable.
Common direct costs by business type:
- Product sales: raw materials, components, packaging for that product, production labor, subcontracted manufacturing.
- Services: billable staff time, contractors, project‑specific tools or licenses used only for that client.
- Construction and jobs: job materials, on‑site labor, equipment rental used only for that job.
Practical tip
Use separate accounts or items for direct costs, and review them per product or job. Clear coding makes your margins easy to track.
