when comparing profit measures using a standard formula for profit margins such as those listed in an income statement creating a profit margin measure based on the cost of revenue would generate a lower value than those typically used by corporations for quarterly reporting that s because it includes the cogs or cost of services and other direct costs 
the contribution margin includes total variable costs and the gross margin only includes the cogs or the cost of services a company with a low cost of revenue to total revenue percentage indicates that it is in stable financial health and may have strong sales cost of revenue examplehere s a hypothetical example of how the concept of cost of revenue works let s assume xyz inc sells electronics products and offers services to repair electronic equipment the company reports total revenue of 100 million cogs of 15 million and cost of services sold of 7 million the company has direct labor costs of 5 million marketing expenses of 1 million and direct overhead costs of 3 million xyz also pays 10 million to its management and records rental costs of 8 million we can determine from this information that the company s cost of revenue is 31 million for the fiscal period the 10 million paid to its management and the rental costs of 8 million are indirect costs which are not included in the cost of revenue since the company had total revenue of 100 million xyz inc has a cost of revenue margin of 100 million 31 million 69 million moreover the company has a cost of revenue to total revenue percentage of 31 or 31 million divided by 100 million 