With selling goods, your “cost of sales” is the expense you made to initially buy the goods. First off they’re in inventory on the balance sheet and as you sell them, they’re taken off from the inventory and shown on the income statement as an expense made to make a sale. Now with services, there are usually no goods. 

Providing services you have people, right? Those people generate expenses – payroll as the biggest, office utilities they use, services they themselves use in their work and so on.

Now think about “cost of sales”. Those are the expenses that can directly be attributed to the sale and not supporting the sale or business. Supporting the sale is usually promotional expenses and business supportive expenses are generally categorized under “operating expenses” or something similar.

As such, when we talk about providing services and their “cost of sales”, it’s those that are done to actually make the sale – i.e. the hairdresser’s payroll since he or she is the one actually providing the service. Or products bought to be used on the costumers. Again, needed to make the sale. Or the water, electricity and so on – if it’s needed to make the sale, it’s directly attributable to the sale.