What is COGS?
Cost of Goods Sold (COGS) is the total cost of inventory or products that you sold during a specific period. It includes the direct costs of producing or acquiring goods, but excludes indirect expenses like marketing, distribution, and sales commissions.
COGS Formula: Beginning Inventory + Purchases - Ending Inventory = COGS
For e-commerce sellers, COGS should also include hidden costs like shipping to fulfillment center, packaging, labeling, QC inspections, customs duties, and defect allowance—not just the wholesale product cost.
Basic COGS Calculator
Standard inventory method (Beginning + Purchases - Ending)
Starting inventory balance at beginning of period
Total cost of inventory purchased this period
Inventory remaining at end of period
Beginning Inventory:
$0.00
+ Purchases:
$0.00
- Ending Inventory:
$0.00
Total COGS:
$0.00
Examples
Example 1: Retail Store (Basic COGS)
- Beginning Inventory: $20,000
- Purchases: $15,000
- Ending Inventory: $8,000
COGS = $20,000 + $15,000 - $8,000 = $27,000
Example 2: Amazon FBA Seller (With Hidden Costs)
- Wholesale Price: $10/unit
- Shipping to FC: $2.50/unit
- Packaging: $1.00/unit
- Labeling + QC: $1.00/unit
- Duties: $0.60/unit
- Defect Rate: 3%
True COGS = $15.86/unit (57% higher than wholesale price!)
Example 3: Profitability Impact
- Sale Price: $25/unit
- Assumed COGS (wholesale only): $10/unit
- Apparent Profit: $15/unit
BUT True COGS = $15.86/unit
Actual Profit = $9.14/unit (39% lower!)
Actual Profit = $9.14/unit (39% lower!)
Important Reminders
- Don't confuse COGS with expenses: Amazon fees, marketing, and rent are NOT COGS. They reduce profit separately.
- Use accrual accounting: Record COGS when the sale is made, not when money is paid.
- Track per-SKU: Different products have different COGS. Calculate separately for accurate profitability.
- Include ALL costs: Missing even $2-3 per unit destroys profit margins on high-volume products.