Cost of Goods Sold (COGS) is the total direct cost of producing or purchasing the products you sell during a specific period. It includes raw materials, manufacturing costs, and any direct labour tied to production.
Cost of Goods Sold (COGS) is the total direct cost of producing or purchasing the products you sell during a specific period. It includes raw materials, manufacturing costs, and any direct labour tied to production.
COGS = Beginning Inventory + Purchases − Ending Inventory COGS captures every expense directly tied to getting a product ready for sale. For ecommerce sellers sourcing from suppliers, this typically means the wholesale purchase price plus inbound shipping and duties. Dropshippers calculate COGS as the supplier charge per unit. Understanding your COGS is the starting point for every other profitability metric because it tells you what each sale actually costs you before overheads.
COGS = Beginning Inventory + Purchases − Ending Inventory You start the month with £2,000 of inventory, purchase £5,000 more stock, and end the month with £1,500 remaining. Your COGS for that month is £2,000 + £5,000 − £1,500 = £5,500. This means you spent £5,500 on the goods you actually sold.
Without accurate COGS tracking, you cannot know whether individual products or your store overall is profitable. Many ecommerce sellers set prices based on gut feeling rather than data, leading to products that generate revenue but lose money after costs.
Forgetting to include inbound shipping and duties in per-unit cost
Using the purchase price from months ago instead of the current supplier cost
Mixing up COGS with total expenses, which also includes marketing and overheads
StoreLyst lets you set COGS per product and per variant, so your profit calculations are always accurate. It automatically factors COGS into your P&L reports and per-order profit breakdowns.
Learn more about COGS Management →For most Shopify stores, COGS includes the wholesale price paid to your supplier, inbound freight or shipping to your warehouse, customs duties, and any packaging materials. It does not include marketing spend, Shopify subscription fees, or staff salaries.
Update COGS whenever your supplier changes prices, when currency exchange rates shift significantly, or when shipping costs change. Reviewing monthly is a good baseline, but stores with volatile supply chains should check more frequently.
Cost price usually refers to the per-unit purchase price from your supplier. COGS is broader and includes all direct costs to get that product sold, such as shipping to your warehouse and import duties. COGS gives a more accurate picture of true product cost.
COGS is deducted from revenue to determine gross profit, which reduces your taxable income. Accurate COGS tracking ensures you are not overpaying tax by understating your costs. Consult an accountant for your specific tax obligations.
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