Accurate COGS tracking is the foundation of profitability. Learn how to set it up properly for any business model.
You can't calculate profit if you don't know your costs. Cost of goods sold (COGS) includes everything you spend to source, produce, and deliver a product before it reaches the customer. Many Shopify merchants track revenue religiously but leave costs in a messy spreadsheet or, worse, guess at them. This guide shows you how to set up reliable COGS tracking regardless of your business model.
COGS includes the purchase price, inbound freight, customs duties, packaging materials, and any direct labour involved in production. It does not include marketing, software subscriptions, or rent. Be consistent with what you include.
If you print shipping labels in-house, the label cost is COGS. Your printer lease is an operating expense.
Shopify has a built-in 'Cost per item' field on every variant. Fill this in for all products. For dropshipping, use your supplier's price plus estimated shipping per unit. For wholesale, use your landed cost per unit.
Some costs fluctuate: supplier prices change, shipping rates vary by destination, and currency exchange rates shift. Update your cost prices monthly or whenever you receive a new invoice. Use weighted averages if costs change mid-inventory.
Set a calendar reminder to review supplier invoices against your recorded costs on the 1st of each month.
If you sell bundles, kits, or products with multiple components, sum the cost of each component. Include the packaging specific to that bundle. Store the total as the variant's cost price in Shopify.
Compare your recorded COGS against actual supplier invoices and bank statements each month. Look for discrepancies caused by price changes, returns, or missed updates. Adjust your product costs and re-calculate margins when you find errors.
StoreLyst syncs your COGS data from Shopify and lets you bulk-update costs across products. It automatically calculates per-order and per-product margins using your recorded costs, flagging any products missing cost data.
Shopify provides a 'Cost per item' field but doesn't generate COGS reports natively. You need to fill in costs manually per variant. Third-party apps or tools like StoreLyst can then use this data to calculate margins and generate P&L reports.
COGS are costs directly tied to producing or sourcing a product (materials, supplier cost, inbound shipping). Expenses are indirect costs of running the business (rent, marketing, software). COGS is subtracted from revenue to get gross profit; expenses come out after.
Use the supplier's product price plus their shipping fee per item as your cost. If the supplier charges a flat rate for multiple items, divide by average items per order. Update costs whenever the supplier changes pricing.
Include inbound shipping (cost to get products to you or your fulfilment centre) in COGS. Outbound shipping to customers can be treated as either COGS or an operating expense, but be consistent. Most accountants prefer it in COGS.
StoreLyst gives you the tools to implement everything you just learned — automatically.