What cost of goods sold means
Cost of goods sold (COGS) is what the products you sold cost you. It covers the stock itself and the costs of getting it ready to sell, such as inbound shipping, duties and packaging. It does not include running costs like rent, software, marketing or outbound shipping to customers.
COGS matters because it sets your gross profit. Revenue minus COGS is the money left to pay for everything else in the business. If you don't know it, you can't tell whether your prices work.
How the calculator works
COGS for a period uses your stock counts. Enter the value of your inventory at the start of the period, everything you bought during it, and the value left at the end. Stock that is no longer on the shelf was either sold or lost, so it counts as cost of goods sold. Add revenue for the same period to see gross profit and margin.
COGS per unit is for one order or production batch. Enter what you paid for the products, plus inbound shipping, duties and packaging for that batch, and the number of sellable units. Add a selling price to see profit and margin per unit.
Switch between the two modes at the top. Every figure updates as you type.
The COGS formula
| Figure | Formula |
|---|---|
| Goods available for sale | Opening inventory + purchases |
| COGS for a period | Opening inventory + purchases − closing inventory |
| Gross profit | Revenue − COGS |
| Gross margin | Gross profit ÷ revenue |
| COGS per unit | (Product cost + inbound shipping + duties + packaging) ÷ units |
Value inventory at what it cost you, not at your selling price.
Worked examples
For a period: a home goods brand starts the quarter with $12,000 of stock at cost. It buys $30,000 more, including freight, and counts $14,500 left at the end.
- Goods available for sale: $12,000 + $30,000 = $42,000
- COGS: $42,000 − $14,500 = $27,500
- With $50,000 of revenue, gross profit is $22,500, a 45% gross margin. COGS is 55% of revenue.
Per unit: you order 500 mugs. The products cost $2,000, inbound shipping is $350, duties and fees are $150 and packaging is $250.
- Batch cost: $2,000 + $350 + $150 + $250 = $2,750
- COGS per unit: $2,750 ÷ 500 = $5.50
- At a $14.00 selling price, you make $8.50 per mug, a 60.7% gross margin.
Using only the supplier price, each mug would look like it cost $4.00. That $1.50 gap per unit is the most common reason a product earns less than expected.
Common mistakes
- Leaving out landed costs. Freight, duties and customs fees are part of what a product costs you. The landed cost calculator works them out per unit for imports.
- Counting stock at retail value. Closing inventory at selling price makes COGS look too small and profit too big.
- Guessing closing stock. A rough count moves COGS by the full error. Count, or use your inventory records.
- Mixing periods. Revenue, purchases and stock counts must cover the same dates.
- Adding overheads. Rent, ads and staff who don't make the product are operating expenses, not COGS.
How you value inventory, and what you include in COGS, can also matter for your accounts and taxes. Check with your accountant for anything you file.
Next steps
Once you know your true unit cost, use the wholesale price calculator or the margin calculator to set prices that hold your margin. If you make products yourself, the handmade pricing calculator adds your time and overhead. When your prices are set, put them in a price list you can send to buyers.