COGS

Cost of Goods Sold

The direct costs associated with producing the goods a company sells during a specific period. This includes the cost of materials, labor directly tied to production, and other manufacturing expenses. For ecommerce businesses, COGS typically includes the wholesale cost of products, packaging, shipping fees (if absorbed by the seller), and any transaction costs that scale with sales volume.

COGS is a key metric (KPI) for understanding gross profitability. By subtracting COGS from total revenue, businesses calculate gross profit, which reflects the efficiency of their production and sourcing operations. Lowering COGS while maintaining or growing revenue can significantly improve margins.

COGS Formula

[latext size=”1.2″]COGS=Beginning Inventory+Purchases During the Period−Ending Inventory\text{COGS} = \text{Beginning Inventory} + \text{Purchases During the Period} – \text{Ending Inventory}[/latex]

This equation ensures that only the cost of the inventory actually sold during the period is counted, not unsold goods remaining in stock. Accurate COGS reporting is essential for tax calculations, pricing strategy, and financial forecasting.

COGS appears on a company’s income statement and directly impacts the bottom line. Inaccurate or inconsistent tracking of COGS can distort financial insights, overstate profits, and complicate inventory planning. That’s why many ecommerce platforms rely on integrated software tools like Synder to automate COGS reporting across multiple sales channels.