COGS (Cost of Goods Sold)

What are COGS (Cost of Goods Sold)?

COGS, or Cost of Goods Sold, refers to the direct costs involved in producing or purchasing the products a business sells. It includes expenses like raw materials, labor, and manufacturing or wholesale costs, but excludes indirect costs like marketing, rent, or admin salaries.

This tells what it actually costs a business to deliver a product to the customer. Knowing this number helps you understand your true profit margins and price your products accordingly.

It’s a key component of your income statement and impacts your gross profit calculation.

Here’s how you can calculate COGS:

COGS Formula: COGS = Beginning Inventory + Purchases – Ending Inventory

For ecommerce businesses, this typically includes:

• Product costs from suppliers
• Shipping fees to receive the goods
• Packaging materials (if included with sale)

Why is COGS important for ecommerce and subscriptions?

Understanding the cost of goods sold is essential for maintaining healthy margins and scaling profitably. For subscription businesses, where pricing and recurring revenue models are often fixed, managing COGS helps ensure long-term sustainability.

Example of COGS

Let’s say you sell a skincare subscription box. Each box costs you $12 to produce, including products and packaging, and you sell it for $30. Your COGS per box is $12, and your gross profit per sale is $18.

Driftcharge Tip

Regularly review your COGS to find cost-saving opportunities and maintain healthy margins. Even small adjustments in packaging or sourcing can significantly improve profitability over time.

Ganesh Pawar

• 

Ganesh Pawar is the founder of Driftcharge, a subscription management app designed to help Shopify merchants streamline and scale their subscription businesses. With a deep focus on solving real-world pain points—like legacy account page support, flexible subscription options, and advanced analytics—Ganesh is passionate about building tools that drive growth and retention.