E-commerce Glossary
What is COGS in E-commerce?
Cost of Goods Sold (COGS) is the direct cost of producing the goods sold by a company. Learn the COGS formula for online business and what is included.
Definition
Cost of Goods Sold (COGS) represents the direct costs attributable to the production of the goods sold in a company. For an e-commerce seller, this typically includes the wholesale price of the product, the cost of raw materials, manufacturing costs, and any direct labor involved in creating the product.
People Also Ask: How do you calculate COGS for Shopify?
Calculating COGS for your Shopify store involves a simple formula: Beginning Inventory + Purchases During the Period - Ending Inventory = COGS You only count the cost of the inventory that actually sold, not the inventory sitting in your warehouse.
People Also Ask: Is shipping included in COGS?
No, outbound shipping to the customer is generally not included in COGS. COGS only includes the “landed cost” to get the item into your warehouse (like inbound freight). Shipping to the final customer is considered an operating expense or fulfillment cost.
What is the difference between COGS and operating expenses?
COGS scales directly with every single unit you sell (e.g., the cost of the plastic widget). Operating expenses are fixed or variable overhead costs that you pay regardless of how many units you sell (e.g., your Shopify subscription, warehouse rent, and advertising spend).
Why COGS Matters
Understanding your true COGS is the first step in calculating your Gross Profit Margin. If you underestimate your COGS, you might price your products too low and lose money on every sale.
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