COGS (cost of goods sold)

Cost of goods sold (COGS) is what the products you sold cost you. It covers the purchase or manufacturing price and the direct costs of getting stock ready to sell, such as inbound freight, import duties and product packaging.

For a dropshipper, COGS is mostly what the supplier charges for each order. For a brand holding stock, it counts only the units actually sold in the period, not everything bought.

COGS is the first cost taken from revenue, so it sets your gross margin and the room you have for advertising. A product with a high COGS relative to its price leaves little for ads and needs a high break-even ROAS.

• Negotiate prices as volume grows, or compare several suppliers.
• Order larger batches when cash flow allows, to lower the unit cost.
• Cut packaging and inbound shipping weight.

Common mistakes: forgetting freight and duties, and confusing COGS with operating costs such as apps, tools and salaries. Decide whether shipping to the customer sits in COGS or in a separate fulfillment cost, then stick with that choice so your margins stay comparable.