Why COGS should be
your Financial North Star
Many online sellers obsess over pushing revenue higher, believing that more sales automatically equal success. In reality, top‑line growth can mask shrinking margins and creeping cash‑flow issues if you don’t keep one crucial metric in focus.
Cost of Goods Sold (COGS) sits at the heart of your financial engine, translating every supplier invoice, freight bill, and marketplace fee into a number you can actually manage. In fact it is so powerful that it:
- Controls Gross Profit:
Revenue is vanity; gross profit is sanity. A 5‑point COGS error on a $1 M store can swing gross profit by $50 - Drives Pricing & ROAS:
You can’t set profitable ad budgets or discounts until you know true unit cost. - Signals Cash‑Flow Trouble Early:
Inventory, freight spikes, and returns first hit COGS—spot leaks here before they snowball. - Unlocks Operating Leverage:
Any savings on COGS has a multiplier effect on your Net Profit because most overhead costs stay fixed, letting each saved dollar drop straight to the bottom line.
The Master COGS
Checklist for eCommerce
Even after sellers accept that COGS matters, most spreadsheets still leave money on the table because a surprising number of direct costs never hit the books. The checklist below distils a decade of eCommerce accounting clean‑ups where we traced every penny from factory to customer’s porch. Treat it as a baseline: if an expense happens before the customer clicks “Confirm Order,” chances are it belongs in COGS.
1. Product & Manufacturing
- Supplier invoice price (finished goods or raw materials)
- Quality‑control and factory testing fees
2. Freight & Logistics
- Freight from supplier to port/warehouse (sea, air, rail, truck)
- Freight insurance & customs brokerage fees
- Import duties & tariffs
3. Warehousing & Fulfillment
- Inbound receiving fees (3PL check‑in)
- Storage fees directly tied to the SKU
- Pick & pack per order (FBA or 3PL)
4. Packaging & Labels
- Branded boxes, mailers, inserts
- Compliance labels, barcodes, poly‑bags
5. Marketplace & Payment Fees
- Amazon referral + FBA fees
- Shopify Payments or PayPal transaction fees tied to that SKU
COGS vs. Landed Cost:
Same Family, Different Jobs
When accountants toss around terms like COGS and landed cost, it’s easy to think they’re interchangeable, but they serve distinct purposes. Understanding the gap between them prevents double‑counting expenses and ensures you set prices that protect profit on every single sale.
Put simply, landed cost answers “How much did this shipment cost to get in the door?” while COGS answers “How much did it cost me to deliver products I actually sold this month?”
| Term | What It Answers | Timeframe |
| Landed Cost | “How much did this specific shipment really cost, door‑to‑door?” | Per shipment/SKU |
| COGS | “What were my direct costs of goods sold this period?” | Monthly / annually |
Landed cost feeds COGS. Think of it as the raw ingredients; COGS is the plated meal you serve to the accountant.
So what costs
are not part of COGS?
If it is not a cost you incurred to get it into your warehouse and ready for sale, it probably is not COGS. This includes things like your Facebook ad spend, founder salary, or your Shopify subscription fees etc/ Those live below the gross‑profit line.
The Five‑Step Calculation
(with a Hypothetical Example)
Numbers hit harder when they wear a name tag, so let’s walk through a real‑world scenario (with anonymised figures) to see how COGS shapes gross profit. By breaking the calculation into five repeatable steps you can slot in your own data and sanity‑check margins in minutes. Follow along with this example store that sell silicone baby spoons to see the process in action.
Example costs:
| Item | Amount |
| Units sold (May) | 8 000 |
| Sell price / unit | $12 |
| Supplier cost / unit | $2.40 |
| Freight (Supplier → Port) / unit | $0.40 |
| Cartage (Port → Warehouse) / unit | $0.15 |
| Import duty (5 %) | $0.12 |
| Packaging / unit | $0.20 |
| Custom marketing inserts / unit | $0.10 |
| Fulfilment fees (pick, pack & ship) / unit | $3.50 |
| Shopify payment fee (2.9 % + 30¢) / unit | $0.66 |
calculations
Aggregate Direct Costs
COGS/unit = 2.40 + 0.55 + 0.12 + 0.20 + 3.50 + 0.66 = $7.43
Multiply by Units Sold
Total COGS = 8 000 × $7.43 = $59 440
Calculate Net Revenue
Revenue = 8 000 × $12 = $96 000
(Assumes discounts/refunds already netted out)
Compute Gross Profit
Gross Profit = $96 000 – $59 440 = $36 560
Find Gross Profit Margin
GPM = $36 560 ÷ $96 000 = 38.1 %
At 38 % GPM, Maya doesn’t have room for aggressive ads or a bad return month. Raising price $1 or negotiating $0.40 off FBA fees would push her above the 50 % “safe zone” we recommend for most DTC brands.
Common COGS Pitfalls
(and Quick Fixes)
Even diligent founders fall into familiar traps that inflate COGS or scatter costs into the wrong accounts. These mistakes distort gross‑profit reports, making healthy channels look unprofitable—or vice versa. The grid below spotlights the four errors we correct most often and the fixes you can implement this quarter.
| Mistake | Symptom | Fix |
| Missing indirect freight | Margins evaporate when container costs spike | Track freight per SKU with landed‑cost software or detailed spreadsheets |
| Counting discounts as COGS | Artificially inflated unit cost | Keep discounts in Net Revenue, not COGS |
| Cash‑basis confusion | Good months look great, restock months look awful | Switch to accrual accounting so COGS matches the sales period |
| Marketplace fee blind spot | Amazon “profit” lower than Shopify but you can’t see why | Break out COGS by channel |
How to Tighten
COGS in 30 Days
Knowing your true cost is only half the battle—next you have to improve it. The good news is that meaningful wins rarely require a total supply‑chain overhaul; targeted tweaks to pricing, freight strategy, or 3PL agreements can unlock margin fast. Pick one of the five moves below each week and watch the compounding effect by month‑end.
- Audit Every SKU. Pull last quarter’s invoices and map each expense to a SKU or shipment.
- Negotiate Volume & Terms. Even a 3–5 % reduction in supplier cost can add six figures of profit at scale.
- Optimize Freight Mix. Shift from 30 % air / 70 % sea to 10 % / 90 % by forecasting demand earlier.
- Consolidate 3PL Billing. Ask for per‑unit pricing that bundles receiving + storage to eliminate “hidden” fees.
- Automate Fee Tracking. Use apps or custom reports to pull Amazon & payment‑gateway costs weekly.
The CronosNow Takeaway
At this point you’ve seen how granular cost tracking transforms affect decision‑making. Implementing the system, however can feel overwhelming alongside daily fulfilment fires. That’s where an eCommerce‑specialised accountant steps in, turning raw data into insights you can act on. Partnering with CronosNow means you’ll:
- See true landed cost per unit, per channel
- Spot margin leaks before they sink cash flow
- Use the data to fix any Gross Profit Margin issues you may have
Ready to know your real numbers—and grow on purpose?
Book a free COGS clarity call today.
CRONOSNOW | CPG & ECOMMERCE ACCOUNTANTS
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