COGS is the direct cost of the products you actually sold. Get it right and your gross profit and margin fall out correctly — get it wrong and every downstream number is off.
For a business that carries inventory, cost of goods sold over a period is:
COGS = Beginning inventory + Purchases − Ending inventory
The logic: take everything you started with, add what you bought, then subtract what’s still on the shelf. What’s left is the cost of what actually left the door. If you don’t track inventory — many makers and service sellers don’t — your COGS is simply the direct cost of the units sold: materials plus the direct labour to produce them.
Included in COGS
Not in COGS
The line between COGS and operating expenses is exactly what separates gross profit from net profit.
COGS is the number you build your price on top of. Once you know the true direct cost of a unit, use the profit margin calculator to set a price that hits your target margin, and see how to calculate profit margin for the full picture.
How to Calculate Profit Margin
The profit margin formula explained with step-by-step worked examples.
Margin vs Markup
Why they're not the same, the formulas for each, and a conversion table.
How to Price a Product
A step-by-step pricing method that protects your margin from day one.
What Is a Good Profit Margin?
Healthy margin benchmarks by industry and how to know where you stand.
How to Calculate Break-Even Point
The break-even formula, contribution margin, and how many units you must sell.
Gross Profit vs Net Profit
The difference between the two, with a worked income-statement example.
Average Order Value (AOV)
The AOV formula, why it matters, and proven ways to increase it.
How Discounts Affect Profit Margin
Why a small discount cuts profit hard, and the extra volume needed to break even.
Contribution Margin
What contribution margin is, the formula, and how it drives break-even.
Fixed vs Variable Costs
The difference, why it matters for pricing, and how to classify your costs.
Keystone Pricing
The classic 2x markup rule — what it is, the margin it gives, and when to use it.
Retail vs Wholesale Pricing
How to price for both channels without eroding your retail margin.
How to Calculate ROI
The return on investment formula with worked examples for stock and ads.
How to Increase Profit Margin
Ten practical, tested ways to widen your margin without losing sales.
Profit Margin Calculator
Sale price, margin, markup, or cost — four modes for any scenario.
Etsy Profit Calculator
Net profit after Etsy listing, transaction, payment, and Offsite Ads fees.
Amazon FBA Profit Calculator
Net profit, margin and ROI after Amazon referral, fulfillment and storage fees.
eBay Profit Calculator
Net payout after eBay's final value fee, per-order charge and international fees.
Shopify Profit Calculator
Real profit per sale after Shopify payment processing, surcharges and plan share.
COGS = beginning inventory + purchases during the period − ending inventory. This captures the cost of only the goods you actually sold, not everything you bought or made. For a maker without inventory tracking, COGS is simply the direct cost of the units sold (materials + direct labour).
COGS includes the direct costs of producing or buying the goods you sold: raw materials, the wholesale cost of stock, direct labour to make the product, and inbound freight. It excludes indirect costs like marketing, office rent, admin salaries and distribution.
Operating expenses are not part of COGS: advertising, sales commissions, office rent, general salaries, software, and shipping to the customer (that's usually a selling expense). These sit below gross profit on the income statement and reduce net profit instead.
COGS is the cost subtracted to get gross profit, so it directly sets your gross margin: gross margin = (revenue − COGS) ÷ revenue. Lower COGS means higher gross margin. It's the single biggest lever on product profitability for most sellers.
For a single unit, COGS is essentially the direct cost price of that unit. As a total for a period, COGS is the combined direct cost of all units sold in that period. The idea is the same — the direct cost of the goods — just at different scales.