COGS is a number most sellers ignore until it catches up with them. The truth is, it drives almost every decision you make. In ecommerce, even a tiny 1–2 percent shift in COGS can impact your profit more than a big jump in sales. Revenue shows motion, but COGS shows whether the business is really working.
When this number is dialed in, margins stop jumping around, pricing becomes intentional, and inventory planning stops feeling like guesswork. Whether you’re on Amazon, Shopify, or everywhere at once, tight COGS is one of the simplest ways to protect profit and scale without chaos.
Let’s break down how to get it right and keep it accurate as you grow.
COGS is the total cost of the products you actually sold. Think of it as the money you spend to get inventory ready for a customer. For eCommerce sellers, that usually includes what you paid your supplier, manufacturing costs, packaging, prep work, and any direct labor tied to creating that item.
It doesn’t include overhead like software subscriptions, ad spend, shipping to the customer, or team salaries. Those belong in operating expenses. COGS sits right under revenue on your income statement and plays a massive role in how much profit you actually keep.
If you don’t know your true COGS, you don’t actually know your profit. You might think a product is performing well because revenue looks strong, but once you factor in what it really costs to land, prepare, and sell that item, the story can change fast.
COGS quietly shapes almost every important financial metric, and here's why:
Your gross profit margin only makes sense when COGS is accurate. If the number is wrong, every margin you calculate, either by SKU, by marketplace, or by campaign, is off.
Sellers who keep COGS tight can spot weak products quickly and scale the winners with confidence.
Revenue is easy to celebrate. What matters is how much money you keep. Tracking COGS forces you to look at the real inputs behind each sale.
That clarity helps you manage supplier negotiations, adjust pricing, plan inventory, and decide where to reinvest.
Inventory turnover relies on COGS. If COGS is inflated or outdated, you’ll misread how fast your products move. That leads to two classic problems:
Both hurt your margins, and both usually come from the same root issue: unclear COGS.
Your P&L reports COGS as a business expense. If it’s not appropriately tracked, your taxable income can be incorrect. That opens the door to IRS issues you don’t want.
COGS only covers the costs directly tied to getting a product ready to sell. If the cost exists because you bought or produced the item, it usually belongs in COGS. If it’s something you’d pay for even without purchasing inventory, it’s an operating expense.
A quick test that helps every seller: Would this cost exist if I didn’t buy this product?
If the answer is no, it likely belongs in COGS.
These are the core direct costs most ecommerce brands include:
This gives you a clear landed cost per unit, which feeds directly into accurate margins.
A lot of sellers accidentally bury operating expenses inside COGS, which makes margins look worse than they really are. Keep these out:
These are overhead. They’re part of running the business, not part of producing a unit of inventory.
Calculating COGS isn’t complicated, but you need to stay consistent. The whole point is to understand what you spent to get products ready for sale during a specific period. Once you lock in that clarity, every profit metric becomes easier to read.
The basic formula looks like this:
COGS = Beginning Inventory + Purchases – Ending Inventory
Let’s break down what each part really means for an eCommerce business:
This includes the value of all sellable inventory you had at the start of the period. Think of it as your opening balance.
This includes everything you bought during the period to restock.
Supplier invoices, inbound freight, duties, packaging that’s part of the product, the direct stuff that gets your inventory ready to sell.
This is the value of what’s still sitting in your warehouse or prep center at the end of the period. You subtract this because those units haven’t been sold yet.
COGS only captures the cost of what you actually sold, not what’s still sitting in your warehouse. When the number is accurate, your gross profit and margins become much more trustworthy.
If you sell on Amazon, Shopify, or other marketplaces, syncing inventory is key; small discrepancies can throw off your COGS. Partners like EcomBalance simplify this by keeping your books aligned with your actual stock, so your COGS stays accurate.
Most COGS issues don’t come from bad math; they come from messy data. When you clean up the workflow behind the numbers, accuracy follows.
Here’s a simple process that works for Amazon, Shopify, and multi-channel sellers:
As we talked about what to include in COGS, you have to decide exactly what goes into yours, so you’re not reinventing the wheel every month. Once your rules are set, stick to them.
The landed cost is the real cost of getting a product into your warehouse. Spread shared costs (like container fees or customs charges on mixed shipments) across all SKUs fairly.
If you skip this step, your margin numbers will never match reality.
Suppliers adjust pricing, freight swings wildly, and duty rates change. If you don’t update these changes in your books, your COGS becomes fiction.
Make it a routine, either monthly or with every new shipment.
Your PO data should match what you actually paid and what actually arrived. This avoids under-recording or over-recording inventory.
If you don’t keep this tight, your COGS gets distorted during the month-end close.
Do a physical or 3PL count and match it to your system record. Shrinkage, damaged items, or mislabeled units all impact COGS.
Reconciliation keeps your numbers real instead of assumed.
Accrual accounting is your friend here. Sell a unit → remove it from inventory → record the exact cost of that unit in COGS.
This is the only way to get a clean gross margin that reflects what happened that month.
Look at margins by SKU, by channel, and by promo period. This helps you catch freight spikes, supplier changes, and packaging increases before they kill your profitability.
Invoices, freight statements, duty receipts, and packaging invoices; store them all.
Good documentation prevents errors, protects you during tax time, and makes audits painless.
If COGS tracking keeps falling through the cracks because you’re buried in Seller Central issues, we can lighten the load. Our team handles the case loops, listing fixes, reimbursements, and account health tasks that usually steal hours from your week.
When we take care of the operational chaos, you get the breathing room to stay on top of your numbers. Talk to our experts.
Once you know how to calculate COGS, the real challenge is keeping it accurate month after month.
Here’s how smart Amazon sellers and ecommerce brands stay on top of it:
Supplier prices shift, freight fluctuates, and duties don’t always stay the same. If you never refresh these numbers, your books will drift, and your margins will look healthier (or worse) than they really are.
Update your landed cost per SKU any time your sourcing or shipping changes.
Pick one inventory method and stick with it; FIFO is the most common for ecommerce because it mirrors how products actually move.
Mixing methods or switching mid-year almost guarantees reporting headaches later.
If you sell on Amazon, Shopify, Walmart, or wholesale, make sure the COGS data rolls up in one place. Fragmented systems create gaps, and gaps turn into bad decisions.
Don’t wait for year-end. Monthly reconciliation helps you spot shrinkage, miscounts, damaged stock, and shipment variances early.
Catching mistakes in real time keeps COGS aligned with what actually happened.
Shared containers, mixed pallets, or combined shipments can get messy fast. Build a simple rule for allocating costs by weight, volume, or units so every SKU gets the right share.
Once you have a method, use it every time.
When your business grows, and more people start touching your numbers, clarity matters. Document what goes into COGS, what stays out, and how you calculate landed costs.
A small amount of structure saves you from constant rework.
Spreadsheets break, but inventory tools and accounting platforms reduce human error, especially when you’re scaling your Amazon business.
If you’re spending more time fixing COGS than running your business, it’s time to outsource.
Accurate COGS sits at the core of profitability, so it’s often the first task sellers hand off to professionals.
Most sellers don’t mess up COGS because it’s complicated. They mess it up because it’s messy.
Here are the big mistakes to watch for:
You can only DIY your books for a certain time before the cracks start to show. COGS gets messy fast once you’re juggling multiple SKUs, suppliers, freight methods, and sales channels.
If any of the situations below sound familiar, it’s time to hand things over to someone who lives and breathes ecommerce accounting.
Bring in a professional when:
The right ecommerce bookkeeper gives you clarity you can actually use. EcomBalance’s bookkeeping service does this well. They get how Amazon, Shopify, and multichannel selling really work, and they organize your data so QuickBooks or Xero always stays clean. If COGS has turned into a guessing game, their monthly reporting and clean-up services can steady things quickly.
If you need deeper financial direction on top of bookkeeping, a fractional CFO can help you understand margins, plan inventory, and forecast cash with confidence. That’s where CFO Expertise fits naturally, especially if you’re scaling fast or preparing for an exit.
Before we wrap up, here are a few quick answers to the questions sellers bring up most often when they start tightening up their COGS tracking:
COGS is recorded as a debit. It increases your expenses and reduces your net income on the profit and loss statement.
Not quite. Cost of revenue can include extra expenses tied to delivering a product or service. COGS is strictly the direct cost of making or buying what you sell.
Yes. Fees, packaging, and fulfillment workflows often differ between Amazon, Shopify, wholesale, and other channels.
Those variations can change the landed cost per unit.
Most ecommerce brands update COGS monthly, so their margins stay accurate. If you move a lot of inventory or deal with constant price changes, updating more often might make sense.
Follow these bookkeeping tips if you're an Amazon FBA seller.
COGS tells you more about your business than almost any other number. When it’s accurate, you see your margins clearly, price with intent, and make inventory decisions that stay grounded in reality. The tools you use matter, but the real win comes from staying consistent and catching issues before they snowball.
If Amazon operations are eating your time or dragging you into busywork, Seller Candy can take that weight off your plate. Their team handles the Seller Central tasks that slow you down, giving you more room to focus on growth instead of firefighting.