{"id":4487,"date":"2022-12-12T09:00:00","date_gmt":"2022-12-12T09:00:00","guid":{"rendered":"https:\/\/www.shipbob.com\/au\/blog\/cost-of-goods-sold\/"},"modified":"2026-01-26T19:21:27","modified_gmt":"2026-01-26T19:21:27","slug":"cost-of-goods-sold","status":"publish","type":"blog","link":"https:\/\/www.shipbob.com\/au\/blog\/cost-of-goods-sold\/","title":{"rendered":"Cost of Goods Sold: What Is COGS and What\u2019s Included?"},"content":{"rendered":"\n<div class=\"wp-block-shipbob-blocks-single-toc single-toc\" data-controller=\"blog-toc-controller\" data-action=\"scroll@window-&gt;blog-toc-controller#scrollChanged:passive\" id=\"toc-component\"><div class=\"single-toc-overview\"><p>Table of Contents<\/p><div class=\"single-toc-read-time\"><p>** Minutes<\/p><\/div><\/div>\n<p><a href=\"#h-what-is-cost-of-goods-sold\">What is cost of goods sold?<\/a><\/p>\n\n\n\n<p><a href=\"#h-why-knowing-cogs-is-important-for-businesses\">Why knowing COGS is important for businesses<\/a><\/p>\n\n\n\n<p><a href=\"#h-cost-of-goods-sold-formula\">Cost of goods sold formula<\/a><\/p>\n\n\n\n<p><a href=\"#h-what-is-included-in-cost-of-goods-sold\">What is included in cost of goods sold?<\/a><\/p>\n\n\n\n<p><a href=\"#h-what-is-not-included-in-cogs\">What is NOT included in COGS?<\/a><\/p>\n\n\n\n<p><a href=\"#h-where-cogs-falls-short\">Where COGS falls short<\/a><\/p>\n\n\n\n<p><a href=\"#h-cost-of-goods-sold-on-your-income-statement\">Cost of goods sold on your income statement<\/a><\/p>\n\n\n\n<p><a href=\"#h-what-other-formulas-businesses-need-to-know\">What other formulas businesses need to know<\/a><\/p>\n\n\n\n<p><a href=\"#h-how-shipbob-can-help-with-cogs-and-other-calculations\">How ShipBob can help with COGS and other calculations<\/a><\/p>\n\n\n\n<p><a href=\"#h-cost-of-goods-sold-faqs\">Cost of goods sold FAQs<\/a><\/p>\n<\/div>\n\n\n\n<p>To most people, cogs are little gears in machinery. But when it comes to a business\u2019s finances, COGS is something else altogether \u2014 something neither little nor insignificant.&nbsp;<\/p>\n\n\n\n<p>COGS (an acronym for the term \u201cCost of Goods Sold\u201d) is key to assessing your business&#8217;s profitability. Without it, you will not have an accurate sense of your expenses, revenue, and ultimately bottom line, so it is crucial that retailers both understand COGS and know how to use it in their own calculations.&nbsp;<\/p>\n\n\n\n<p>In this article, we&#8217;ll break down what COGS is, why it\u2019s important for your business, and how to calculate it, and how to use it in relation to other important metrics.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-is-cost-of-goods-sold\">What is cost of goods sold?<\/h2>\n\n\n\n<p>Cost of goods sold, or \u201cCOGS\u201d for short, refers to the amount of money your business spent to produce or procure the products that you sold.&nbsp;<\/p>\n\n\n\n<p>Most commonly, this includes the cost of <a href=\"https:\/\/www.shipbob.com\/blog\/raw-materials-inventory\/\">raw materials<\/a>, factory overheads, <a href=\"https:\/\/www.shipbob.com\/blog\/custom-packaging\/\">packaging<\/a>, and direct labour. For a business that makes its own products, it helps to determine how much is spent to develop your <a href=\"https:\/\/www.shipbob.com\/blog\/finished-goods-inventory\/\">finished goods inventory<\/a>. If you\u2019re not making your own products, it would include the cost of buying products intended for resale.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-why-knowing-cogs-is-important-for-businesses\">Why knowing COGS is important for businesses<\/h2>\n\n\n\n<p>COGS is one of the most versatile and informative metrics that your business can track. Here are just a few of the roles COGS plays in ecommerce businesses, and a few reasons why it\u2019s important to understand it.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-understanding-your-business-s-financial-health\">Understanding your business\u2019s financial health<\/h3>\n\n\n\n<p>If you don\u2019t know how much money you are spending to create or acquire products, it will be difficult (if not impossible) to correctly determine if you are turning a profit. Tracking and calculating COGS meticulously enables you to get a more accurate sense of your business\u2019s profitability, which is a key factor in overall financial health and better <a href=\"https:\/\/www.brex.com\/spend-trends\/expense-management\/expense-management-guide\" target=\"_blank\" rel=\"noreferrer noopener\">expense management<\/a>.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-making-more-strategic-decisions-nbsp\">Making more strategic decisions&nbsp;<\/h3>\n\n\n\n<p>By correctly determining how much money you spend acquiring or making goods, you empower your business to make better decisions based on that information.&nbsp;<\/p>\n\n\n\n<p>For example, if you calculate last quarter\u2019s COGS and see that it is higher than your profits, that insight can inform what you do in the next quarter, and help you find ways to solve the problem (by lowering COGS, increasing profits, or finding funds elsewhere).<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-pricing-your-products-strategically\">Pricing your products strategically<\/h3>\n\n\n\n<p>Another key benefit of calculating your cost of goods sold is that it gives you insight into how much you\u2019re spending on your inventory, which in turn will affect how you price for your products. When you price your products right, you\u2019re able to effectively cover your costs and also maintain a healthy profit margin while remaining competitive.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-effectively-managing-your-books\">Effectively managing your books<\/h3>\n\n\n\n<p>Because COGS is instrumental to calculating your net income, COGS is always included as a line item on financial statements. This means that tracking and recording COGS is essential for maintaining an accurate financial record in your books.&nbsp;<\/p>\n\n\n\n<p>For tax purposes, businesses must use COGS to calculate what it owes. The expenses included in your COGS are usually tax-deductible, so the more accurate your records are, the better you can manage your taxes.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-cost-of-goods-sold-formula\">Cost of goods sold formula<\/h2>\n\n\n\n<p>To calculate your cost of goods sold, you need to add together your starting inventory and your inventory purchases, and deduct your ending inventory from that total. The formula looks like this:<\/p>\n\n\n\n<p class=\"is-style-indent\"><strong>COGS = Starting Inventory + Purchases \u2013 Ending Inventory<\/strong><\/p>\n\n\n\n<p>For example, let\u2019s say a bag <a href=\"https:\/\/www.shipbob.com\/blog\/supplier-manufacturer\/\">manufacturer<\/a> starts the year with $10,000 worth of inventory. During that year, they spend an additional $25,000 on raw materials and production costs to create more inventory. At the end of the year, they close with $5,000 worth of inventory. In this case, their cost of goods sold for the year would be as follows:<\/p>\n\n\n\n<p class=\"is-style-indent\">COGS = Starting Inventory + Purchases \u2013 Ending Inventory<\/p>\n\n\n\n<p class=\"is-style-indent\">COGS = $10,000 + $25,000 &#8211; $5,000<\/p>\n\n\n\n<p class=\"is-style-indent\"><strong>COGS = $30,000<\/strong><\/p>\n\n\n\n<p>Below is a calculator to help you complete your own COGS calculation. <\/p>\n\n\n\n<div class=\"wp-block-shipbob-blocks-single-calculator single-calculator theme-cloud  undefined\" data-controller=\"calculator-controller\" data-calculator-controller-form-name-value=\"cogs\" data-calculator-controller-calculation-value=\"this.starting_inventory + this.purchases - this.ending_inventory\" data-calculator-controller-feedback-value=\"Your COGS is ${ result.toFixed(0) }\" data-action=\"register-variable-cogs@window-&gt;calculator-controller#registerVariable update-variable-cogs@window-&gt;calculator-controller#updateVariable\"><h3 class=\"single-calculator-title\"><strong>Calculator: COGS<\/strong> (cost of goods sold)<\/h3><h3 class=\"h4 single-calculator-subtitle\"><\/h3><p class=\"single-calculator-copy\">Enter the values below, and hit \u201cCalculate\u201d to find your cost of goods sold.<br>Note: This calculator is currency-agnostic.<br><\/p><div data-calculator-controller-target=\"response\"><\/div><div class=\"wp-block-shipbob-blocks-single-calculator flex-container direction-row justify-none align-none\">\n\n<div class=\"wp-block-shipbob-blocks-single-calculator-input single-calculator-input  col-4\"><label class=\"single-calculator-input-title\">Your starting inventory value (beginning of year)<\/label><\/div>\n\n\n<div class=\"wp-block-shipbob-blocks-single-calculator-input single-calculator-input  col-4\"><label class=\"single-calculator-input-title\">Your total inventory purchases (during the year)<\/label><\/div>\n\n\n<div class=\"wp-block-shipbob-blocks-single-calculator-input single-calculator-input  col-4\"><label class=\"single-calculator-input-title\">Your ending inventory value (end of year) <\/label><\/div>\n\n<\/div><div class=\"single-calculator-actions flex direction-row justify-right\"><button class=\"btn btn-secondary\" data-action=\"click-&gt;calculator-controller#calculate\">Calculate<\/button><\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-is-included-in-cost-of-goods-sold\">What is included in cost of goods sold?<\/h2>\n\n\n\n<p>Typically, all of the direct costs associated with producing new products or acquiring inventory are included in a business\u2019s calculation of COGS. If you\u2019re unsure of whether or not a cost should be included in your COGS, ask yourself whether the cost would exist if you didn\u2019t produce or <a href=\"https:\/\/www.shipbob.com\/blog\/procurement-and-logistics\/\">procure the goods<\/a>. If it wouldn\u2019t exist, then you should probably include it in COGS.<\/p>\n\n\n\n<p>Some of the most common examples of costs that fit under COGS are:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Raw materials<\/li>\n\n\n\n<li>Goods purchased for resale<\/li>\n\n\n\n<li>Factory labour costs<\/li>\n\n\n\n<li>Factory overhead costs<\/li>\n\n\n\n<li><a href=\"https:\/\/www.shipbob.com\/warehouse-operations\/inventory-storage\/\">Storage costs<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/www.shipbob.com\/blog\/introduction-freight-shipping\/\">Freight-in<\/a> costs<\/li>\n\n\n\n<li>Parts used in production<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-is-not-included-in-cogs\">What is NOT included in COGS?<\/h2>\n\n\n\n<p>Not all business expenses can qualify as a cost of goods sold. Costs that keep a business running but that are not directly related to making or obtaining inventory \u2014 such as administrative and selling expenses \u2014 are not included in COGS. These may include office rent, accounting and legal fees, advertising expenses, management salaries, and <a href=\"https:\/\/www.shipbob.com\/blog\/distribution-metrics\/\">distribution<\/a> costs.&nbsp;<\/p>\n\n\n\n<p>All non-operating expenses are also excluded from COGS, including interest and capital expenditures.<\/p>\n\n\n\n<p>Keep in mind that the costs accrued in producing products that remain unsold at the end of a given accounting period are also excluded from COGS. Instead, they\u2019re counted as <a href=\"https:\/\/www.shipbob.com\/blog\/beginning-inventory\/\">beginning inventory<\/a> for the next calculation period.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-cogs-vs-operating-expenses\">COGS vs. operating expenses<\/h3>\n\n\n\n<p>It\u2019s easy to confuse <a href=\"https:\/\/www.thepaystubs.com\/blog\/finance\/the-difference-between-cost-of-goods-sold-and-operating-expenses\" target=\"_blank\" rel=\"noreferrer noopener\">COGS with operating expenses<\/a>, as both of them refer to the expenses incurred in running a business. However, they are not the same thing.&nbsp;<\/p>\n\n\n\n<p>The key difference between them is that, while COGS expenses are strictly related to producing or acquiring products, operating expenses are not. Operating expenses is a broader category than COGS, and any expense related to conducting <a href=\"https:\/\/www.shipbob.com\/blog\/ecommerce-operations\/\">operations<\/a> can qualify as an operating expense.&nbsp;<\/p>\n\n\n\n<p>Common operating costs (which would not fall under COGS) include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Rent<\/li>\n\n\n\n<li>Office supplies<\/li>\n\n\n\n<li>Utilities<\/li>\n\n\n\n<li>Payroll<\/li>\n\n\n\n<li>Sales and marketing<\/li>\n\n\n\n<li>Legal services<\/li>\n\n\n\n<li>Insurance<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-cogs-vs-cost-of-sales\">COGS vs. cost of sales<\/h3>\n\n\n\n<p>While \u201ccost of goods sold\u201d and \u201ccost of sales\u201d sound similar, they are different things.&nbsp;<\/p>\n\n\n\n<p>Cost of sales is a slightly broader category than COGS, but not as broad as operating costs. Essentially, it refers to all direct and indirect costs associated with producing goods and services for sale.&nbsp;<\/p>\n\n\n\n<p>In addition, cost of sales is not tax-deductible, unlike cost of goods sold.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-cogs-vs-revenue\">COGS vs. revenue<\/h3>\n\n\n\n<p>COGS and revenue are different entities: COGS is related to expenses, whereas revenue is related to income.<\/p>\n\n\n\n<p>COGS is also distinct from \u201ccost of revenue\u201d. Cost of revenue refers to costs paid for contract services, such as labour services or sales commissions. In order for these costs of revenue to count as COGS, the IRS dictates that services rendered must produce a physical product that is sold.&nbsp;<\/p>\n\n\n\n<p>For example, a toy painter\u2019s labour hours count as a COGS expense, as the toys they paint are ultimately sold. However, a consulting lawyer\u2019s labour hours would not be permitted as a COGS expense, because the lawyer\u2019s work does not produce a <a href=\"https:\/\/www.shipbob.com\/blog\/physical-inventory\/\">physical<\/a>, sellable product.&nbsp;&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-where-cogs-falls-short\">Where COGS falls short<\/h2>\n\n\n\n<p>While COGS is a very useful metric to look at, it can\u2019t do everything. For instance, COGS cannot effectively track <a href=\"https:\/\/www.shipbob.com\/inventory-kpis\/inventory-turnover-ratio\/\">changes in inventory<\/a>, especially changes related to loss, theft, damages, or donations \u2014 changes that, unless properly accounted for, can skew your financial reports and result in inaccuracies.<\/p>\n\n\n\n<p>Additionally, COGS can\u2019t be helpful if it\u2019s calculated using inaccurate data. If you\u2019re simply trusting the inventory numbers in your records, those numbers could be off, which would make any COGS value calculated using those numbers off as well.&nbsp;<\/p>\n\n\n\n<p>Therefore, it\u2019s important to do physical inventory counts to verify whether your records are accurate. This will then allow you to accurately calculate your COGS, and minimise the impact of human error.<\/p>\n\n\n\n<p>Another limitation of COGS is that it\u2019s relatively easy for unscrupulous accountants and managers to manipulate. They may try to allocate higher manufacturing costs, or overstate discounts and returns made to suppliers. They might even try to overvalue inventory on hand, alter your ending inventory, or fail to write off <a href=\"https:\/\/www.shipbob.com\/blog\/obsolete-inventory\/\">obsolete inventory<\/a>.&nbsp;<\/p>\n\n\n\n<p>In all these scenarios, your financials will not accurately reflect your financial reality, and may result in under-reporting of your COGS. This means that your <a href=\"https:\/\/www.shipbob.com\/blog\/gmroi\/\">gross profit margin<\/a> recorded will be higher than your actual profit, inflating your net income.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-cost-of-goods-sold-on-your-income-statement\">Cost of goods sold on your income statement<\/h2>\n\n\n\n<p>Your <a href=\"https:\/\/www.shipbob.com\/blog\/inventory-records\/\">inventory recording<\/a> method will determine the value of your COGS. Here\u2019s a breakdown of the three main approaches that you can use to record the level of inventory sold during your reporting period.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-fifo\">FIFO<\/h3>\n\n\n\n<p><a href=\"https:\/\/www.shipbob.com\/blog\/fifo\/\">FIFO<\/a>, or the \u201cfirst-in-first-out\u201d method, assumes that the <em>first<\/em> goods that are purchased or produced are the first to be sold. In other words, the oldest inventory is the first to leave the warehouse and get shipped to the customer.&nbsp;<\/p>\n\n\n\n<p>This means that the COGS of the oldest inventory is used for calculating the value of the ending inventory, even if there have been recent changes in the cost of inventory.&nbsp;<\/p>\n\n\n\n<p>For example, say your small business makes and sells tapestries. Within your first quarter, your business buys the materials to make 10 tapestries. At the beginning of the quarter, it cost $50 to make each tapestry, and you made 7 tapestries. But over time, the price of the raw materials goes up, and the last 3 tapestries you make in the quarter cost $80 each to make. In that quarter, you sell 8 tapestries.&nbsp;<\/p>\n\n\n\n<p>Under the FIFO accounting method, you would assume that the first tapestries your sold were the first ones you made \u2014 the ones that cost $50 apiece to make.&nbsp;<\/p>\n\n\n\n<p>Therefore, your COGS would be calculated as follows:&nbsp;<\/p>\n\n\n\n<p class=\"is-style-indent\">COGS = (7 x $50) + (1 x $80)<\/p>\n\n\n\n<p class=\"is-style-indent\">COGS = $350 + $80<\/p>\n\n\n\n<p class=\"is-style-indent\"><strong>COGS = $430<\/strong><\/p>\n\n\n\n<p>Since prices tend to increase over time due to inflation, a FIFO business will usually sell its least expensive products first. In the long run, this will decrease its COGS and increase its net income.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-lifo\">LIFO<\/h3>\n\n\n\n<p><a href=\"https:\/\/www.shipbob.com\/blog\/lifo\/\">LIFO<\/a>, or the \u201clast-in-first-out\u201d method, assumes that the last goods that are purchased or produced are the first to be sold. In other words, the newest inventory is the first to leave the warehouse and get shipped to the customer.<\/p>\n\n\n\n<p>With this method, the cost of the most recent products is used in calculating the COGS.&nbsp;<\/p>\n\n\n\n<p>Continuing the example above, let\u2019s say your business uses the LIFO accounting method instead. Let\u2019s assume all the details are the same: the first 7 tapestries cost $50 apiece to make, the last 3 cost $80 apiece to make, and you sold 8.&nbsp;<\/p>\n\n\n\n<p>Under LIFO, you would calculate COGS as follows:<\/p>\n\n\n\n<p class=\"is-style-indent\">COGS = (3 x $80) + (5 x $50)&nbsp;<\/p>\n\n\n\n<p class=\"is-style-indent\">COGS = $240 + $250<\/p>\n\n\n\n<p class=\"is-style-indent\"><strong>COGS = $490<\/strong><\/p>\n\n\n\n<p>Assuming prices go up over time, a LIFO business sells its most expensive products first. This will increase its COGS while its net income decreases.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-wac\">WAC<\/h3>\n\n\n\n<p><a href=\"https:\/\/www.shipbob.com\/blog\/inventory-weighted-average\/\">WAC<\/a>, or \u201cweighted average cost\u201d, is an inventory valuation method that calculates COGS based on a weighted average of all the goods in stock, without considering the date of production or purchase.<\/p>\n\n\n\n<p>It\u2019s calculated by dividing the total cost of goods produced or purchased by the number of units available for sale.&nbsp;<\/p>\n\n\n\n<p>In the example above, you would first find the weighted average cost of all 10 tapestries you made. You could calculate that as follows:&nbsp; the you would calculate COGS as follows:&nbsp;<\/p>\n\n\n\n<p class=\"is-style-indent\">WAC = [(7 x $50) + (3 x $80)] \/ 10&nbsp;<\/p>\n\n\n\n<p class=\"is-style-indent\">WAC = [$350 + $240] \/ 10<\/p>\n\n\n\n<p class=\"is-style-indent\">WAC = $590 \/ 10<\/p>\n\n\n\n<p class=\"is-style-indent\">WAC = $59<\/p>\n\n\n\n<p>Next, you would multiply the number of units you sold in the time period by this weighted average cost to get COGS:<\/p>\n\n\n\n<p class=\"is-style-indent\">COGS = $59 x 8 tapestries sold<\/p>\n\n\n\n<p class=\"is-style-indent\"><strong>COGS = $472<\/strong><\/p>\n\n\n\n<p>Since this method isn\u2019t affected by purchase or production date, the COGS is less likely to be impacted by cost fluctuations.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-other-formulas-businesses-need-to-know\">What other formulas businesses need to know<\/h2>\n\n\n\n<p>In addition to COGS, there are a few other formulas businesses will need to use to understand their overall profitability and business health.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-inventory-shrinkage\">Inventory shrinkage<\/h3>\n\n\n\n<p><a href=\"https:\/\/www.shipbob.com\/inventory-kpis\/inventory-shrinkage\/\">Inventory shrinkage<\/a> occurs when physical inventory levels are lower in reality than what has been recorded. Inventory shrinkage can occur due to issues like <a href=\"https:\/\/www.shipbob.com\/blog\/prevent-shipping-damages\/\">shipping damage<\/a>, theft, or even human error. It\u2019s an important metric to calculate because it\u2019s necessary for maintaining a more accurate record in your accounting and tax calculations.<\/p>\n\n\n\n<p>You can use the following formula to calculate your shrinkage rate:<\/p>\n\n\n\n<p class=\"is-style-indent\"><strong>Inventory Shrinkage Rate = (Recorded Inventory \u2013 Actual Inventory) \/ Recorded Inventory<\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-cost-per-unit\">Cost per unit<\/h3>\n\n\n\n<p><a href=\"https:\/\/www.shipbob.com\/blog\/cost-per-unit\/\">Cost per unit<\/a> is a metric that represents all the costs (both variable and fixed) associated with producing or procuring a single unit of your products. Understanding your cost per unit is key to setting the right price for each product, and to maintaining profitability and competitiveness.&nbsp;<\/p>\n\n\n\n<p>You can use the following formula to determine your cost per unit:<\/p>\n\n\n\n<p class=\"is-style-indent\"><strong>Cost per unit = (Total fixed costs + Total variable costs) \/ Total units produced<\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-reorder-quantity\">Reorder quantity<\/h3>\n\n\n\n<p><a href=\"https:\/\/www.shipbob.com\/blog\/reorder-quantity-formula\/\">Reorder quantity<\/a> refers to the number of units requested in an inventory replenishment purchase order. Identifying the optimal reorder quantity is crucial, as a business should maintain just enough inventory to prevent stockouts without accidentally <a href=\"https:\/\/www.shipbob.com\/blog\/overstocking\/\">overstocking<\/a>.&nbsp;<\/p>\n\n\n\n<p>You can use the following formula to calculate reorder quantity:<\/p>\n\n\n\n<p class=\"is-style-indent\"><strong>Optimal Reorder Quantity for a SKU = Avg. Daily Units Sold&nbsp; x Avg. Lead Time<\/strong><\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-style-blog is-layout-flow wp-block-quote-is-layout-flow\">\n<p>\u201cShipBob\u2019s analytics tool is also really cool. It helps us a lot with planning inventory reorders, seeing when SKUs are going to run out, and we can even set up email notifications so that we\u2019re alerted when a SKU has less than a certain quantity left. There is a lot of value in their technology.\u201d<\/p>\n\n\n\n<p>Oded Harth, CEO &amp; Co-Founder of <a href=\"https:\/\/www.shipbob.com\/blog\/mdacne\/\">MDacne<\/a><\/p>\n<\/blockquote>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-ending-inventory-nbsp\">Ending inventory &nbsp;<\/h3>\n\n\n\n<p>This refers to the amount of sellable inventory that your business has left at the end of a given reporting period. Your <a href=\"https:\/\/www.shipbob.com\/blog\/ending-inventory\/\">ending inventory<\/a> is used in the calculation of COGS. As such, it has an impact on your balance sheets and your taxes, making it an important metric to calculate.&nbsp;<\/p>\n\n\n\n<p>The following formula is used in the calculation of ending inventory:&nbsp;<\/p>\n\n\n\n<p class=\"is-style-indent\"><strong>Beginning Inventory + Net Purchases \u2013 COGS = Ending Inventory<\/strong><strong><\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-how-shipbob-can-help-with-cogs-and-other-calculations\">How ShipBob can help with COGS and other calculations<\/h2>\n\n\n\n<p>ShipBob\u2019s inventory management software provides ecommerce merchants with visibility into key data and powerful analytics through the ShipBob dashboard. The software automatically tracks key metrics across order fulfilment and shipping, so that merchants can access more accurate information with less effort.&nbsp;&nbsp;<\/p>\n\n\n\n<p>In particular, ShipBob\u2019s <a href=\"https:\/\/www.shipbob.com\/blog\/new-free-analytics-reporting-tool\/\">analytics tool<\/a> lets you automatically calculate your average units sold per day, <a href=\"https:\/\/www.shipbob.com\/inventory-kpis\/inventory-days-on-hand\/\">inventory on hand<\/a>, warehousing cost, and average cost per unit stored \u2014 all of which make it easier to find your total cost of goods sold.&nbsp;<\/p>\n\n\n\n<p>If you have a Shopify store, ShipBob\u2019s direct integration with <a href=\"https:\/\/support.shipbob.com\/s\/article\/ART-Shopify-Profitability\">Shopify<\/a> lets you easily view the profitability for different order combinations. You can enter your COGS and the cost of each SKU, which will then automatically calculate your profitability analysis.&nbsp;&nbsp;<\/p>\n\n\n\n<p>If you want to learn more about how ShipBob can help you track key metrics like COGS \u2014 as well as other important inventory, order, and warehousing analytics \u2014 click the button below to speak to a fulfilment expert.&nbsp;<\/p>\n\n\n\n<div class=\"wp-block-buttons is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-16018d1d wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/www.shipbob.com\/quote\/\">Request Fulfilment Pricing<\/a><\/div>\n<\/div>\n\n\n\n<blockquote class=\"wp-block-quote is-style-blog is-layout-flow wp-block-quote-is-layout-flow\">\n<p>\u201cWhen I found ShipBob, I was so taken back by how thorough everything was. I\u2019m obsessed with the dashboard \u2013 everything I need to know is there. If I want to know shipping analytics or shipping prices, it\u2019s all right there and so transparent. I love ShipBob\u2019s analytics tool. I like being able to look at the last seven days of shipping costs.<\/p>\n\n\n\n<p>It\u2019s so nice to see exactly what the average shipping cost is and make sure the number that my Shopify store has customers paying matches what\u2019s in the ShipBob dashboard. Having those kinds of metrics on hand at any point is incredible. I&#8217;ve never experienced that before. It&#8217;s great to know that whenever I\u2019m interested in checking data, I can log on right away without having to email anybody for answers. <\/p>\n\n\n\n<p>As I grow my business, I\u2019ve realized how important little details like analytics and insights are. If I can\u2019t go in and see that information like I can in ShipBob, it\u2019s going to hinder my ability to grow the business. Ultimately, we left our old small fulfilment centre because everything ShipBob offered blew them out of the water.\u201d<\/p>\n\n\n\n<p><em>Nichole Jacklyne, Founder of <a href=\"https:\/\/www.shipbob.com\/blog\/nichole-jacklyne\/\">Slime by Nichole Jacklyne<\/a><\/em><\/p>\n<\/blockquote>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-cost-of-goods-sold-faqs\">Cost of goods sold FAQs<\/h2>\n\n\n\n<p>Below are answers to the top questions about COGS.<\/p>\n\n\n\n<div class=\"wp-block-shipbob-blocks-single-faq single-faq direction-col\" data-controller=\"faq-controller\" data-faq-controller-open-value=\"true\"><div class=\"single-faq-title-contianer\"><h4 class=\"single-faq-title\">What is the difference between cost of goods sold and inventory?<\/h4><div class=\"single-faq-expand\" data-faq-controller-target=\"expand\"><img decoding=\"async\" src=\"\/wp-content\/themes\/shipbob-2022\/resources\/svg\/plus-solid.svg\" \/><\/div><\/div><div class=\"single-faq-childs\" data-faq-controller-target=\"answer\"><div>\n\n<p>Inventory refers to the products that you have available for sale, whereas cost of goods sold is the direct costs associated with producing or procuring those goods.<\/p>\n\n<\/div><\/div><\/div>\n\n\n\n<div class=\"wp-block-shipbob-blocks-single-faq single-faq direction-col\" data-controller=\"faq-controller\" data-faq-controller-open-value=\"true\"><div class=\"single-faq-title-contianer\"><h4 class=\"single-faq-title\">What is the formula for cost of goods sold?<\/h4><div class=\"single-faq-expand\" data-faq-controller-target=\"expand\"><img decoding=\"async\" src=\"\/wp-content\/themes\/shipbob-2022\/resources\/svg\/plus-solid.svg\" \/><\/div><\/div><div class=\"single-faq-childs\" data-faq-controller-target=\"answer\"><div>\n\n<p>Cost of goods sold is calculated by deducting your ending inventory from your starting inventory and purchases. The formula is as follows:<\/p>\n\n\n<p><strong>COGS = Starting Inventory + Purchases \u2013 Ending Inventory<\/strong><\/p>\n\n<\/div><\/div><\/div>\n\n\n\n<div class=\"wp-block-shipbob-blocks-single-faq single-faq direction-col\" data-controller=\"faq-controller\" data-faq-controller-open-value=\"true\"><div class=\"single-faq-title-contianer\"><h4 class=\"single-faq-title\">What is not included in cost of goods sold?<\/h4><div class=\"single-faq-expand\" data-faq-controller-target=\"expand\"><img decoding=\"async\" src=\"\/wp-content\/themes\/shipbob-2022\/resources\/svg\/plus-solid.svg\" \/><\/div><\/div><div class=\"single-faq-childs\" data-faq-controller-target=\"answer\"><div>\n\n<p>COGS only includes the expenses directly related to the production or procurement of goods for sale. It doesn\u2019t include administrative, selling, or general expenses. Office rent, accounting and legal fees, advertising expenses, and management salaries are some expenses not included in COGS.<\/p>\n\n<\/div><\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Learn how to calculate COGS, and why it&#8217;s a key financial metric that every ecommerce business should track. <\/p>\n","protected":false},"author":194,"featured_media":4488,"parent":0,"template":"","meta":{"content-type":"","inline_featured_image":false,"footnotes":""},"blogcategories":[6,9],"class_list":["post-4487","blog","type-blog","status-publish","has-post-thumbnail","hentry","blogcategories-ecommerce-tips","blogcategories-logistics"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.5 (Yoast SEO v27.5) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Cost of Good Sold: COGS Meaning and What\u2019s Included<\/title>\n<meta name=\"description\" content=\"Learn how to calculate COGS, and why it&#039;s a key financial metric that every ecommerce business should track.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.shipbob.com\/au\/blog\/cost-of-goods-sold\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Cost of Goods Sold: What Is COGS and What\u2019s Included?\" \/>\n<meta property=\"og:description\" content=\"Learn how to calculate COGS, and why it&#039;s a key financial metric that every ecommerce business should track.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.shipbob.com\/au\/blog\/cost-of-goods-sold\/\" \/>\n<meta property=\"og:site_name\" content=\"ShipBob Australia\" \/>\n<meta property=\"article:modified_time\" content=\"2026-01-26T19:21:27+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.shipbob.com\/au\/wp-content\/uploads\/sites\/33\/2022\/12\/cost-of-goods-sold.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1400\" \/>\n\t<meta property=\"og:image:height\" content=\"560\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"13 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/www.shipbob.com\\\/au\\\/blog\\\/cost-of-goods-sold\\\/\",\"url\":\"https:\\\/\\\/www.shipbob.com\\\/au\\\/blog\\\/cost-of-goods-sold\\\/\",\"name\":\"Cost of Good Sold: COGS Meaning and What\u2019s Included\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.shipbob.com\\\/au\\\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\\\/\\\/www.shipbob.com\\\/au\\\/blog\\\/cost-of-goods-sold\\\/#primaryimage\"},\"image\":{\"@id\":\"https:\\\/\\\/www.shipbob.com\\\/au\\\/blog\\\/cost-of-goods-sold\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/www.shipbob.com\\\/au\\\/wp-content\\\/uploads\\\/sites\\\/33\\\/2022\\\/12\\\/cost-of-goods-sold.jpg\",\"datePublished\":\"2022-12-12T09:00:00+00:00\",\"dateModified\":\"2026-01-26T19:21:27+00:00\",\"description\":\"Learn how to calculate COGS, and why it's a key financial metric that every ecommerce business should track.\",\"breadcrumb\":{\"@id\":\"https:\\\/\\\/www.shipbob.com\\\/au\\\/blog\\\/cost-of-goods-sold\\\/#breadcrumb\"},\"inLanguage\":\"en-AU\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/www.shipbob.com\\\/au\\\/blog\\\/cost-of-goods-sold\\\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-AU\",\"@id\":\"https:\\\/\\\/www.shipbob.com\\\/au\\\/blog\\\/cost-of-goods-sold\\\/#primaryimage\",\"url\":\"https:\\\/\\\/www.shipbob.com\\\/au\\\/wp-content\\\/uploads\\\/sites\\\/33\\\/2022\\\/12\\\/cost-of-goods-sold.jpg\",\"contentUrl\":\"https:\\\/\\\/www.shipbob.com\\\/au\\\/wp-content\\\/uploads\\\/sites\\\/33\\\/2022\\\/12\\\/cost-of-goods-sold.jpg\",\"width\":1400,\"height\":560,\"caption\":\"warehouse management , smart logistic concept. 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