What is COGS?
Understanding Cost of Goods Sold for ecommerce
Last updated: 26th August 2026
What is COGS?
COGS stands for Cost of Goods Sold. It represents the direct costs attributable to the production or purchase of the goods sold by a company.
COGS for Ecommerce
For Shopify merchants, COGS may include the following, depending on the business's accounting policy:
- Product purchase price - What you pay your supplier
- Shipping to warehouse - Inbound shipping costs
- Import duties - Customs fees and tariffs, when they are included in the business's cost model
- Handling costs - Packaging and preparation
Why COGS Matters
Understanding your COGS is essential because:
- Accurate Profit Margins - Without knowing costs, you can't know your true profit
- Pricing Decisions - Set prices that ensure profitability
- Tax Implications - COGS is a deductible business expense
- Business Valuation - Investors look at gross margins
COGS vs Operating Expenses
| COGS | Operating Expenses |
|---|---|
| Direct costs of products | Indirect business costs |
| Varies with sales volume | More fixed in nature |
| Product cost, shipping to warehouse | Rent, salaries, marketing |
| Affects gross profit | Affects net profit |
Calculating COGS
The basic formula is:
COGS = Beginning Inventory + Purchases - Ending Inventory
CostSync simplifies this by applying configured product costs at the order level. It does not currently provide automated landed-cost calculations for duties, customs, or freight.