What is COGS?
Cost of Goods Sold — the direct costs of producing or purchasing the products a business sells.
Definition
COGS stands for Cost of Goods Sold. It represents the direct costs attributable to the production or acquisition of the goods that a company sells during a specific period. For e-commerce sellers, COGS typically includes the purchase price of products from suppliers or manufacturers, inbound shipping costs to get products to your warehouse or Amazon's fulfillment centers, customs duties and import taxes for international sourcing, packaging materials, and any direct labor costs involved in preparing products for sale. COGS does not include indirect expenses like marketing, advertising, software subscriptions, or office rent — those are classified as operating expenses. Accurately tracking COGS is essential for calculating gross profit (Revenue minus COGS) and understanding the true profitability of each product. Many new sellers make the mistake of only considering the product purchase price as their COGS, forgetting about shipping, duties, and prep costs, which leads to overestimating their margins.
How COGS Relates to E-Commerce
Understanding COGS is fundamental to running a profitable e-commerce business. Your gross margin (Revenue minus COGS divided by Revenue) determines how much money you have left to cover operating expenses and generate profit. For Amazon sellers, COGS calculations must be precise because Amazon's fee structure already takes a significant portion of revenue. If your COGS are too high relative to your selling price, there may not be enough margin left after Amazon fees to generate a profit. COGS also affects tax obligations — in most jurisdictions, COGS is deductible from revenue when calculating taxable income. Proper COGS tracking helps sellers make informed decisions about supplier negotiations, product pricing, and inventory management. Sellers who source internationally must also factor in currency exchange rates, which can significantly impact COGS.
How SellerBowl Helps with COGS
SellerBowl's FBA Calculator and Product Evaluator tools let you input your COGS and instantly see how it affects your overall profitability after all marketplace fees. The platform helps you understand the relationship between your COGS, selling price, and net margin, making it easy to set minimum acceptable COGS thresholds for product sourcing. SellerBowl's arbitrage tools also factor in COGS when calculating potential profit, ensuring you only pursue deals that meet your profitability criteria.
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