COGS Calculator

Cost of goods sold is the direct cost of the inventory you moved during a period. The formula has three inputs: what you had at the start, what you added, and what you still had at the end. Everything in the middle — the goods that left your possession through sales, damage, or shrinkage — becomes COGS.

The formula is: COGS = Beginning Inventory + Purchases − Ending Inventory. This works for product-based businesses regardless of whether you manufacture, wholesale, or dropship. The key is consistent valuation: use cost price throughout, never retail price.

What counts — and what does not

COGS includes: supplier invoice cost, inbound freight and customs duties, packaging materials that ship with the product, and direct manufacturing labor. It does not include Shopify subscription fees, advertising spend, warehouse rent, customer service payroll, or merchant processing fees. Those belong in operating expenses, below the gross profit line.

Getting this line wrong — putting ad spend into COGS, for instance — inflates your apparent COGS ratio and makes products look less profitable than they are. The reverse mistake (leaving out inbound freight) understates COGS and overstates gross margin, which can lead to pricing decisions that erode margin at scale.

Why Shopify merchants need to track COGS precisely

Shopify's native analytics shows revenue and orders, but it does not automatically calculate COGS unless you enter product costs manually for every SKU. Most merchants skip this step. The result: they know their top-line revenue but have no reliable gross margin figure — which means they cannot tell whether their ad spend is profitable or which product categories actually make money.

A Shopify store running $200,000/month in revenue with a 60% COGS ratio has $80,000 in gross profit. That $80,000 needs to cover all operating expenses. If COGS is actually 70% because inbound freight and duties were excluded, gross profit drops to $60,000 — and the business math looks completely different. Small percentage errors on high-volume stores create large cash mismatches.

Common COGS mistakes in ecommerce

• Using retail price instead of cost price when valuing ending inventory
• Forgetting inbound shipping costs — especially for international suppliers
• Mixing cash accounting and accrual accounting within the same period
• Not adjusting for returns — returned goods that go back to stock should reduce COGS
• Ignoring damaged or shrinkage inventory that never sold but leaves cost behind