Cost of Goods Sold (COGS)

Cost of goods sold, also known as cost price or total cost, represents the complete amount a business spends to manufacture, deliver, and market a product or service. It includes all direct costs such as raw materials and production labor, as well as indirect costs like overhead, utilities, and administrative expenses. Accurately determining your COGS is critical for setting profitable selling prices and managing the financial health of your business.

The formula for calculating COGS is: Cost of Goods Sold = Purchase Cost + Production Costs + Distribution Costs + Overhead Expenses. Purchase cost refers to the price paid to suppliers. Production costs cover manufacturing, processing, or packaging. Distribution costs include packaging materials, shipping, and logistics. Overhead expenses encompass administrative charges, transaction fees, and marketing spend.

In e-commerce, COGS includes specific line items such as platform commissions, payment processing fees, customer acquisition costs, and product returns. Underestimating these costs distorts net margin and can lead to selling at a loss. Fullmetrix automatically calculates the full cost of goods sold for each product by aggregating all direct and indirect charges, providing a precise view of true profitability per item and per order.