Cost of Goods Sold

COGS is the base of gross margin, inventory turnover, and GMROI. Ecommerce brands often under-report it by leaving freight and duties out of product cost.

COGS = beginning inventory + purchases (at landed cost) − ending inventory

Is shipping included in cost of goods sold?

Inbound freight to get inventory to your warehouse is usually capitalized into inventory and flows into COGS. Outbound shipping to customers is often reported separately as a fulfillment or selling expense, though policies vary, so apply one rule consistently.

• Landed CostThe total cost of getting a product to your warehouse ready to sell: purchase price plus freight, insurance, duties, tariffs, brokerage, and handling.
• Gross MarginRevenue minus cost of goods sold, expressed in dollars or as a percentage of revenue, showing what is left from sales after the direct cost of the products.
• Inventory TurnoverHow many times a brand sells through its average inventory in a period.
• Periodic Inventory SystemA method of tracking inventory in which quantities are determined by physical counts at set intervals, and cost of goods sold is calculated from those counts rather than recorded with each sale.