Cost of Goods Sold (COGS)
Definition
Cost of Goods Sold (COGS) refers to the direct costs involved in producing or purchasing the products a store sells. This typically includes the cost of materials, manufacturing, shipping from suppliers, and any other expense directly tied to getting a product ready for sale.
Good or Bad?
It is not good or bad by itself. COGS is a neutral metric, but understanding it is essential for accurate pricing, profit analysis, and inventory planning. High COGS can hurt profit margins, while low COGS can signal efficiency or bulk buying advantages.
Why It Matters
Without tracking COGS, you are making pricing decisions in the dark. Knowing how much each item actually costs helps you price competitively while protecting your margins. It also allows you to calculate your store’s real profit, identify high-cost items, and plan promotions wisely.
Common Mistakes
- Ignoring indirect costs that should be included in COGS
- Using default WooCommerce reports that only show revenue without cost breakdowns
- Failing to update product cost values over time
- Relying on guesswork instead of structured cost tracking
How to Improve It
- Use a dedicated plugin to manage COGS for each product and variation
- Regularly review and update cost data to reflect changes in supply chain or currency
- Track both per-product and per-order profitability
- Analyze high-cost products and find ways to reduce acquisition or production costs
Recommended Plugin
Cost of Goods Sold (COGS): Cost & Profit Calculator for WooCommerce
This plugin helps store owners assign, calculate, and report the true cost and profit of each sale. You can define costs per product or variation, include shipping and extra expenses, and generate accurate reports that reflect real business performance.
Real-World Example
A store sells printed t-shirts for 30 USD. Each shirt costs 12 USD to produce, 2 USD to package, and 1.50 USD in transaction fees. Without tracking COGS, the store might assume it’s making 30 USD per order. In reality, the profit is closer to 14.50 USD. With proper COGS tracking, the store owner sees the margin clearly and adjusts pricing for different designs.
Related Terms
- Gross Profit
- Net Profit
- Product Cost
- Profit Margin
FAQs
What is COGS in WooCommerce?
It refers to the total cost required to produce or acquire the products you sell. WooCommerce does not track this by default.
Can I see profit reports in WooCommerce?
Not by default. You will need a plugin like WPFactory’s COGS calculator to view real-time cost and profit analytics.
Does COGS include shipping costs?
If the shipping is part of your cost to acquire or deliver the product, yes. The plugin allows you to include these in the calculation.
