What is COGS (Cost of Goods Sold)?
Quick Definition
COGS is the total direct cost of producing or acquiring the products you sell. It includes manufacturing, materials, and freight — but not marketing, rent, or salaries.
What's Included in COGS
For e-commerce sellers, COGS typically includes: product cost from supplier, shipping/freight to warehouse or FBA, customs/duties for imported goods, packaging materials, and labeling costs. It does NOT include Amazon fees, advertising, software subscriptions, or your own time. Keep COGS separate from operating expenses for accurate margin calculations.
Calculating COGS per Unit
Add up all direct costs for a production run and divide by units: Product cost ($3.00) + Sea freight ($0.80/unit) + Customs duty ($0.40) + Packaging ($0.30) + Labeling ($0.10) = $4.60 COGS per unit. If you sell at $19.99 on Amazon with ~30% in Amazon fees ($6.00), your gross profit is $19.99 - $4.60 - $6.00 = $9.39.
Why COGS Matters for Product Selection
A common rule of thumb: aim for COGS to be ≤25-30% of your selling price. This leaves room for Amazon fees (25-35%), advertising (10-15%), and profit (20-30%). Products with COGS above 40% of selling price are risky because they leave almost no room for advertising and still achieving profitability.
Reducing COGS
Strategies include: ordering in larger quantities for volume discounts, negotiating with suppliers after establishing a track record, sourcing directly from factories instead of trading companies, optimizing product dimensions to reduce shipping costs, and using sea freight instead of air for non-urgent inventory replenishment.
Related Terms
Profit Margin
Profit margin is the percentage of revenue that remains as profit after subtracting all costs. For e-commerce, this includes product cost, platform fees, shipping, and advertising.
MOQ
MOQ is the smallest number of units a supplier will produce or sell in a single order. It's a key factor in calculating startup costs for physical product businesses.
Amazon FBA
FBA (Fulfillment by Amazon) is a service where Amazon stores your products, picks, packs, and ships orders to customers, and handles customer service and returns.
Private Label
Private label is a business model where you source generic products from manufacturers and sell them under your own brand name with custom packaging, logos, and modifications.
Put COGS data to work
AstroMarket analyzes cogs alongside competition, trends, sourcing costs, and social signals — all in one AI-powered report.