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Accounting
Cost of Goods Sold
The direct costs of producing or buying the products you sell — materials, manufacturing, or wholesale price.
COGS is subtracted from revenue to calculate gross profit. It doesn't include marketing, rent, or salaries — just the direct cost of what you sell. Accurate tracking helps you price products properly and spot if certain items aren't profitable.
In e-commerce and dropshipping, keeping COGS low while maintaining quality is key to healthy margins.
It's the money you spend to actually get the item ready to sell. If you buy phone cases for £2 each and sell them for £10, your cost of goods sold is £2 per case. The rest helps cover other expenses and profit.
Real world: A dropshipping store sells T-shirts. The supplier charges £6 per shirt (including shipping to the customer). That £6 is the COGS. If the store sells it for £20, the gross profit is £14 before other costs like ads or website fees.
💡 Knowing your cost of goods sold tells you the real profit on every sale before other expenses eat into it.