All About Amazon Costs of Goods Sold: Definition & Methods
- Manufacturing/Procurement costs: The raw materials and labor used to produce your products. If you’re a retailer, this would be the price your supplier quoted.
- Packaging costs: The cost of packaging materials.
- Shipping costs: Any shipping or freight charges.
- Storage & fulfillment costs: The cost of your inventory and getting your products to your Amazon customers.
- Advertising costs: The money you spend to advertise your products. Either on Amazon ads or off-platform ads.
- Amazon fees: Any fees Amazon charges. Some basic fees are selling plans and Amazon referral fees. And if you choose Amazon FBA instead of Amazon FBM, you will have to factor in the Amazon FBA fees (fulfillment, storage, returns processing, removal order, etc.)
- Taxes and duties: The taxes and duties to the government for each of your sales.
- Determine your gross profit: Subtracting your COGS from your total sales revenue gives you your gross profit. Gross profit tells you how much profit you make on each sale and can help you optimize your business strategy.
- Monitor your profitability: Regularly tracking your COGS allows you to monitor your business's profitability over time. If your COGS is increasing or your gross profit is decreasing, it may be time to adjust your business strategy. You can start thinking about changing suppliers or removing some excess labor/packaging materials to reduce costs.
- Make informed business decisions: Since COGS is a crucial metric for Amazon finance, knowing your COGS can help you make informed decisions about your Amazon business's product offerings, pricing, and other aspects. For example, if a particular product has a high COGS and low gross profit, consider discontinuing it or adjusting its price.
- Report to tax: Accurate Amazon Cost of Goods Sold calculations are required for tax purposes. You'll need to report your COGS on your tax returns, so keeping accurate records and ensuring your correct calculations is important.
- Beginning inventory: The value of your inventory at the beginning of the period
- Purchases during the period: Any purchases made during the period
- Ending inventory: Your remaining inventory at the end of the period
Content Executive at TrueProfit & eCommerce Content Specialist
Leah Tran is a Content Specialist at TrueProfit, where she crafts SEO-driven and data-backed content to help eCommerce merchants understand their true profitability. With a strong background in content writing, research, and editorial content, she focuses on making complex financial and business concepts clear, engaging, and actionable for Shopify merchants.
Leah Tran is a Content Specialist at TrueProfit, where she crafts SEO-driven and data-backed content to help eCommerce merchants understand their true profitability. With a strong background in content writing, research, and editorial content, she focuses on making complex financial and business concepts clear, engaging, and actionable for Shopify merchants.
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