Why Keeping Track of COGS Is Painful for Shopify Stores
Why Keeping Track of COGS Is Painful for Shopify Stores
To succeed with a business, you definitely need to know your profitability. But first, you need to track your Cost of goods sold (COGS), which takes a large proportion of your budget.
This task seems easy at first, because the prices are there on AliExpress. No rocket science, right?
The truth is: it's not easy at all.
What Is Cost Of Goods Sold & Why Track It?
Cost of Goods Sold (COGS) is the direct cost of producing or purchasing your products. The purpose of tracking COGS is to determine the actual cost of each product you sell, which is crucial for setting the right price and maximizing your profits.
As a Shopify merchant, tracking COGS is crucial to your business success as it:
- Helps you set the right price: Understanding the actual cost of each product you sell allows you to set a competitive price that covers your expenses and generates enough profits so you can keep scaling up your store.
- Allows you to analyze your margins: Your revenue subtracted from COGS is gross profit. Divide gross profit by your total revenue, and you can calculate your gross profit margin, a crucial metric for assessing your business's overall profitability.
- Helps you make informed decisions: By tracking your COGS, you can identify your most profitable products. This aids you in making data-driven decisions about which to promote or discontinue.
Despite its importance in profit analytics and decision-making, not many Shopify merchants can manage to track their COGS properly, which we'll discuss right next!
What Are The Limits Of Manually Tracking COGS?
COGS can change weekly due to sales promotion, negotiation, or rising demand. The prices you see on AliExpress today may be different from yesterday and will probably fluctuate tomorrow. Now multiply that by 50 products. Welcome to cost management!
Many dropshippers simply ignore this fact and settle on an approximate estimation. That could work when you've just started but will cost you much more in the long run. Say you have 3000 orders/month, an increase of $1.5 COGS would cost you an extra $4500, and you may not even notice!
Another problem comes with shipping costs. In the dropshipping industry, it's normal for shipping to cost more than the product itself. So an insight into shipping costs is fundamental for your business. Unfortunately, an accurate number is so hard to get, as neither AliExpress nor Oberlo/Dropified provides a report on shipping costs. Especially if you're selling worldwide, fees vary widely across different countries.
With all this variability, knowing COGS may be harder than you thought.
Behold The Solution: TrueProfit - Real-time Profit Analytics
Though you can track your COGS, profits, and losses manually, the ultimate problem remains. You don't need to know COGS at the end of the month. You need to track it in real time. That's when important decisions are made.
For example, your COGS suddenly rises by 10%. Realizing this, you can instantly adjust your pricing or cut down on the discounts threatening to eat into your profit.
TrueProfit app was born to help you do this effortlessly.
It automatically pulls and updates data from Shopify, AliExpress, Facebook Ads, and Google AdWords to give you the real picture of not only COGS but also your profitability. You get to see Profit, COGS, Shipping cost, Processing fees, Conversion rate, and other major metrics in real time.
Discover what proper profit-tracking looks like at trueprofit.io
Irene Leander
Irene Leander is the Content Manager at TrueProfit. With over 5 years of experience in content creation and editorial writing for the eCommerce industry, she aspires to bring stellar value to eCommerce merchants with over-the-top articles.
