What is COGS (Cost of Goods Sold)?
COGS is the total cost to acquire and prepare a product for sale. It's different from price—and critically different from profit.
- COGS: What it costs you to get the product ready to ship
- Price: What you sell it for
- Profit: Price minus COGS (minus fees)
Many sellers ignore COGS and wonder why they're not profitable despite "good prices." Accurate COGS is the foundation of profitable selling.
The COGS Formula
COGS = Product Cost + Freight + Import Duties + Prep & Labeling + Other Direct Costs
Profit Per Unit = Selling Price - COGS - Fees (Referral + FBA)
Components of COGS for Amazon Sellers
1. Product Unit Cost
The price you pay your supplier per unit.
- Example: USB cable from factory = $2.00/unit
- Calculation: Total order cost ÷ quantity = unit cost
- Order: $10,000 for 5,000 cables = $2.00/unit
- Include: Any bulk discounts already applied
2. Inbound Freight (Shipping to Your Location)
Cost to get products from factory to your warehouse or directly to FBA.
- Ocean freight (international): Typically $0.50-$2.00 per unit
- Air freight (faster, more expensive): $2-5 per unit
- Domestic trucking: $0.20-0.50 per unit
- Calculation: Total freight cost ÷ units = cost per unit
Example: $5,000 ocean freight for 10,000 units = $0.50/unit
3. Customs, Tariffs & Import Duties
Fees charged by US Customs when importing foreign products.
- Import duty (tariff): Varies by product category (0-25%+)
- Harbor maintenance fee: 0.125% of import value
- Merchandise processing fee: 0.3325% of import value
- Brokerage fees: $25-200 per shipment
Example: 0-25% tariff on electronics; $200 brokerage fee
4. Prep & Labeling Fees
Cost to prepare products for shipment to Amazon FBA.
- FNSKU labels: $0.15-0.30 per unit
- Product boxes/packaging: $0.30-0.75 per unit
- Poly mailers/bubble wrap: $0.10-0.20 per unit
- Your labor (if DIY): $0.05-0.15 per unit (calculated at hourly rate)
- Prep service (outsourced): $0.20-0.50 per unit
Total prep cost: Typically $0.50-1.50 per unit
5. Quality Control & Inspection
Third-party inspection before shipment to Amazon.
- Cost: Usually $50-300 per order or $0.05-0.10 per unit
- Purpose: Catch defects before products reach Amazon
- Common for: Electronics, clothing, health products
6. Handling & Storage (Pre-FBA)
If storing at warehouse before shipping to FBA:
- Warehouse storage: $0.20-0.50 per unit/month
- Handling/picking: $0.10-0.25 per unit
- Only include if holding significant inventory
⚠️ What's NOT Included in COGS
- Amazon referral fees (handled separately)
- FBA fulfillment fees (handled separately)
- Advertising/marketing (operating expense)
- Software subscriptions (operating expense)
- Your salary (operating expense)
- Amazon storage fees (handled separately)
Real COGS Calculation Examples
Example 1: USB Cable (Simple Product)
Order Details: 10,000 units from China
Your Profit If Selling at $15
Profitability Analysis
Example 2: Electronics (Higher Value, Complex Tariffs)
Wireless Charger: 5,000 units from Taiwan
Your Profit If Selling at $35
Profitability Analysis
Example 3: Low-Cost, High-Volume Item
Screen Protector: 50,000 units (High volume = low costs)
Your Profit If Selling at $4.99
Profitability Analysis
Key insight: Even at $0.29 COGS, this product barely profits because fees eat most margin!
COGS vs Landed Cost: What's the Difference?
| Metric | COGS | Landed Cost |
|---|---|---|
| Definition | Cost to acquire product + freight + tariffs + prep | COGS + ALL additional expenses to complete sale |
| Includes | Product + shipping + tariffs + labeling | COGS + referral + FBA fees + storage |
| Used For | Tax accounting; gross profit calculation | True profitability; pricing decisions |
| Example | $3.17 per USB cable | $3.17 + $1.20 (referral) + $2.41 (FBA) = $6.78 |
Bottom line: Track COGS for accounting. Track Landed Cost for pricing decisions.
Tools to Calculate COGS
Manual Spreadsheet (Excel/Google Sheets)
- Create columns: Unit cost, Freight, Tariff, Prep, Total
- Update after each shipment
- Simple but requires discipline
Specialized Tools
- Jungle Scout: Built-in COGS calculator
- Helium 10: Profitability analyzer with COGS
- Sellalytic: Tracks profit by ASIN
- Stitch Labs: Inventory + COGS management
Your Accounting Software
- QuickBooks: Track in chart of accounts (COGS account)
- Xero: Same; separate COGS accounts by type
- Import data from supplier invoices + freight bills
Common COGS Mistakes
- Forgetting freight costs: Can be 10-25% of product cost
- Miscalculating tariffs: Varies wildly by product; research your HS code
- Including FBA fees in COGS: They're separate (operating expense)
- Using list price instead of actual cost: Must use real supplier invoices
- Not accounting for defect rate: If 2% of units are defective, add 2% to COGS
- Ignoring prep costs: Can be $0.50-1.50 per unit
- One-time cost blunder: Don't include tooling/mold fees in COGS (depreciate over lifetime)
Summary: Accurate COGS Leads to Accurate Profitability
✓ Calculate: Product cost + Freight + Tariffs + Prep + Inspection
✓ Track: Separately for each product SKU
✓ Update: After each order; prices change
✓ Use for: Pricing, profitability, tax deductions
✓ Don't include: Referral fees, FBA fees, advertising, software
Result: True profit margin; sustainable pricing strategy