Cost of Goods Sold (COGS) is the cost of the products that a retailer, distributor, or manufacturer has sold. This amount includes the cost of the materials used in creating the product along with the direct labor costs used for production. In simple terms, Cost of Goods Sold is the what it cost in being a transacting business.
The data for this metric can be discovered in financial tools such as QuickBooks.
How to calculate Cost of Goods Sold:
The Cost Per Engagement statistic is displayed as a simple percentage. It is calculated by dividing the total budget amount by the total number of engagements.
An example would be if your company made bicycles. If the parts of the bicycle cost $100, packaging the bicycle cost $25, and you paid someone $50 to put it together, your total Cost of Goods Sold for that bicycle is $175.
Notes
- If your team can’t determine cost flows during accounting periods, follow one of these methods.
- If you are looking to calculate Gross Profit after finding Cost of Goods Sold, use your Revenue total in this equation: Revenue – COGS = Gross Profit.
- In Yaguara Costs of Good Sold can be tracked when creating a Key Result:
Why Cost of Goods Sold is important:
eCommerce teams need to maintain high margins just like any other business, but only analyzing revenue data tells only a portion of the story. When your team knows the Cost of Goods Sold for each individual product (and in total) you can better price your offerings to keep your pushing margins high. In addition Cost of Goods Sold tells whether if you can afford to keep or ship current inventory and if you can allocate funds to other operating expenses in the business (office space, contractors, etc.).
Cost of Goods Sold is a foundation metric that touches all aspects of the business.
How to improve Cost of Goods Sold:
Define and redefine costs
Cost of Goods Sold encompasses both ‘direct’ and ‘indirect’ costs to in its equation. Direct costs are the expenses related to the production of your product. Indirect costs are related to the storage, facilities, labor, equipment, and anything else else used to sell your product. Make sure to have these accurately defined to know which levers to pull.
Play hard ball
Ask for a discount every time you request an estimate or place an order, and be relentless until you finally have to place the order. If you do not get a reduction in price, ask for favorable financing terms, because you will need to come to the table again later on in the relationship. Maximize your position as the buyer – as your buyers do to you.
Target practice
This strategy involves determining a price that yields a set rate of return on investment, not necessarily lowering Cost of Goods Sold. By experimenting with your acquisition efforts you can increase the margins on Cost of Goods Sold in case that number appears needs to plateau for the foreseeable future. Based on a certain number of items you expect to sell, a target return pricing model computes the price based on a projected total profit.
Supersize me
If initial discounts are not being offered, look into buying in larger quantities as an advantage to gain a discount elsewhere. It is much cheaper per unit to ship trucks full of product than it is to ship than a smaller quantity. This can also be coupled with a shipping discount that both sides can see.
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