# What is COGS – Cost of Goods Sold?

What is COGS – Cost of Goods Sold? The direct cost of producing or acquiring products sold. Includes: product + import shipping + customs + packaging.

## How it works in practice

Every $1 shaved off COGS is an extra $1 in gross margin. Renegotiate with suppliers every 6 months.

## Related metrics

- Gross Margin — gross margin = revenue - COGS
- MOQ — a high MOQ means lower COGS
- Lead Time — COGS includes shipping to the merchant
- Pricing — COGS is the floor

## Common misconception

'COGS equals the purchase price from the supplier.' Not true. COGS = price + shipping + customs + broker + packaging + delivery to the warehouse. Usually 20-35% higher.

## How to fix it

High COGS? (1) calculate true COGS, (2) negotiate with suppliers for Category A items, (3) is a local supplier cheaper on the full supply chain? (4) alternative packaging materials.

## Real-world example

A children's clothing store: calculated COGS at $12.50/unit. Recalculating: $12.50 + $2.20 shipping + $1.10 customs + $0.85 packaging = $16.65. A 40% margin turned into 26%.

## Where to start

Calculate true COGS quarterly, including all hidden costs.

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Category: Finance · From the [Jimmy OS KPI Glossary](https://jimmy-os.com/glossary/kpi.md) · Source page: https://jimmy-os.com/glossary/kpi/cogs-cost-of-goods-sold