![formula for cogs formula for cogs](https://www.educba.com/academy/wp-content/uploads/2019/05/Gross-Profit-Formula-Example-2-2.png)
(Note: cost of goods doesn't include indirect expenses, like overhead, marketing or shipping costs, nor does it include cost for items you don't sell). Cost of goods sold include the direct material and labor expenses that go into the production of the items you sell. It's simple: your cost of goods sold, or COGS, is how much it costs you to produce or acquire the products you sell.
Formula for cogs how to#
Here, we'll cover what cost of goods is, how to calculate cost of goods, why cost of goods is important and some examples and use cases for winning product pricing strategies. Sell items for lower than your cost of goods, and you're not making money. Your cost of goods - or how much you paid to produce or acquire the products you're selling - represents a floor, and setting prices below that floor can have negative implications on your profitability. But one explicit factor, your cost of goods sold - or COGS - is critical when it comes to setting your prices. Various implicit factors - including competitor pricing, customer expectations, perceived value, and product demand - are all important considerations when it comes to pricing.
![formula for cogs formula for cogs](https://accountingcorner.org/wp-content/uploads/2016/01/cost-of-goods-sold_1.png)
How can you set your prices high enough so that your store is profitable, but competitive enough that your customers see value and keep purchasing from you? Pricing products can be tricky for even the most experienced and well-informed ecommerce store owners.