Many eCommerce businesses obsess over top-line revenue but ignore the number that truly determines their success: Cost of Goods Sold (COGS). COGS is more than a line item on your income statement—it’s the key to understanding product profitability, cash flow, and long-term growth.
With an Operations Suite like Focal Software, eCommerce COGS isn’t a guess; it’s calculated in real time across marketplaces, channels, and warehouses.
What Exactly Is COGS?
COGS represents the direct costs of the products you sold during a period. For eCommerce and omnichannel sellers, that typically includes:
Product purchase costs or manufacturing costs
Inbound freight and landed costs
Packaging directly tied to the product
Duties or import fees (when allocated to inventory)
COGS does not include operating expenses like salaries, software subscriptions, or marketing—that’s SG&A (Selling, General, and Administrative).
How COGS Impacts Your Financial Statements
1. Income Statement (Profit & Loss)
Revenue – COGS = Gross Profit
If your COGS is understated, your gross profit looks better than reality. If it’s overstated, you might think a profitable product is a loser. Accurate COGS tells you:
Which SKUs are truly profitable
Whether discounts and promotions still make sense
If marketplace fees and shipping are eroding margin
2. Balance Sheet (Inventory)
COGS is directly tied to inventory valuation. When inventory accounting is wrong, so is your COGS. This impacts:
Your true asset value
Bank covenants and lending discussions
Your ability to make smart purchasing decisions
3. Cash Flow
Even if your income statement looks profitable, poor COGS tracking can hide cash leaks. Overstocking low-margin products, underpricing expensive items, or ignoring landed costs can put you in a cash crunch.
Why Accurate COGS Is Hard in eCommerce
eCommerce accounting is complex because:
You sell across multiple marketplaces with different fees
Landed costs and inbound freight are often not allocated correctly
Bundles and kits complicate how you assign costs
Returns and damaged goods affect inventory and COGS
Without an integrated operations system and accounting system, COGS becomes a spreadsheet exercise instead of a reliable system output.
How Focal Software Helps You Get COGS Right
Focal Software is designed for eCommerce and online sellers who need accurate, automated COGS. We help you:
Track inventory costs across channels and warehouses
Allocate landed costs to inventory
Tie Bill of Materials to finished goods
Record COGS automatically at the time of sale
When your COGS is accurate, your pricing, forecasting, and investment decisions become grounded in reality, not guesswork.
