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What is COGS (cost of goods sold)?

Growth economics & retention

By Stan Heropolitanski, Marketing StrategistUpdated 3 November 2026

How does COGS work?

Revenue minus COGS gives gross profit. Gross profit as a share of revenue is gross margin.

Only the goods you actually sold count. Stock still sitting in the warehouse is not COGS yet.

What is inside COGS?

This is where definitions drift. For a shop that buys finished goods, COGS starts with the purchase price. Whether it also includes inbound shipping and import duties depends on how the business accounts for it. Some people use "landed cost" for the price plus those extras, but the word is used loosely.

The rule that matters: pick one definition and keep it. Your finance lead or accountant decides what goes in. We ask which one is used, because margin maths is only as good as that figure.

Why does it matter for ecommerce brands?

Without COGS, there is no margin. Without margin, ROAS can't tell you whether an ad made money. Two shops with the same ROAS can have very different results if one sells high-cost products.

COGS is the first cost taken off. Contribution margin goes further: it also takes off shipping, payment fees, returns and discounts. POAS (profit on ad spend) uses a profit figure, and sources differ on what "profit" means. COGS is the one input you can almost always find in your own books.

Try it with your own figures in the break-even ROAS calculator.

For ZFD: We do not read an ad result until we know what the product cost.

Worked example

Easily confused with

  • COGS vs Gross margin

    A percentage. It is calculated from revenue and COGS.

  • COGS vs Contribution margin

    Deducts more than COGS, including delivery and returns.

  • COGS vs Operating costs

    Marketing, salaries and rent. These are not COGS.

Try it

Real ROAS calculator: is your ROAS real?

A real ROAS calculator that turns platform ROAS into an adjusted ROAS (estimate) with a range, a margin check and the limits spelled out.

Break-even ROAS calculator: the line between loss and margin

Break-even ROAS calculator: enter your contribution margin before marketing and see the ROAS at which ads stop losing money on each order.

FAQ

A rider in a red cape and bicorne hat on a rearing yellow plush horse, after David's Napoleon Crossing the Alps

Is COGS the same as total costs?

No. COGS covers the direct cost of the goods sold. Selling and general costs, such as advertising and management salaries, sit below gross profit1.

Are shipping costs part of COGS?

It depends on which shipping. Inbound shipping may be included, depending on your accounting. In our margin maths, delivery to the customer sits in contribution margin instead.

Sources

  1. cost of goods soldBlog or media

Let’s find what’s actually working.

Next step. Put your product cost into the maths. Use the Is your ROAS real? calculator.

Is your ROAS real? calculator