What is the formula for cost of goods sold?

The cost of goods sold formula is: Beginning Inventory + Purchases − Ending Inventory. The result is the cost of just the units that sold during the period. Modern ecommerce systems usually compute the same figure per sale (the perpetual method) for a live inventory value and margin.

How do you calculate cost of goods sold for an Amazon business?

Value each unit at its landed cost (supplier price plus freight, duty, and prep), then expense that cost only when the unit sells. Over a period, COGS equals beginning inventory plus purchases minus ending inventory. Keep Amazon fees and ad spend out of COGS as separate operating expenses.

Do Amazon fees count as COGS?

Generally no. Referral fees, FBA fulfillment fees, and storage fees are selling and operating expenses, not the cost of the product itself. Including them in COGS distorts gross margin. Keep product (landed) cost in COGS and report platform fees on their own expense lines.

Is shipping included in cost of goods sold?

Inbound freight to get inventory to your warehouse or to Amazon is part of landed cost and belongs in COGS. Outbound shipping to the customer is a fulfillment expense, not COGS. Drawing that line correctly keeps your gross margin accurate.

What is the difference between COGS and inventory?

Inventory is the cost of stock you still hold, recorded as an asset on the balance sheet. COGS is the cost of stock that has sold, recorded as an expense on the income statement. A unit's cost moves from inventory into COGS at the moment it sells.

Glossary

What is COGS?

Cost of Goods Sold — the cost of the units you actually sold in a period.

COGS (Cost of Goods Sold) is the cost of the units you actually sold during a period, not the cost of everything you bought. The cost of goods sold calculation is the single most consequential number on an ecommerce profit and loss statement, because it sits directly between your sales revenue and your gross profit. Get COGS right and your margins, taxes, and inventory value are trustworthy; get it wrong and every profitability decision you make is built on sand.

The defining idea behind COGS is matching: a unit's cost only becomes an expense in the period that unit sells. Until then, its cost sits on the balance sheet as inventory, an asset. For Amazon and multichannel sellers, this matters intensely, because the timing of buying stock, shipping it to FBA, and finally selling it can stretch across months. COGS is what keeps the expense lined up with the sale that earned the revenue.

The cost of goods sold formula

The standard formula for cost of goods sold is: beginning inventory, plus purchases during the period, minus ending inventory. In other words, COGS equals what you started with plus what you bought, minus what's left on the shelf. That remainder is what you sold, valued at cost. This is sometimes called the periodic method, and it's the cleanest way to understand the calculation conceptually.

The alternative is the perpetual method, where you record COGS at the moment of each sale by pulling the cost of that specific unit out of inventory. Perpetual is how most modern ecommerce systems operate, because it gives you a live inventory value and live gross margin instead of waiting for a period-end count. Either way the annual total should reconcile, the difference is timing and granularity, not the underlying math.

•COGS = Beginning Inventory + Purchases − Ending Inventory
•Beginning inventory: the cost value of stock you held at period start
•Purchases: the landed cost of stock received during the period
•Ending inventory: the cost value of stock still unsold at period end
•The result is the cost of only the units that actually sold

What belongs in COGS for an Amazon seller

COGS should capture the full cost to get a unit ready to sell, which is its landed cost: the supplier price plus inbound freight, duties, and any prep or labeling. It does not stop at the invoice price from your supplier. Leaving freight and duty out of COGS is one of the most common ways sellers overstate their gross margin and then wonder why the bank balance never matches the spreadsheet.

Just as important is what does not belong in COGS. Amazon's selling fees (referral fees, FBA fulfillment fees, storage fees) and your advertising spend are real costs, but they are operating expenses, not the cost of the product itself. Mixing them into COGS distorts your gross margin and makes it impossible to compare product economics cleanly. Keep product cost in COGS and platform/selling costs in their own expense lines so each layer of the cost stack stays visible.

•In COGS: supplier unit price, inbound freight, duties/tariffs, prep and labeling
•Usually below the line: Amazon referral and FBA fees, storage fees, PPC/ads
•On the balance sheet until sold: inventory not yet sold
•Recovered reimbursements: offset the COGS of lost or damaged units

FIFO vs weighted average: how unit cost is assigned

Because you buy the same product at different costs over time, you need a rule for which cost to expense when a unit sells. FIFO (First-In, First-Out) consumes your oldest cost layers first, which tends to reflect physical flow well and is widely used. Weighted average cost recalculates a blended per-unit cost every time you receive new stock, smoothing out price swings. Both are accepted methods; what matters is choosing one and applying it consistently.

For sellers, this choice drives both COGS and ending inventory value, especially when supplier prices or freight rates move. During cost inflation, FIFO expenses cheaper old units first, leaving a higher inventory value and a slightly lower COGS than weighted average would. The right method is the one your accountant and your software support, applied the same way every period. BeanHawk tracks landed cost per receipt so COGS is calculated automatically as units sell, instead of being reverse-engineered at year-end.

Frequently asked questions

What is the formula for cost of goods sold?: The cost of goods sold formula is: Beginning Inventory + Purchases − Ending Inventory. The result is the cost of just the units that sold during the period. Modern ecommerce systems usually compute the same figure per sale (the perpetual method) for a live inventory value and margin.
How do you calculate cost of goods sold for an Amazon business?: Value each unit at its landed cost (supplier price plus freight, duty, and prep), then expense that cost only when the unit sells. Over a period, COGS equals beginning inventory plus purchases minus ending inventory. Keep Amazon fees and ad spend out of COGS as separate operating expenses.
Do Amazon fees count as COGS?: Generally no. Referral fees, FBA fulfillment fees, and storage fees are selling and operating expenses, not the cost of the product itself. Including them in COGS distorts gross margin. Keep product (landed) cost in COGS and report platform fees on their own expense lines.
Is shipping included in cost of goods sold?: Inbound freight to get inventory to your warehouse or to Amazon is part of landed cost and belongs in COGS. Outbound shipping to the customer is a fulfillment expense, not COGS. Drawing that line correctly keeps your gross margin accurate.
What is the difference between COGS and inventory?: Inventory is the cost of stock you still hold, recorded as an asset on the balance sheet. COGS is the cost of stock that has sold, recorded as an expense on the income statement. A unit's cost moves from inventory into COGS at the moment it sells.

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