🧮 How to Do the Math for COGS
Calculating your Cost of Goods Sold (COGS) might sound scary, but it is actually just simple addition and subtraction. Whether you sell online or have a local shop, the logic is the same.
📝 The Simple COGS Formula
The whole world uses this one simple math rule:
[ What you started with ] + [ What you bought ] - [ What you have left ] = COGS
💡 Step-by-Step: How to Calculate It
- Find Your Start Number: How much inventory did you have on the 1st of the month?
- Add Your Costs: Add up everything you spent on materials and direct labor this month.
- Count Your Stock: At the end of the month, count how much product is still on your shelf.
- Do the Subtraction: Take your total (Start + Bought) and subtract the End count.
🏢 Real Example: The Pizza Shop 🍕
Imagine you run a small pizza place. To find your COGS for one month, you’d look at these numbers:
- What you started with: You had $500 worth of flour, cheese, and sauce in the pantry on day one.
- What you bought: You spent $2,000 on fresh supplies and $1,500 on pay for your amazing chefs.
- What you have left: At the end of the month, you still have $300 worth of supplies left over.
The Math is Simple: Take your Start ($500), add your New Costs ($2,000 + $1,500), and then subtract what’s Left ($300). Your total COGS for the month is $3,700.
⚠️ Common Mistakes to Watch Out For
- Forgetting Shipping: The cost to get materials to you is part of COGS.
- Guessing Numbers: Always do a real count of your stock for the best results.
- Mixing Costs: Don't include the cost of the delivery driver's gas—that's an office cost!
As explained in the Shopify guide for small business, keeping accurate records is the key to success.
🔗 Related Content
🚀 Final Expert Insight
Accuracy is everything. If you guess your inventory numbers, your profit numbers will be wrong too. Use a simple spreadsheet or our COGS Calculator to keep your math perfect every time.