Accounting
What Is COGS (Cost of Goods Sold)?
Cost of Goods Sold (COGS) is the direct cost of producing or sourcing the products actually sold in a period, including supplier unit cost, inbound freight, duty and tariffs, customs brokerage, and receiving handling. It sits right below revenue on the P&L, and revenue minus COGS equals gross margin. Outbound shipping, payment fees, marketing, and warehouse rent are not COGS. Typical COGS runs 22 to 30 percent of revenue for beauty DTC and 58 to 72 percent for food and beverage CPG.
Cost of Goods Sold (COGS) is the direct cost of producing or sourcing the products you actually sold in a given period. On your profit and loss statement (P&L), revenue sits at the top and COGS comes right below it. Subtract COGS from revenue and you get gross margin. Everything operating sits below that.
What's in COGS
- Unit cost from your supplier (the bill from your manufacturer)
- Inbound freight from supplier to your warehouse
- Duty and tariffs on imported goods
- Customs brokerage fees
- Inventory handling at the receiving dock
What's NOT in COGS
- Outbound shipping to customers (this is fulfillment cost, which sits below gross margin)
- Payment processing fees (Stripe, Shopify Payments, etc.)
- Marketing spend
- Returns processing
- Warehouse rent (operating cost)
- Office salaries
Typical COGS as percent of revenue
- Beauty / personal care DTC: 22 to 30 percent
- Apparel DTC: 38 to 50 percent
- Outdoor / hardgoods DTC: 42 to 50 percent
- Food and beverage CPG: 58 to 72 percent
- Subscription consumables: 25 to 40 percent
Subtract from 100 percent to get your gross margin. See What is gross margin? and average COGS by vertical.
The most common mistake
Mis-classifying outbound shipping as COGS to artificially boost gross margin percent. It looks great on paper, breaks Generally Accepted Accounting Principles (GAAP), and confuses every CFO and investor who reads your financials. Keep outbound shipping in fulfillment cost where it belongs and let the real gross margin speak.
Frequently Asked Questions
is shipping part of cogs or not?
Inbound shipping (supplier to your warehouse) goes in COGS. Outbound shipping (your warehouse to the customer) does NOT. That sits in fulfillment cost, below gross margin. The distinction matters because it changes your gross margin percent.
do i include duty and tariffs in cogs?
Yes. Duty, tariffs, and customs brokerage fees are all part of landed cost (what it really cost to get the product into your warehouse) and they belong in COGS. With tariff volatility in 2026, this can swing your gross margin by 3 to 5 points.
what about cogs for digital products or software?
Cloud hosting and content delivery for the units actually sold goes in COGS. Engineering payroll and software development sits in operating expense (OpEx), not COGS. The rule of thumb: if a cost scales with units sold, it's COGS. If it's fixed regardless of volume, it's OpEx.
Related Terms
Browse the full ecommerce finance glossary for every metric and money term a DTC operator needs.
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