What is COGS versus what’s not?

I want to ask you something before we go any further into all the margin conversations we've been having.

Do you know exactly what's included in your COGS?

Not the general idea. The actual line items.

What your accounting system is pulling into that bucket, and what it's leaving out.

Because if COGS is miscategorized, your gross margin number is wrong.

And every decision you've made based on that number is built on the wrong foundation.

This is more common than you'd think.

Here's what COGS actually is.

Cost of Goods Sold is the direct cost of producing or purchasing the products you sell. In ecommerce, that means the product cost from your manufacturer, inbound shipping to your warehouse or fulfillment center, customs and duties, and any direct labor for assembly or packaging.

If it took cash to get the product to the point where it's ready to sell, it counts.

Here's what COGS is not.

Advertising is not COGS. It's a marketing expense.

Platform selling fees are not COGS. They're an operating expense, and they belong in a category that lets you see them clearly.

Outbound shipping to the customer usually isn't COGS.

Unless you include shipping as part of the product bundle in your pricing, it's a fulfillment expense.

Storage fees are not COGS. They're an operating cost of doing business.

Software subscriptions are not COGS. Neither is your salary.

If any of those are living in your COGS bucket right now, your gross margin looks worse than it actually is.

Which means you might be making cuts, walking away from products, or holding back on ad spend based on numbers that aren't telling you the truth.

If the opposite is happening, and things that should be in COGS aren't there, your gross margin looks better than it actually is.

Which is a different kind of problem, because you might be doubling down on products or channels that aren't actually as profitable as they look.

Either way, the number is wrong. And so is the decision.

Here's what I want you to do this week.

Pull your P&L and look at what's in COGS, then compare it to the list above.

If there are items in the wrong place, get them corrected.

If you're not sure, get on a call with your bookkeeper and ask them to walk through the categorization with you.

This is a fifteen-minute conversation that can change every margin number in your business.

Then reach out and let's chat about what your gross margin actually looks like once the categories are right.

 Cyndi