Cost of Goods Sold (COGS) represents the direct costs required to produce the products a business sells. This cost typically including materials, manufacturing, labour, and freight into the warehouse. Common synonyms include: cost of sales, landed cost, and product cost.
Why Cost of Goods Sold Matters
COGS is the foundation of product economics. It helps teams understand:
- How much it truly costs to bring a product to market
- How pricing and margin decisions are shaped
- Where profitability is being created or eroded
- How efficiently the supply chain is operating
- How sustainable the product model is over time
Lower COGS (without compromising quality) gives brands more room to invest, price confidently, and scale.
How COGS Works
COGS typically includes:
- Materials: fabrics, components, trims
- Manufacturing: labour, factory overheads
- Freight and duty: shipping, import taxes, customs
- Packaging: labels, bags, boxes
- Quality control: inspections and compliance
- Production waste: scrap, defects, inefficiencies
Example: If a jacket costs £18 in materials, £10 in labour, £4 in freight, and £3 in duty, the total COGS is £35.
Common Use Cases
- Pricing strategy: setting wholesale and retail prices
- Margin management: understanding profitability at SKU and category level
- Supplier negotiations: improving cost efficiency
- Range planning: prioritising products with healthier economics
- Forecasting: modelling profit scenarios
- Sourcing strategy: evaluating factories, regions, and materials
Related Terms
- Wholesale Margin
- Gross Margin
- Landed Cost
- Pricing Strategy
- Sourcing
- Production
What Cost of Goods Sold Really Tells Us
COGS is often treated as a static number, a fixed input in a margin calculation. But it’s actually a story about how a product comes into existence. Every pound in COGS reflects a decision: which materials to use, which factory to trust, how fast to produce, how far to ship, how much quality to build in.
Rising COGS can signal many things at once: inflation, supply chain strain, design complexity, or a shift in customer expectations toward higher‑quality materials. Falling COGS can signal efficiency, scale, or simplification but also potential compromises if not managed thoughtfully.
COGS also reveal the values of the business. Some brands choose lower COGS to maximise margin; others intentionally invest in craftsmanship, sustainability, or durability, accepting a higher cost because it aligns with their identity. The number alone doesn’t tell you which path was chosen, the pattern over time does.
At its core, COGS is a lens on how a brand balances ambition with reality. It shows the tension between what the product aspires to be and what it costs to make that aspiration real. When teams read COGS not just as an expense but as a narrative, they gain a clearer sense of where their product model is strong, where it’s vulnerable, and where the next smart improvement lies.
