Understanding COGS
Cost of Goods Sold, or COGS for short. Simply put, COGS is like the price tag on all the materials you use to make your awesome products.
Imagine you’re baking cookies. You need flour, sugar, chocolate chips, and other ingredients, right? Well, those ingredients cost money. The total amount you spend on all those ingredients is your COGS for your cookies.
Now, let’s relate it to your Etsy shop. Whether you’re crafting jewelry, print on demand, or sewing clothes, you need materials like beads, paint, fabric, etc. to create your products. Each of those materials has a cost. Add up all those costs, and you get your COGS for each unique item.
Why Do You Need COGS?
Understanding COGS is crucial because it tells you if you’re pricing your items correctly and if you’re making enough money to cover your costs and hopefully make some net profit too!
Tracking monthly COGS are equally as important because it is a major monthly expense that could make or break your business model.
Tracking COGS do many things for your Etsy business including:
Accurate Profit Calculation: Knowing your COGS allows you to accurately calculate your profit margins on each sale. By subtracting your COGS from your revenue, you get a clearer picture of your profitability.
Price Setting: Understanding your COGS helps you set prices for your products more effectively. You can ensure that your prices cover not only your production costs but also other expenses and desired profit margins.
Identifying Profitable Products: By tracking COGS for each product, you can identify which items are the most profitable and focus your efforts on promoting and expanding those product lines.
Budgeting and Financial Planning: COGS data helps in creating budgets and financial forecasts for your business. It allows you to estimate future expenses accurately and make informed decisions about investments and growth strategies.
Tax Reporting: Tracking COGS is essential for accurate tax reporting. It allows you to deduct the cost of goods sold from your revenue, reducing your taxable income and potentially lowering your tax liability.
Identifying Cost-saving Opportunities: By analyzing your COGS data, you can identify areas where you can reduce costs without compromising product quality. This could involve finding cheaper suppliers, optimizing production processes, or streamlining operations.
How To Calculate Your COGS
When calculating your Cost of Goods Sold for your Etsy shop, it's essential to consider all the expenses directly related to creating and delivering your products to your customers. Packaging materials such as boxes, envelopes, bubble wrap, tissue paper, stickers, or any other materials you use to package your items before shipping them out should be included in your COGS calculation. If you pay employee wages or pay per unit for someone to help make the product you will also want to include this as well.
Here’s a simple example: You sell a necklace for $50.
It cost you $10 to buy all the beads and chains to make it
Maybe $8 worth of labor
$2 for packaging the item including a product insert before it ships to your customer
Then your COGS is $20. This means you made $30 in gross profit before marketing, shipping and selling fees ($50 - $20 = $30) from selling that necklace.
How To Upload Cost Of Goods Sold (COGS) In ProfitTree and Begin Tracking?
Within ProfitTree, you have a few easy ways to start tracking your cost of goods sold.
Option 1: Printify and/or Printful Easy Integration
Do you sell products from Printify or Printful?
Navigate to our integrations tab and with 1 click you can connect your Printify and/or Printful account to start tracking your cost of goods immediately!
Please Note: For this to work properly you must utilize the SKUs that Printify or Printful gives you at the time of publishing your listings on Etsy
Option 2: Input Your COGS Manually With or Without SKUs
If you do not use a SKU system you can still track your product costs in your ProfitTree account by going to
Product Costs > Select the pencil icon on the product your adding COGS >
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Option 3: Upload in bulk (this option requires existing SKUs on Etsy)
Under your Product Cost tab, you can use our bulk COGS uploader feature
Please watch video for full breakdown of how to upload your product costs in bulk
Need a SKU system for your Etsy products? Click Here to use our free SKU Generator