Tracking and Reducing Cost of Goods Sold

Cost of Goods Sold (COGS) is the direct cost of producing or buying the goods you sell. It is the most important cost line in your P&L because it directly determines your gross margin.

COGS includes:

• Product purchase cost (the price you pay your supplier)
• Inbound shipping cost (freight from supplier to your warehouse)
• Import duties and customs fees (for goods imported from outside the UK/EU)
• Packaging specific to the product (if not included in fulfilment cost)

COGS does not include:

• Warehouse rent and staff (these are operating expenses, not COGS)
• Outbound shipping to customers (also an operating expense)
• Marketing and advertising costs
• Payment processing fees

Getting this classification right is important — incorrectly including opex in COGS understates gross margin and makes it harder to compare performance against industry benchmarks.

Go to Products → [product name] → Cost Settings to enter the COGS for each product:

• Purchase cost: the per-unit price you pay your supplier (excl. VAT)
• Inbound freight per unit: total inbound freight for a typical shipment ÷ units in the shipment
• Duties and tariffs per unit: total duties for a typical shipment ÷ units in the shipment
• Product-specific packaging: cost of branded boxes, tissue paper, or inserts specific to this product

For products with variable costs (e.g. price changes with order volume), enter the most recent unit cost and update it whenever your supplier pricing changes.

If you use Xero or QuickBooks with product costs entered, AskBiz can import these automatically — no double entry needed.

Landed cost is the total cost of a product in your warehouse — including purchase price, freight, duties, and any other costs incurred getting the product from your supplier to your shelves. It is almost always higher than the supplier invoice price.

Example landed cost calculation:

• Supplier invoice: £8.00 per unit
• Inbound sea freight (China to UK): £0.60 per unit
• UK import duty (15%): £1.20 per unit
• Customs clearance fee: £0.15 per unit
• Total landed cost: £9.95 per unit

Using only the supplier invoice price (£8.00) in your margin calculations would overstate gross margin by 19% — a significant error for pricing and profitability decisions.

AskBiz has a Landed Cost Calculator (free tool available at askbiz.co/free-tools/landed-cost-calculator) for calculating landed cost per unit before importing product costs.

Supplier price changes — whether annual increases or mid-year revisions — directly impact your gross margin if not reflected in AskBiz immediately.

When a supplier raises prices:

1. Update the purchase cost in Products → [product] → Cost Settings with the new price and effective date

2. AskBiz recalculates gross margin for all future sales at the new cost

3. Historical sales at the old cost are preserved with their original margin figures — so your trend data remains accurate

4. Go to Finance → Margin Impact → Price Change Analysis to see the revenue and margin impact of the cost increase across all affected SKUs

AskBiz will suggest selling price adjustments needed to maintain your target gross margin % — useful when deciding how much of a cost increase to pass on to customers.

Go to Products → Margin Analysis → Sort by Gross Margin % to see your products ranked from highest to lowest margin.

For products with gross margin below your overall average:

• Check whether the landed cost is correctly entered (common errors: freight not included, outdated purchase cost)
• Review whether the selling price was set before the last cost increase and has not been updated
• Assess whether the product is cross-subsidising a more profitable product (some businesses accept low-margin products to drive traffic or complete a range)
• Consider whether to increase the price, reduce the cost through negotiation, or discontinue the product

AskBiz flags products whose margin has fallen below a set threshold in your Daily Brief — go to Intelligence → Alerts → Margin Alerts to configure your minimum margin threshold.