Cost of Goods Calculation
Episode #10 of the course Fundamentals of importing physical products from China by Damir Serbečić
Finally, we have all the necessary information to calculate COGS (cost of goods sold).
Today, you’ll learn how to calculate COGS using this Excel spreadsheet. I suggest that you download it to follow along.
Cost of goods sold (COGS) is the direct cost attributed to the production of goods sold by a company.
Here is a quick overview of which elements a basic COGS calculation should include.
Product cost: This is the amount you pay to your supplier for production of all products. This amount should exclude shipping cost, packaging, and molds (fixed customization costs).
Packaging: In case you are using regular packaging offered by the supplier, then you can put zero in this field. However, if you have custom packaging made specifically for your needs, then enter the whole amount you paid for packaging—not a per unit amount, but the whole amount.
Molds: In case you pay for special molds (for example, for product customization or logo embossment), enter the amount in the molds field.
Shipping international: In this field, enter the whole amount that you paid for international shipping from the supplier’s facilities in China to your country. For example, for sea shipments, include the cost of getting the goods to the closest destination sea port (including all the shipment handling and processing fees).
Shipping domestic: In this field, enter the shipping cost from the destination sea port to your address. Air shipping is usually door to door, so goods will probably be delivered to your address without any additional cost.
Customs duty and fees: Enter the amount you paid for importing products to your country. Customs duty is, in most countries, a percentage of commercial invoice value (including cost of goods and shipping cost). Customs fees occur when processing customs such as inventory storage, filing customs documents, agency fees, customs broker fees, etc. Calculate both customs duty and customs fee amounts and enter them in this field.
Additional costs: Enter any additional costs you had that weren’t been mentioned above.
Once you have entered values in each field, under TOTAL, you will see the amount you should pay in order to get the goods from China to your destination address.
Number of Units: Enter the number of units you have ordered.
Now you will get the COST OF GOODS PER UNIT. This number shows the cost of product on a per unit basis.
COGS is an important metric that will let you calculate profitability of a product on a per unit basis. Without this metric, you won’t be able to plan your selling price.
I highly recommend that you calculate COGS before you place an order with your supplier. What is the point of ordering inventory if you don’t know your exact numbers?
First, calculate COGS and profitability so you can form a competitive selling price, then order the inventory!
Have a great day and best regards!
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