Shopify Cost of Goods Sold: Strategies for Higher Profit

Revenue looks strong, but profit disappoints. Most Shopify sellers track sales closely but treat the cost of goods sold (COGS) as an afterthought.

You estimate product costs, forget to include shipping and import duties, and discover months later that your best-selling product actually loses money.

Shopify cost of goods sold determines which products deserve more inventory investment and which should be discontinued. Inaccurate COGS creates an illusion of profitability while cash drains away.

In this guide, you will learn how to calculate true COGS, which hidden costs most sellers miss, and how accurate tracking transforms inventory and pricing decisions.

Understanding Shopify cost of goods sold

Shopify cost of goods sold (COGS) includes every direct expense required to get a product into a customer’s hands. For merchants, this means more than just the supplier invoice.

COGS should capture product cost, inbound shipping, import duties, direct labor, packaging, payment processing fees, and any fulfillment or marketplace fees tied directly to each sale.

Shopify’s COGS field, found in the product admin under “Cost per item,” is a starting point. However, it only tracks the value you enter, typically the product cost. It does not automatically include shipping, fees, or returns.

In contrast, accounting platforms like QuickBooks or Xero allow for more granular cost tracking, but require manual mapping or integration.

COGS is the foundation for every pricing, margin, and inventory decision you make. Underestimating COGS leads to underpricing, overstocking, and invisible margin leaks.

But knowing what goes into COGS is only the start. The real risk is what happens when these numbers are wrong.

Suggested read: Shopify Xero Integration: Streamline Your Accounting

Why COGS accuracy matters: Avoiding margin killers and pricing pitfalls

Even minor Shopify cost of goods sold accounting errors can destroy margins and lead to costly pricing mistakes.

The most common accuracy errors include missing shipping costs, misclassifying fees, and failing to update product costs after supplier changes. Manual methods often miss hidden costs, like shipping, fees, and returns, that accounting automation tools can capture.

Most Shopify merchants miss the true costs by omitting fees, returns, and channel-specific expenses.

To protect your margins, you need a consistent, transparent COGS calculation process, especially as your business grows.

Calculating Shopify cost of goods sold: Step-by-step

A consistent, transparent COGS calculation process protects your margins and enables smarter decisions.

Follow this process to calculate Shopify cost of goods sold:

1. Track inventory purchases and receipts: Record every product purchase, including supplier invoices, inbound shipping, and import duties.
2. Choose and document your inventory valuation method: Use FIFO (First-In, First-Out) or weighted average cost. Apply your method consistently for accurate reporting
3. Include all costs: Add product cost, shipping, packaging, direct labor, payment processing, and marketplace fees for each SKU
4. Account for returns, refunds, and discounts: Adjust COGS for returned items, restocking costs, and any discounts that affect net revenue.
5. Update COGS regularly: Review and update costs monthly or per batch to reflect supplier price changes, new fees, or operational shifts.

Tools like Webgility automate the capture of shipping, payment, and marketplace fees, ensuring your COGS reflects every cost, not just product price.

With accurate COGS in hand, you can set prices that protect your margins and fuel growth.

Suggested read: How to Calculate Cost of Goods Sold (COGS) in QuickBooks

Connecting COGS to pricing strategy: Using cost data to set profitable prices

Pricing without true COGS data is guesswork. Aligning price to cost is the only way to protect margins.

To set profitable prices, use this formula:

Price = COGS / (1 – target margin)

For example, if your COGS is $20 and your target gross margin is 50%, your minimum price should be $40 ($20 / 0.5).

Adjust pricing by channel or SKU to reflect different fee structures. For instance, a $30 SKU may net different margins on Shopify (lower fees) vs. Amazon (higher referral and fulfillment fees). Always calculate channel-specific COGS before setting prices.

Channel comparison:

Table 1: Amazon vs. Shopify

Once your pricing is aligned with the true Shopify cost of goods sold, the next step is to expand your margin.

Suggested read: Shopify Amazon Integration: Step-by-Step Guide for Merchants

Optimizing Shopify cost of goods sold for higher margins

Operational accuracy is as important as supplier discounts. Ecommerce automation prevents hidden COGS leaks and unlocks margins.

Supplier-side tactics:

• Negotiate volume discounts and better payment terms
• Consolidate vendors to unlock preferred pricing
• Review supplier contracts annually for hidden fees

Operational accuracy:

• Prevent inventory misalignment and shrinkage with regular counts
• Automate order and fee capture to avoid manual entry mistakes
• Sync inventory and accounting data to eliminate double entry

Webgility’s real-time inventory sync and automated fee mapping help prevent costly COGS errors. 

However, even with tight operations, multichannel selling introduces new Shopify cost of goods sold challenges that manual processes cannot handle.

Suggested read: Best Shopify Integrations to Grow Your Store

Multi-channel COGS challenges: Why manual tracking breaks at scale

Tracking Shopify cost of goods sold manually works when you sell one product on one platform. Add Amazon, eBay, a retail store, and wholesale accounts, manual COGS tracking collapses under its own complexity.

Different fee structures per channel

Amazon charges 15% referral fees plus FBA fulfillment costs. Shopify charges payment processing fees. eBay adds final value fees and promoted listings costs.

Each channel erodes margins differently, but most sellers use the same COGS across all channels.

Your Shopify product might be profitable, while the same item loses money on Amazon after FBA fees. Without channel-specific COGS, you cannot see which platforms actually make money.

Suggested read: Shopify Automations to Eliminate Bottlenecks & Boost Profits

Landed costs vary by fulfillment method

FBA products include inbound shipping and prep costs. Merchant-fulfilled orders add pick, pack, and outbound shipping. Retail store inventory avoids marketplace fees but includes rent and labor.

The same product has three different true costs depending on how it ships. Manual tracking averages these costs, hiding which fulfillment methods destroy margins.

Returns impact COGS differently by channel

Amazon return rates run higher than Shopify for most categories. Returned inventory often cannot be resold at full price. Some channels charge restocking fees.

Manual COGS tracking ignores return rates, overstating profitability on high-return products. A product with 30% returns on Amazon and 5% on Shopify needs different COGS calculations, not one blended number.

Volume makes manual updates impossible

At 50 orders monthly, you can manually update COGS when supplier costs change.

At 500 orders across four channels, updating COGS becomes a full-time job. Supplier price increases, new import duties, and shipping cost changes happen constantly.

Manual accounting systems lag behind reality by weeks or months, meaning every pricing and inventory decision is based on outdated cost data.

Common Shopify cost of goods sold mistakes and how to avoid them

Most Shopify cost of goods sold errors come from incomplete tracking or outdated data. These mistakes quietly erode margins until a product you thought was profitable turns out to break even or lose money.

Here are the most common errors and how to fix them.

• Excluding shipping and import duties from product cost: Most sellers only track supplier invoice prices. Add inbound freight, customs duties, and brokerage fees to calculate the true landed cost
• Using the same COGS across all channels: Amazon FBA costs differ from Shopify merchant fulfillment. Calculate channel-specific COGS that include platform fees and fulfillment expenses
• Forgetting to update COGS when supplier prices change: Supplier costs shift quarterly or more. Schedule monthly COGS reviews and update immediately when invoices show price changes
• Ignoring packaging and prep costs: Poly bags, boxes, inserts, and FBA prep labor add up. Track these per-unit costs separately and include in total COGS
• Not accounting for returns and damaged goods: High return rates reduce effective margins. Factor average return rates by product and channel into COGS calculations
• Mixing inventory valuation methods across channels: Choose FIFO, LIFO, or weighted average and apply consistently. Switching methods between channels creates accounting chaos
• Manual spreadsheet updates that lag reality: Costs change faster than spreadsheets update. Automate COGS sync between purchasing, inventory, and accounting systems

Webgility automates COGS tracking by syncing orders, fees, and inventory costs across Shopify, Amazon, marketplaces, POS systems, and QuickBooks in real time.

The platform calculates true channel-specific profitability by factoring in marketplace fees, payment processing costs, and shipping expenses that manual tracking misses.

Webgility users close their books 3x faster and eliminate 90% of manual errors by automating COGS sync and reconciliation. Schedule a demo today.

Frequently asked questions (FAQs)

How often should I update my Shopify COGS?

It is best to update your COGS monthly or whenever supplier costs, shipping rates, or fees change to keep your data accurate.

What costs are commonly missed in COGS calculations?

Shipping, payment processing, marketplace fees, returns, and packaging are frequently overlooked when calculating COGS.

Can Shopify report COGS by channel or SKU?

Shopify reports COGS by SKU, but not by channel. For channel-level profitability, integrated tools like Webgility are recommended.

How does automation improve COGS accuracy?

Automation captures every order, fee, and return in real time, reducing manual errors and providing up-to-date cost data.