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COGS in e-commerce: product cost determines whether revenue creates value

Without reliable product cost, a profitability dashboard can show an impressive result that does not reflect the true economics of the store.

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What COGS means in practice

COGS is the cost of the products corresponding to sales in the selected period. It is not the same as total inventory purchases or every operating expense. Product profitability requires a consistent way to associate cost with the products that were actually sold.

Why cost coverage matters

If COGS is known for only half of the catalog, the remaining revenue can appear to generate profit without product cost. Instead of treating missing cost as €0, measure coverage and improve the products responsible for the largest share of sales first.

A practical way to start

You do not need to solve the entire catalog on day one. Start with best sellers, add a consistent unit cost and define when it became effective. When purchase cost changes materially, preserve the effective date so historical and new sales are not calculated with the same arbitrary cost.

What to check in practice

✓ Add COGS first to products generating the most revenue.
✓ Measure product-cost coverage before relying on product profit.
✓ Use effective dates when unit cost changes.
Business Truth formulaNet Revenue − COGS − Shipping − Payment Fees − Ad Spend − Other Costs = Estimated Profit

FAQ

Are COGS and purchase cost always the same?

Not necessarily. Profitability requires the cost methodology you choose to be applied consistently to the products sold.

What if I do not have cost for every SKU?

Start with products covering the largest share of revenue and treat the rest of the result as lower-confidence until coverage improves.

Move from the theory to your real store data

Kepio lets you follow the same profitability logic without maintaining the calculation manually in spreadsheets.

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