Cost of goods sold (COGS)

COGS covers the per-unit cost of the goods: the supplier price, inbound freight to get stock to you, and per-unit packaging or assembly. If a cost scales with each unit sold, it usually belongs in COGS.

Overheads do not. Rent, software, salaries and advertising are real costs, but they are not the cost of the specific goods sold, so they sit outside COGS and come off later when you work out net profit.

COGS is usually the single largest cost, so if it is wrong, every profit number downstream is wrong. Stores that guess a flat margin instead of tracking real per-product cost often find whole product lines were less profitable than they thought.

Bulk buys make this trickier, because a purchase discount changes the true cost per unit. A good profit tool lets you set cost rules and purchase-discount tiers so COGS stays accurate as your buying changes.