Understanding cost of goods sold (COGS) in your business

Cost of goods sold, also known as COGS, means one of two things depending on your business. For retail/wholesale businesses, it’s the price that your business paid to get the products that you’ll sell to your customers. For manufacturing businesses, it’s the cost of the raw materials, labour and supplies.

Understanding your business’ cost of goods sold will help you better understand your profits, and where you might be able to improve efficiencies.

How to calculate cost of goods sold

Most small businesses use the following formula to calculate their COGS expense:

Value of goods inventory at the beginning of the period
+
Value of any goods purchased for resale during the period
–
Value of goods inventory at the end of the period
=
The cost of goods sold during the period

And there you have it! Calculating your cost of goods sold is another tool you can use to help your small business succeed.