6.5.1 - Understanding Cost of Goods Sold (COGS) & Landed Cost (Difficulty: Beginner | Path: Launch)

Lesson Summary

Understanding Cost of Goods Sold (COGS) & Landed Cost (Beginner)

What is it?

These are the most critical numbers for knowing if you're profitable. Cost of Goods Sold (COGS) is the direct cost to *produce* your product. For a POD business, this is the $15 your provider charges for the t-shirt.

Landed Cost is the *total* cost to get that single product into your customer's hands. It includes your COGS *plus* all the other 'hidden' fees like shipping, handling, payment processing fees (e.g., from Shopify & Stripe), and any import duties.

Why is it important?

If you don't know your true `Landed Cost`, you cannot set a profitable price. This is the #1 beginner mistake. You might be selling hundreds of products and losing money on every single sale without even knowing it because you forgot to account for shipping and fees.

How to Calculate Landed Cost (Simple Example):

• Product Cost from Supplier (COGS): $15.00
• Shipping Cost to Customer: $5.00
• Payment Processing Fee (approx 2.9% of $25 sale): $0.73
• Total Landed Cost: $20.73

✅ Do's and ❌ Don'ts

• Do: Use the 'Cost per item' field in your Shopify product admin. Entering your `Landed Cost` here allows Shopify's analytics to show you your true profit margin on every product.
• Don't: Only use the supplier's product price as your 'cost.' You're forgetting shipping and fees, which will destroy your profit.
• Do: Calculate this for *every single product*. A mug has a different landed cost than a t-shirt.

Real-Life Example:

A beginner sells a t-shirt for $25. The POD provider charges $15. The beginner *thinks* they are making $10 profit. A pro knows the real math: $25 (Sale) - $15 (COGS) - $5 (Shipping) - $0.73 (Payment Fee) = $4.27 actual profit. This is the difference between thinking you have a 40% margin ($10/$25) and *knowing* you have a 17% margin ($4.27/$25).