COGS (cost of goods sold) is the direct cost of the products you actually sold. For a brand that buys finished stock, it is mainly the purchase price plus the costs of getting goods into your warehouse. For a brand that makes its own products, it includes raw materials and direct production costs. It is the biggest single input to your margin, and so to every profit-based ad metric.
What COGS includes and excludes
| Usually in COGS | Usually not in COGS |
|---|---|
| Product or manufacturing cost | Ad spend |
| Raw materials and direct labour for production | Salaries of the marketing and office team |
| Inbound freight, import duty and customs charges | Rent for offices |
| Primary packaging that is part of the product | Software and tools |
Outbound shipping to customers, payment fees and returns are usually treated as separate variable costs rather than COGS. Both groups matter for contribution margin. Accounting rules differ by country, so follow your accountant's definitions for statutory reports.
Two ways to use it
Per unit, for ad decisions: the landed cost of one item. A serum you buy for ₹180, with ₹20 of freight and duty per unit, has a unit COGS of ₹200.
Per period, for accounts: opening inventory + purchases − closing inventory. This captures what was actually used up in the period.
Worked example: COGS to POAS
Example: one week of Meta-driven orders for a single product.
| Line | Amount |
|---|---|
| Units sold | 100 |
| Revenue | ₹1,20,000 |
| Unit COGS | ₹350 |
| Total COGS | ₹35,000 |
| Shipping, packaging, fees and returns | ₹25,000 |
| Gross profit after variable costs | ₹60,000 |
| Ad spend | ₹40,000 |
| ROAS | 3.0 |
| POAS | 1.5 |
The POAS calculator runs this sum for any product.
Why COGS matters for Meta ads
Meta optimises for the purchase value you send, which is usually revenue. It can't see that one product costs ₹150 to make and another ₹900. When products have very different COGS, the same ROAS can mean very different profit. Knowing unit COGS lets you:
- Calculate break-even ROAS per product.
- Decide which products to feature in Advantage+ catalog ads.
- Spot when a discount pushes an item below its cost after ads.
Common mistakes
- Using the factory price and forgetting freight, duty and inbound handling.
- Updating prices but not COGS when supplier costs change.
- Treating COGS as the only cost, which leaves out shipping and returns and makes margins look better than they are.
- Using one blended COGS percentage for a catalogue with very different products.
Frequently asked questions
What is included in cost of goods sold?
COGS includes the direct cost of the products you sold, such as the purchase or manufacturing price, raw materials, direct production labour and the freight, duty and handling to get stock into your warehouse. Ads, office salaries and rent are not part of COGS.
How do I calculate COGS for my online store?
For a period, use opening inventory plus purchases minus closing inventory. For ad decisions, work out the landed cost per unit: supplier price plus inbound freight, duty and handling, divided by the units received.
Is shipping to customers part of COGS?
It depends on your accounting method, and many brands record it separately. For ad decisions it doesn't matter where it sits, as long as it is subtracted somewhere before you calculate contribution margin, break-even ROAS and POAS.
Why does COGS matter for Facebook ads?
Meta optimises for revenue, not profit. Two products with the same ROAS can leave very different profit if their COGS differs. Knowing COGS lets you set product-specific targets and judge campaigns on POAS rather than ROAS alone.
