Enter your inventory numbers on the left and click Calculate COGS to see your full cost breakdown.
Cost of goods sold (COGS) is the total direct cost of making or buying the products your business sold during a specific period. It is one of the most important numbers on any income statement.
COGS covers the actual cost of the inventory that left your shelves and went to customers. It does not include indirect costs like office rent, sales staff salaries, or marketing spend — those are called operating expenses and sit lower on the income statement.
Knowing your COGS helps you set the right prices, understand how profitable each sale is, and make smarter purchasing decisions. Once you have your COGS, you can use a selling price calculator to work out what to charge customers. A rising COGS without a matching rise in revenue is a clear warning sign for any business owner.
The standard accounting formula used worldwide is:
Beginning Inventory is what you had in stock at the start. You add everything you bought or produced during the period. Then you subtract what is still unsold at the end. What is left is the cost of everything you actually moved out the door.
Example: You start with $10,000 of goods, buy $25,000 more, and end the period with $8,000 unsold. Your COGS is $27,000.
Once you know COGS, you can quickly find two other vital metrics:
Gross margin tells you what share of each dollar of sales you keep before operating expenses. A 40% gross margin means for every $100 sold, $40 remains to cover overhead and profit. To calculate the exact percentage to add on top of your cost, try the markup calculator.
| Industry | Typical Gross Margin |
|---|---|
| Software / SaaS | 70 – 85% |
| Retail – Apparel | 45 – 60% |
| Retail – General | 25 – 45% |
| Restaurant / Food | 60 – 70% |
| Manufacturing | 20 – 40% |
| Wholesale / Distribution | 15 – 30% |
| Grocery / Supermarket | 20 – 30% |
The method you use to value inventory directly changes your COGS — even with the exact same physical goods:
How much COGS to expect at different revenue levels and cost ratios.
| Revenue ($) | COGS 30% | COGS 40% | COGS 50% | COGS 60% | COGS 70% |
|---|
Values show expected COGS at each revenue level for the given COGS-to-revenue percentage.
Find gross profit and margin for a range of revenues and COGS amounts.
| Revenue ($) | COGS ($) | Gross Profit | Gross Margin % | Markup on Cost % |
|---|
Gross Margin = (Revenue − COGS) ÷ Revenue × 100. Markup = (Revenue − COGS) ÷ COGS × 100.
How COGS rules differ by country and accounting framework.
| Region / Standard | LIFO Allowed? | FIFO Allowed? | Avg Cost? | Notes |
|---|---|---|---|---|
| USA (US GAAP) | Yes | Yes | Yes | Only major economy permitting LIFO |
| EU / UK (IFRS) | No | Yes | Yes | LIFO prohibited under IAS 2 |
| Canada (ASPE/IFRS) | No | Yes | Yes | IFRS adopted; LIFO not permitted |
| Australia (AASB) | No | Yes | Yes | Follows IFRS; LIFO banned |
| India (Ind AS) | No | Yes | Yes | Converged with IFRS standards |
| China (CAS) | No | Yes | Yes | LIFO eliminated since 2007 reform |
| Japan (JGAAP) | Yes* | Yes | Yes | LIFO permitted but rarely used |
| Brazil (BR GAAP) | No | Yes | Yes | Adopts IFRS framework |
* Check current local regulations as rules may change. This table is for reference only.
Markup is based on cost; margin is based on selling price. They are different numbers for the same profit.
| Markup on Cost % | Gross Margin % | Sell Price if Cost = $100 | Gross Profit if Cost = $100 |
|---|
Gross Margin = Markup ÷ (1 + Markup). Markup = Gross Margin ÷ (1 − Gross Margin). Always verify which formula your accounting system uses.
Typical COGS-to-revenue ratios across different business types. Use these to benchmark your own numbers.
| Industry | Avg COGS % | Avg Gross Margin % | Key Cost Driver |
|---|---|---|---|
| Software / SaaS | 15 – 30% | 70 – 85% | Hosting, support, licenses |
| Financial Services | 20 – 35% | 65 – 80% | Transaction & servicing costs |
| Healthcare | 35 – 55% | 45 – 65% | Medical supplies, direct staff |
| Restaurant / Food Service | 28 – 38% | 62 – 72% | Food ingredients, kitchen labor |
| Retail – Apparel | 40 – 55% | 45 – 60% | Product cost, import duties |
| Retail – Electronics | 65 – 80% | 20 – 35% | High component cost, competition |
| Retail – Grocery | 70 – 80% | 20 – 30% | Perishable goods, volume pricing |
| Manufacturing – Auto | 70 – 80% | 20 – 30% | Raw materials, assembly labor |
| Manufacturing – Consumer | 55 – 70% | 30 – 45% | Materials, factory overhead |
| Wholesale / Distribution | 70 – 85% | 15 – 30% | Product acquisition cost |
| Construction | 65 – 80% | 20 – 35% | Materials, subcontractors |
| E-commerce | 40 – 65% | 35 – 60% | Product cost, fulfillment, returns |
Ranges vary by company size, pricing strategy, and region. Use as a starting benchmark, not a hard rule.