Cost of Goods Sold (COGS)
COGS is the all-in cost to land one unit at an Amazon fulfilment centre — manufacturing, packaging, freight, duties, and prep. It is the foundation of every margin and bid calculation; getting it wrong cascades into every other metric.
Cost of Goods Sold (COGS) for an Amazon SKU is the fully-landed unit cost: the per-unit price to acquire or manufacture the product plus every cost required to get one unit through the warehouse door at the Amazon FC.
COGS = Manufacturing Cost + Packaging + Inbound Freight + Duties + Customs Broker + Prep
It is not just the supplier invoice price. A supplier quote of €4.50/unit can become a landed COGS of €7.20 after freight, duty, prep, and inbound allocation — a 60% inflation that destroys any margin model built on the invoice number alone.
Components
- Unit manufacturing cost. Supplier invoice price per unit (FOB factory).
- Inbound freight. Sea/air/road shipping per unit. Highly variable — a 40' container at €4,000 with 8,000 units is €0.50/unit freight; the same container at €12,000 (peak season) is €1.50/unit.
- Duties and import VAT (recoverable in some regimes, not in others — model both scenarios).
- Customs broker / clearance fees.
- Inland transport to the prep centre or 3PL.
- Prep costs. Labelling (FNSKU), poly-bagging, bundling. Either Amazon's FBA Prep service fee or the 3PL's per-unit prep rate.
- 3PL handling if inventory passes through a 3PL before going inbound to Amazon.
The IPSF (Inbound Placement Service Fee) is sometimes lumped into COGS, sometimes treated as an FBA-side cost. Be consistent.
Why precision matters
The bid math chain:
COGS → Gross Margin → Target ACOS → Max CPC → every bid in the account
A 5% error in COGS produces roughly a 5% error in every bid. Across a 12-month account at €500k ad spend, that's €25k of misallocated spend. COGS is not a "rough estimate" line item — it is the foundation rate every other rate sits on.
When COGS changes
- Container freight rates spike or collapse (recompute within days, not months).
- Supplier negotiates a new tier (volume break, currency hedge).
- New tariffs or duty classifications.
- Product redesign affecting BOM or packaging.
- FX moves materially (especially USD/EUR/CNY routes).
Recompute COGS quarterly minimum. After a freight or tariff shock, recompute immediately.
Common mistakes
- Using supplier invoice price as COGS. Misses 30–60% of true landed cost.
- Spreading inbound freight evenly across SKUs in a mixed container. A bulky SKU absorbs more volumetric freight than a small one — allocate by cubic metre, not by unit count.
- Ignoring duty. Especially painful for cross-border accounts.
- Stale COGS. Spent six months computing margin against a freight rate that tripled.