Inventory how-to

How to calculate cost of goods sold for a small store

Cost of goods sold (COGS) is what you paid for the products you actually sold in a period.

Short answer: Cost of goods sold (COGS) is what you paid for the products you actually sold in a period. The basic formula is: starting inventory value + purchases made during the period - ending inventory value. You need accurate inventory counts and purchase costs to get a real number.

What counts as COGS

COGS includes the cost you paid your supplier for each unit sold, plus freight or duty if you fold that into your per-unit cost. It does not include your rent, marketing, software subscriptions, or staff wages. Those are operating expenses, tracked separately.

The formula in plain terms

Starting inventory value is what your stock was worth (at cost, not retail) on day one of the period. Purchases is everything you bought and received during the period, at cost. Ending inventory value is what your stock is worth at cost on the last day. Subtract ending inventory from the sum of starting inventory and purchases, and you get COGS for that period.

Why this is different from "units sold x unit cost"

If your unit cost never changes, units sold x unit cost works fine. But if you pay different prices over time (supplier price increases, different freight costs, discounts on bulk orders), you need to track which units at which cost were actually sold. This is where a costing method matters: FIFO (first in, first out) assumes you sell your oldest stock first, which is realistic for most physical goods and keeps COGS closer to your actual supplier costs.

Where small stores go wrong

The most common mistake is using retail price instead of cost price. Another is forgetting to update inventory value when a shipment comes in at a different cost than last time. A third is ignoring partial shipments, where you received 60 of 100 units ordered but counted all 100 as received at cost.

Step by step

  1. List your starting inventory value at cost for the period you are measuring.
  2. Add up all purchases received in that period, valued at what you paid the supplier, not retail price.
  3. Count or pull your ending inventory and value it at cost using the same method (FIFO is the common default).
  4. Subtract ending inventory value from the total of starting inventory plus purchases to get COGS.
  5. If costs changed mid-period, keep a simple log of cost per unit by purchase order so you know which cost applies to which units sold.
  6. Reconcile against your accounting software or bookkeeper at least monthly so COGS stays accurate for tax and margin reporting.

Worked example

Say a small store starts the month with inventory worth $8,000 at cost. During the month they buy $5,000 more stock from suppliers. At month end, a count shows remaining inventory worth $6,500 at cost. COGS = $8,000 + $5,000 - $6,500 = $6,500. That $6,500 is what it cost them to produce the sales they made that month, separate from rent, ads, or wages.

How SteadyShelf helps

SteadyShelf does not calculate COGS, track landed cost, or do accounting. It forecasts demand and manages purchase orders and receiving. For COGS you need your accounting software or a bookkeeper working from your actual supplier costs and inventory valuation.

$29/month flat, unlimited products and suppliers, 30-day free trial. Run the numbers now with the free reorder point calculator.

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FAQ

Does SteadyShelf track landed cost (freight, duty) per unit?

No. SteadyShelf focuses on forecasting, reorder timing, and purchase orders, not landed cost calculations. You will need to add freight and duty to your unit costs manually or in your accounting tool.

Can SteadyShelf help me figure out which costing method (FIFO vs average cost) to use?

No, that is an accounting decision outside what SteadyShelf does. Talk to your bookkeeper or accountant, since the right method can affect your tax reporting as well as your margin visibility.

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