Cost of goods sold (COGS)

Be sure to record your product variant costs in Shopify so that Better Reports can compute your Cost of Goods Sold and Gross Margin accurately.

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Cost of Goods Sold = Product variant x quantity

Gross Margin = Net sales — Cost of Goods Sold

Gross Margin(%) = Gross Margin / Netsales x 100

How is COGS computed when product cost is unspecified?

If the product cost is unknown, Better Reports cannot compute COGS. In such cases, the built-in formula assumes that COGS is equal to Net Sales, resulting in a 0% margin.

As a consequence, your COGS is overstated and your gross margin is understated. This is an arbitrary choice, used as a conservative measure. You could easily create your own COGS and Gross Margin measures to achieve a different outcome. For example, your formula might assume that, if the product cost is unknown, the gross margin should be set to 10% arbitrarily.

A cost of $0 is not the same as an unspecified cost. A cost of $0 means your COGS is $0 and therefore your gross margin is 100%. This is often the case for digital products (an eBook for example).

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Shopify doesn't record the historical cost of product variants (as of the date of the order). As a result, COGS is always computed using the latest / current product costs. For this reason, any time you update a product cost, all historical COGS amounts are updated immediately in all reports. Another consequence is that if you delete a variant, it won't be possible to compute COGS anymore for that variant, because its cost cannot be retrieved anymore.

Why don't COGS in Better Reports match COGS in Shopify?

In Shopify’s native reporting, COGS are recorded at the time of each sale, using the cost that was set at that moment. Better Reports, however, does not have access to historical variant costs since this data isn’t stored in the Shopify API. As a result, COGS in Better Reports is calculated using the current variant cost, and costs will appear as unknown if variants have been deleted.

This method allows you to retroactively update or add costs, but it can also lead to differences between COGS reported in Better Reports and Shopify.