COGS

Definition

COGS (Cost of Goods Sold) refers to the direct costs involved in producing or purchasing the products that a business sells.

Explanation

In dropshipping, COGS represents the total cost paid to the supplier to fulfill an order. Since dropshippers do not manufacture products themselves, COGS mainly includes:

• Product cost charged by the supplier
• Shipping fees (if not charged separately to the customer)
• Handling or fulfillment fees (if applicable)

COGS does not include marketing, advertising, or operational expenses—these are counted separately when calculating overall profit.

Understanding COGS helps dropshippers:

• Set profitable pricing strategies
• Calculate profit margins accurately
• Evaluate supplier costs and product viability

Example

A dropshipping store sells a portable blender:

• Supplier product cost: $15
• Shipping cost: $5

Total COGS: $20

If the selling price is $40, the gross profit before other expenses is $20.

Key Takeaway

COGS in dropshipping represents the direct cost of fulfilling each order, making it a key metric for pricing and profitability analysis.