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Cost of goods sold (COGS)

Cost of goods sold (COGS) is what a store paid to buy or make the products it sold in a period, without the costs of selling them.

How it works

Under IAS 2, the international accounting standard for inventories, COGS includes the purchase price, import duties, and inbound transport and handling, minus supplier discounts. Selling costs stay outside it. Revenue minus COGS is gross profit, and gross profit as a share of revenue is the margin.

Google Ads gets COGS from the cost_of_goods_sold attribute in Merchant Center. When conversions with cart data report the items bought, Google matches them with their cost and reports gross profit. For this reporting, a rough estimate or an average cost is enough. Automated discounts and dynamic promotions require the attribute.

Our guide to cart data and COGS in Google Ads covers the setup.

Formula

Unit cost × units sold, added up over the products sold in the period

Where you see it

  • Merchant Center: the cost_of_goods_sold attribute, a number plus a currency code.
  • Google Ads: COGS for the items sold, next to revenue and gross profit, once cart data is in place.

Example

Example store, not client data.

The tableware shop sold goods for 180,000 through its ads in a month. It had paid its suppliers 117,000 for those goods, and that is its COGS. Gross profit = 180,000 − 117,000 = 63,000, a 35% margin. Each time a dinner set bought for 390 sells for 600, it adds 390 to COGS.

Not to be confused with

  • Contribution margin — takes out delivery, payment fees and other per-order costs on top of COGS.
  • Markup — profit as a share of COGS, not of the price: the dinner set’s 210 (600 − 390) is a 53.8% markup but a 35% margin.

Right and wrong readings

  • Wrong: “COGS is the value of the stock in the warehouse.” Right: under IAS 2, the cost of goods becomes an expense when the revenue from them is recognised, so unsold stock stays out of COGS.

Sources