COGS Calculator for CPG Brands

What Is Cost of Goods Sold?

Cost of Goods Sold represents the direct costs your business incurs to produce the products you sell. Think of it as everything that goes into getting a finished product ready to ship out your door.

This isn't about your marketing spend or your office rent. COGS is purely about production. The ingredients in your granola. The bottle your kombucha sits in. The wages you pay the people running the production line. The fee your co-packer charges to turn raw materials into finished goods.

When you subtract COGS from your revenue, you get your gross profit. And your gross profit is what pays for everything else in your business.

The Basic COGS Formula

The standard formula is straightforward:

COGS = Beginning Inventory + Purchases - Ending Inventory

Let's break that down:

Beginning Inventory is the total value of finished goods and raw materials you had at the start of your accounting period. If you're calculating monthly COGS, this is what you had on the first day of the month.

Purchases includes everything you bought during that period to produce your products. Raw materials, packaging components, co-packer fees, and direct labor all fall into this bucket.

Ending Inventory is what's left at the end of the period. By subtracting this, you're isolating just the costs associated with products that actually sold.

What Goes Into COGS for CPG Brands

This is where things get CPG-specific, and where we see founders miss costs all the time.

Your COGS should include raw materials and ingredients (the actual stuff that goes into your product), all packaging components (primary packaging like bottles and pouches, labels, caps, and secondary packaging like cartons and cases), direct labor costs for production workers and quality control, co-packer or contract manufacturer fees, inbound freight to get materials to your production facility, and manufacturing overhead that's directly tied to production like facility costs and equipment depreciation.

What shouldn't be in COGS? Marketing and advertising expenses, office rent and administrative salaries, outbound shipping to customers and retailers, sales team compensation, and software subscriptions for running your business. These are operating expenses, not production costs.

How to Calculate Your COGS: A Real Example

Let's walk through this with a fictional brand to make it concrete.

Meet Good Morning Granola, a small-batch granola company selling through both DTC and wholesale channels. They're calculating their COGS for Q1.

At the start of the quarter, they had $15,000 worth of inventory sitting in their 3PL warehouse. This includes finished granola bags ready to ship plus some raw ingredients waiting to be used in the next production run. That's their beginning inventory.

Throughout Q1, they spent $45,000 on production. This includes $18,000 on oats, nuts, honey, and other ingredients. Another $8,000 went to packaging, covering bags, labels, and shipping cartons. Their co-packer charged $12,000 for the production runs. Inbound freight to get everything to the co-packer cost $3,000. And they spent $4,000 on quality testing and direct labor for production oversight. All of that adds up to $45,000 in purchases.

At the end of Q1, they count their inventory and find $12,000 worth of product and materials remaining. That's their ending inventory.

Now we calculate:

COGS = $15,000 + $45,000 - $12,000 = $48,000

Good Morning Granola's Cost of Goods Sold for Q1 was $48,000.

If they generated $120,000 in revenue during that same period, their gross profit is $72,000 ($120,000 minus $48,000). Their gross margin is 60% ($72,000 divided by $120,000).

That's a healthy margin for a DTC-focused granola brand. But if they were primarily selling through retail and distributors, that margin would get squeezed significantly by the time everyone takes their cut.

Why COGS Matters More Than You Think

We get it. Calculating COGS feels like accounting homework. But here's why we push every brand we work with to know this number cold.

Your Pricing Strategy Lives or Dies Here

If you don't know your true COGS, you're guessing at your pricing. And guessing in CPG is expensive.

We've seen brands price their products based on competitor pricing or "what feels right" without realizing their COGS was so high they were losing $0.50 on every unit. Multiply that by tens of thousands of units, and you've got a business that looks successful on the top line but is bleeding cash.

Your COGS tells you the floor for your pricing. Everything above that is what you have to work with for marketing, operations, profit, and growth.

Retail Margins Are Brutal

This is something founders entering retail for the first time often learn the hard way.

When you sell through traditional retail, the retailer typically expects a 30-40% margin. If you're going through a distributor first, they're taking 15-25% off the top before the retailer even gets involved.

Let's say your product retails for $8.00. The retailer pays maybe $4.80 for it. If you're going through a distributor, you might see $3.60 to $4.00. Now subtract your COGS.

If your COGS is $2.50 per unit, you've got $1.10 to $1.50 left to cover everything else in your business: marketing, salaries, 3PL fees, software, and hopefully some profit. That's why understanding your COGS isn't academic. It determines whether retail is even a viable channel for your brand.

Small Cost Increases Compound Fast

Here's a scenario we walk through with clients regularly.

You have a product that costs $2.00 to make, and you sell it for $10.00. You move 20,000 units a year. Your gross profit per unit is $8.00, which means you're generating $160,000 in gross profit annually.

Now your co-packer raises rates. Your ingredient costs go up because of supply chain issues. Packaging gets more expensive. Suddenly your COGS is $3.00 per unit instead of $2.00.

Your gross profit per unit dropped to $7.00. At 20,000 units, you're now generating $140,000 in gross profit. That's $20,000 less from a $1.00 increase in COGS.

And that's before you've sold a single additional unit or spent a dollar more on growth.

Common COGS Mistakes We See CPG Founders Make

After years of working with brands at every stage, we've noticed the same mistakes come up repeatedly. Here's what to watch out for.

Forgetting Inbound Freight

This one catches so many founders off guard.

You've got a great deal on almonds from a supplier in California. The per-pound price is excellent. But your co-packer is in New Jersey. By the time you factor in shipping costs to get those almonds across the country, that "great deal" has added 15-20% to your actual ingredient cost.

Inbound freight is part of your COGS. If you're not tracking it separately and allocating it to your products, you're underestimating your true costs.

One of our clients was sourcing from a supplier based on product cost alone. When we helped them analyze total landed cost including freight, they found a regional supplier that was actually cheaper despite a higher per-unit price.

Underestimating Packaging Costs

Packaging is often treated as an afterthought, but for many CPG products, it represents 15-25% of total COGS.

Think about everything that goes into getting your product shelf-ready: the primary container (bottle, pouch, jar, box), labels or printed packaging, caps, seals, and closures, inner packaging like dividers or tissue, secondary packaging like cartons and cases, and sometimes tertiary packaging for palletization.

We worked with a beverage brand that was laser-focused on optimizing their ingredient costs while ignoring that their glass bottles and custom labels were eating up nearly 30% of their COGS. A switch to a standard bottle format saved them $0.40 per unit.

Not Updating COGS Regularly

Your COGS isn't a set-it-and-forget-it number. Costs change constantly.

Commodity prices fluctuate. Co-packers adjust their rates. Packaging suppliers raise prices. Freight costs spike (anyone remember 2021?). If you calculated your COGS 18 months ago and haven't revisited it, you're probably making decisions based on outdated information.

We recommend doing a detailed COGS review quarterly, at minimum. And any time you change suppliers, packaging, or production processes, recalculate immediately.

One of our clients increased their margins by 9% simply by auditing their COGS and making two changes: reformulating a recipe to use less of an expensive ingredient and switching from hand-assembled boxes to auto-bottom cartons.

Planning Around Future Volume Discounts

This is a trap we see optimistic founders fall into.

"Our COGS is high now, but once we hit 50,000 units, we'll get volume pricing and our margins will be great."

The problem? You need to survive until you hit 50,000 units. If your current margins don't support the business, you might never get there.

We always tell brands: make sure your unit economics work at your current volume. Volume discounts are a bonus, not a business plan. Don't price based on costs you haven't achieved yet.

How to Lower Your COGS Without Sacrificing Quality

The good news is that COGS isn't fixed. There are legitimate ways to bring down your costs without cutting corners on your product.

Audit Your Suppliers Annually

Supplier relationships can get comfortable, and comfortable relationships often mean you're leaving money on the table.

Once a year, get quotes from alternative suppliers for your key ingredients and packaging. You don't have to switch. But knowing what the market looks like gives you leverage to negotiate, and you might find a better option you didn't know existed.

We also recommend having backup suppliers identified for critical materials. It's not just about cost; it's about supply chain resilience. We've seen brands get caught flat-footed when their single-source supplier had production issues.

Optimize Your Packaging

Packaging is often the lowest-hanging fruit for COGS reduction.

Consider whether you actually need that custom bottle shape, or if a stock option would work just as well. Look at your secondary packaging. Do you need that printed box, or would a plain carton with a branded sticker accomplish the same thing? Examine material weights. Sometimes a slightly thinner gauge works fine and costs less.

Sustainable packaging options have also gotten surprisingly cost-competitive. We've seen brands switch to recyclable materials and actually save money while improving their brand story.

Improve Your Demand Forecasting

Bad forecasting is a hidden COGS killer.

When you under-forecast, you end up placing rush orders at premium prices and paying expedited freight. When you over-forecast, you're sitting on inventory that ties up cash, takes up warehouse space, and might expire before you can sell it.

Getting your demand planning right means buying at optimal quantities, timing production runs efficiently, and minimizing waste. This is one of the core things we help brands with at Bravo CPG because the downstream impact on COGS and cash flow is significant.

Negotiate Smarter with Your Co-Packer

Your co-packer relationship has a huge impact on your COGS, and there's often more flexibility than founders realize.

Consider consolidating production runs to reduce changeover costs. Explore whether you can provide your own packaging or ingredients at a lower cost than their sourced options. Ask about tiered pricing for volume commitments you can actually meet.

Building a strong partnership with your co-packer also means fewer production issues, less waste, and better yields, all of which affect your bottom line.

COGS and Your Financial Statements

Understanding how COGS fits into the bigger picture helps you speak the language of investors and lenders.

COGS, Gross Profit, and Net Profit

These three numbers tell the story of your business's profitability at different levels.

Gross Profit is your revenue minus COGS. This tells you how much you're making on the products themselves before accounting for the costs of running the business.

Gross Margin is gross profit divided by revenue, expressed as a percentage. This is the metric investors often focus on because it shows the fundamental profitability of your product.

Net Profit is what's left after you subtract all operating expenses (marketing, salaries, rent, etc.) from your gross profit. This is your actual bottom line.

A business can have strong gross margins but still lose money if operating expenses are too high. Conversely, if your gross margins are thin, no amount of operational efficiency will make the business truly profitable.

What's a Good Gross Margin for CPG?

This varies significantly by category and channel, but here are some benchmarks from our experience:

Food and beverage brands typically see gross margins in the 35-50% range, with DTC-focused brands on the higher end and retail-heavy brands on the lower end.

Beauty and personal care products often achieve 60-70% gross margins due to lower ingredient costs relative to perceived value.

Wellness and supplements can range widely from 50-70% depending on formulation complexity and sourcing.

If your gross margins are significantly below these ranges, it's worth investigating whether you have a COGS problem, a pricing problem, or both.