COGS Tracking for Ecommerce: What to Include (and What to Leave Out)

Ecommerce COGS is the sum of every variable cost that moves with units sold. Get the line items right and contribution margin becomes a reliable number you can act on. Get them wrong and you will scale campaigns that are quietly losing money.

Most DTC brands under $20M revenue track COGS as a single percentage of revenue handed to the accountant at year-end. That gap between the real per-SKU cost and the annual estimate is where margin drift hides. A 3-point drift on a $10M business is $300k of contribution margin nobody on the team can find.

This is an operator's guide to what belongs in ecommerce COGS tracking, what does not, and the weekly habits that keep the number honest.

If you are trying to use COGS to diagnose where margin is leaking, start with our profit leak framework. Per-SKU COGS feeds directly into contribution margin by channel and into true ROAS, so the inputs below are the same ones those models need.

What is COGS in ecommerce?

The test is simple. If you sell zero units next month, does the cost still get incurred? If yes, it is an operating expense, not COGS. If no, it belongs in COGS.

What to include in COGS: 8 line items

1. Unit cost (ex-factory)

The price the supplier charges per unit on the PO. For private-label brands this is the FOB price. Pull it from the most recent PO, not an average across the year, because raw-material and tariff moves happen between orders.

2. Inbound freight and insurance

Ocean or air freight from the supplier to your warehouse, plus marine insurance. Allocate freight across the units on the shipment by weight or volume, whichever the carrier invoices on. For air-freighted SKUs this can add 18–35% to ex-factory cost.

3. Import duties and tariffs

HS-code based duties, antidumping fees, and the de minimis / Section 301 layer for US imports from China. US Customs publishes the active Section 301 schedule which operators should reread before every quarterly PO, since rates change.

4. 3PL pick-and-pack plus receiving

The per-order fulfilment fee, plus any per-unit receiving or put-away fee the 3PL charges on inbound pallets. Do not forget long-term storage surcharges on slow-moving SKUs. Pull these from the 3PL's monthly invoice, not the rate card.

5. Packaging and inserts

Mailers, boxes, tape, void fill, thank-you cards, and any SKU-specific inserts. Packaging runs 1–4% of revenue for most DTC brands and gets ignored because it is ordered months apart in bulk. Amortise the purchase price over the units it will pack.

6. Outbound shipping (to customer)

The carrier fee to deliver the order, minus any shipping revenue collected from the customer. If you offer free shipping above a threshold, this is the number most commonly understated because teams use the rate-card price, not the 3PL-negotiated price.

7. Payment processing fees

Stripe, Shopify Payments, PayPal, Affirm, or Klarna fees per order. Stripe is 2.9% plus $0.30 on US cards; BNPL runs 4–6%. Pull from the processor fee export, not an estimate.

8. Returns reserve and reverse logistics

A per-unit reserve for the expected return rate, plus the cost of the return label, restocking labour, and any refurbishment. Apparel and footwear run 20–40% return rates on paid acquisition, per the National Retail Federation's 2024 returns report. A reserve stops the P&L from looking healthy in month one and then hemorrhaging in month three.

What to leave out of COGS

These costs are real and they hit the P&L, but they are not COGS. Keeping them separate is what lets contribution margin tell you anything useful.

• Paid advertising. CAC, not COGS. Rolling ads into COGS hides your acquisition efficiency inside your product economics.
• Warehouse rent, lease, utilities. Fixed cost. Whether you ship 500 orders or 5,000, the rent is the same.
• Salaries (ops, marketing, support). OpEx. Frontline warehouse labour is usually priced through the 3PL invoice, which is already in line 4.
• Software (Shopify, Klaviyo, email). OpEx.
• Influencer fees and sponsorships. Usually CAC. The exception is pay-per-sale affiliate commissions, which are variable and do belong in COGS.

Worked example: the $34 apparel SKU

A DTC apparel brand sells a $68 retail tee. The supplier invoice says $12.40 ex-factory. The team uses $12.40 as COGS, declares 82% gross margin, and approves a Meta campaign with a 2.0x blended ROAS target.

Here is the real landed and delivered COGS on that tee:

Real gross margin on the $68 tee: 50%, not 82%. Contribution margin after a 22% blended CAC drops to 28%. A 2.0x ROAS target that looked comfortable in the old model is now below break-even (2.5x needed at 40% margin; 3.6x at 28%).

How often to refresh COGS

• Weekly: recalculate weighted-average landed cost per SKU using the most recent PO plus freight and duty invoices that landed that week.
• Monthly: reconcile 3PL charges, packaging, and processing fees from actual invoices (not rate cards).
• Quarterly: rebuild the returns reserve on a rolling 90-day return rate per category; update any FX assumptions.
• Per PO: re-price every SKU on the PO the day it clears customs, so the next week's margin reports use the new cost.

How Fairview tracks ecommerce COGS automatically

Fairview connects to Shopify, Stripe, QuickBooks, Xero, and the major ad platforms via native OAuth, then pulls PO and freight data from accounting. Once connected, the operating view rebuilds per-SKU landed cost weekly, fulfilment and processing costs daily, and returns reserves quarterly.

When a SKU's landed cost drifts more than 5% against the last period, Fairview surfaces it in the Monday operating report — not a dashboard to interpret, a sentence: “SKU TEE-003 landed cost rose from $14.20 to $15.85 after the April PO cleared customs. Current retail pricing implies a 4-point margin drop. Review price or supplier terms.”

See pricing and tiers for the plan that fits your stack.

Key takeaways

• Ecommerce COGS is the variable cost of delivering a unit. If it scales with orders, include it.
• Use landed cost (FOB + freight + duties + receiving), not supplier invoice price, as the unit-cost input.
• Keep advertising, rent, salaries, and software out of COGS. They are OpEx and they distort contribution margin if mixed in.
• Build a returns reserve per category. Apparel and footwear need 15–30 percentage points of reserve.
• Refresh weekly, not annually. A 3-point margin drift on a $10M brand is $300k hiding in plain sight.

Frequently asked questions