How to fine-tune your expenses while keeping your business growing.
Understanding COGS
The first expense to understand is COGS — short for Cost of Goods Sold (or Cost of Goods Manufactured). COGS represents the direct costs of doing business. It affects nearly every retailer, e-commerce platform, and manufacturer—and even some service-based companies.
COGS includes all costs involved in bringing a product to market: the product’s purchase price, freight and insurance, tariffs (if applicable), packaging, and other related expenses. For example, if you import products from China, COGS covers every cost required to get those items from the factory to your store, ready to sell.
Because COGS plays such a central role, it has its own dedicated section on the Profit and Loss Statement. Once COGS is calculated, it’s subtracted from total revenue to produce Gross Profit—the money left before accounting for other expenses like advertising, payroll, and office supplies.
If you’ve ever watched Shark Tank, you’ve heard entrepreneurs talk about gross marginand landed cost—both of which are directly tied to COGS.
When Cutting Costs Can Hurt
Since COGS is a direct driver of revenue, cost-cutting here can either help or hurt your business.
- Buying in bulk: You may get a “bulk discount,” but it ties up more cash and increases inventory risk.
- Cheaper manufacturers: You might save money upfront but risk product quality and customer confidence.
In both cases, the wrong move can backfire—reducing cash flow or hurting revenue.
Cutting Smart, Not Deep
The best way to cut costs within COGS is to optimize around the margins:
- Shop for better freight rates or insurance.
- Negotiate or avoid tariffs where possible.
- Eliminate waste in packaging or logistics.
These adjustments improve efficiency without hurting product quality or customer experience.
Final Thoughts
COGS deserves attention every quarter. For most retailers and e-commerce businesses, it’s the single largest expense group—and the one most closely tied to profit. Be deliberate about what you cut. The right choices increase efficiency and profitability. The wrong ones hurt revenue and shrink your margins.
Remember: revenue is still king!!
