What is COGS (Cost of Goods Sold)?
COGS (Cost of Goods Sold) represents the direct costs incurred to produce or acquire the products you sell. For e-commerce, this typically means your purchase price from suppliers, plus any directly attributable costs like import duties or packaging.
Why COGS Matters for Advertising
Your COGS determines your gross margin — the amount left over after product costs. This margin is what you have available to cover advertising, shipping, platform fees, and profit. Without accurate COGS, you cannot calculate profitable ad bids.
COGS Formula
For per-product calculations (which is what matters for ad bidding), the formula simplifies to:
What to Include in COGS
- Product purchase price — What you pay your supplier per unit
- Import duties & tariffs — Any customs charges on imported goods
- Inbound shipping — Cost to get products to your warehouse (per unit)
- Manufacturing costs — If you produce your own products
- Product packaging — Boxes, bags, inserts included with the product
Traditional Accounting COGS (What's NOT Included)
In traditional accounting, COGS is narrowly defined. These costs are tracked separately:
- Outbound shipping — Operating expense (but essential for profitability calculations)
- Advertising costs — This is your CAC
- Platform fees — Shopify, Amazon commissions (operating expense)
- Payment processing — Stripe, PayPal fees (operating expense)
- Staff wages — Operating expense, not direct cost
Important: COGS Alone Isn't Enough for Advertising
While accounting COGS excludes costs like payment fees and shipping, you cannot make profitable advertising decisions without accounting for ALL variable costs per sale. This is why GROW uses MarginStack — a complete cost picture that includes everything that eats into your margin. The calculator below uses this complete approach.
What is CAC (Customer Acquisition Cost)?
CAC (Customer Acquisition Cost) is the total cost to acquire a new customer. For e-commerce brands running paid advertising, this is dominated by your ad spend, but can include other marketing costs.
CAC Formula
For per-order CAC (more useful for e-commerce with repeat customers):
What to Include in CAC
- Paid advertising — Google Ads, Meta Ads, TikTok, etc.
- Affiliate commissions — Payments to affiliates for referrals
- Influencer payments — Paid partnerships for promotion
- Marketing tools — Email platforms, CRM, analytics tools
- Agency fees — If you use an agency for marketing
- Marketing salaries — Portion of team dedicated to acquisition
Example: Calculating CAC
You spent £10,000 on Google Ads last month and acquired 200 customers. Your CAC is £10,000 ÷ 200 = £50 per customer. If your average order value is £100 and gross margin is 50%, you have £50 gross profit — meaning you broke even on the first order.
True Cost & Profitability Calculator
This calculator goes beyond traditional COGS to include all variable costs per sale — the complete cost picture you need for profitable advertising decisions. Enter your costs to see your true margins and maximum profitable ad spend.
Product & Pricing
Operating Costs
Returns & Adjustments
Profit Target
Your Results
Taking This Further
This calculator shows the maths for one product. But what happens when you have 500 products, each with different costs, margins, and return rates? MarginStack applies this exact calculation to every SKU in your catalog automatically. Import your costs once (or sync live from Google Sheets), and MarginStack maintains accurate margins across your entire product range.
Understanding Your True Cost Stack
Most e-commerce brands underestimate their true costs because they only look at accounting COGS. But for advertising decisions, you need to account for every variable cost per sale. This is what GROW calls your MarginStack — the complete picture of costs that eat into your margin. Here's how a typical £100 sale breaks down:
The remaining margin must cover:
- Returns — Average 15-30% for fashion, 5-10% for general retail
- VAT/Sales Tax — 20% in UK, varies by region
- Operating costs — Staff, warehouse, software, etc.
- Actual profit — What you keep after everything
The Hidden Cost Problem
A brand targeting 3x ROAS (33% ad spend) with 40% COGS and 10% other costs is already at 83% cost — leaving just 17% for VAT, returns, operations, and profit. After VAT (20% of net) and 10% returns, they're often losing money on every sale.
Industry Benchmarks
These benchmarks help you understand where your costs should fall. Remember that healthy businesses can operate outside these ranges — but if you're significantly different, understand why.
Gross Margin by Industry
Fashion & Apparel
Electronics
Beauty & Cosmetics
Home & Garden
Food & Beverage
Health & Supplements
CAC Benchmarks
| Industry | Average CAC | Healthy Range | Notes |
|---|---|---|---|
| Fashion DTC | £25-45 | £15-35 | High competition in paid social |
| Beauty | £20-40 | £15-30 | Strong organic can reduce CAC |
| Electronics | £30-60 | £20-50 | Higher AOV supports higher CAC |
| Home & Living | £35-55 | £25-45 | Google Shopping often best channel |
| Subscriptions | £40-80 | £30-60 | Higher CAC acceptable with LTV |
Common COGS & CAC Mistakes
These mistakes cost e-commerce brands thousands in wasted ad spend and false profitability assumptions:
Ignoring VAT in Calculations
Many brands calculate margins on gross revenue including VAT, then wonder why cash flow doesn't match. Always calculate on net (ex-VAT) revenue.
Using Average COGS
Bidding with average COGS means you overbid on low-margin products and underbid on high-margin ones. Use per-product COGS for accurate bids.
Forgetting Return Costs
Returns don't just lose the sale — you've already paid for ads, shipping, and processing. A 20% return rate can add 5-10% to effective COGS.
Misattributing Costs
Including warehouse rent or staff in COGS inflates your per-product costs. These are operating expenses, not product costs.
Ignoring Payment Fees in Ad Calculations
While payment fees aren't traditional COGS, they're essential for advertising decisions. Stripe charges 1.5-2.9% + 20p per transaction. On a £50 order, that's £1.65-1.95 — margin you can't spend on ads.
Static ROAS Targets
Using the same ROAS target for all products ignores margin differences. A 60% margin product can afford lower ROAS than a 30% margin product.
LTV:CAC — The Ultimate Metric
While CAC tells you what you spend to acquire a customer, LTV (Lifetime Value) tells you what that customer is worth over their entire relationship with your brand. The ratio between them is the ultimate measure of acquisition efficiency.
LTV Formula
Example: Calculating LTV
Average Order Value: £75
Purchases per year: 2.5
Customer lifespan: 3 years
LTV = £75 × 2.5 × 3 = £562.50
LTV:CAC Ratio Benchmarks
| Ratio | Status | What It Means |
|---|---|---|
| < 1:1 | Danger | Losing money on every customer. Reduce CAC or exit the market. |
| 1:1 – 2:1 | Warning | Marginal business. Surviving but not thriving. Optimise urgently. |
| 3:1 | Target | Industry standard target. Sustainable growth possible. |
| 4:1 – 5:1 | Excellent | Strong unit economics. Consider increasing spend for faster growth. |
| > 5:1 | Underinvesting | You're likely leaving growth on the table. Scale acquisition. |
Why LTV Changes Everything
If a customer's LTV is £500, you can afford a £100 CAC (5:1 ratio) and still be profitable. Brands that understand LTV can outbid competitors who only optimise for first-purchase profitability.
MarginStack: Beyond COGS to True Profitability
Traditional accounting separates costs into COGS and operating expenses. But for profit-first advertising, you need the complete picture. Manual spreadsheet tracking doesn't scale when you have hundreds or thousands of SKUs with different costs, suppliers, and price points.
What is MarginStack?
MarginStack is GROW's complete cost management system — what we call COGS+. It captures every cost layer for each product: traditional COGS, shipping, payment fees, platform fees, import duties, and return rates. This complete cost picture is what enables profit-based bidding at the SKU level.
How MarginStack Works
- CSV Upload — Bulk import your product costs from supplier price lists
- Google Sheets Sync — Connect your live spreadsheet so costs update automatically when suppliers change prices
- Cost Layers — Configure global settings for shipping, payment fees, platform fees
- Per-Product Overrides — Set specific costs for products with different margins
- Auto Calculation — Margins update automatically when prices change in your feed
- Bid Integration — ProfitClarity uses MarginStack data to calculate per-SKU ROAS targets
From Costs to Profitable Bids
Once your MarginStack is configured, GROW's ProfitClarity system automatically calculates the maximum profitable bid for each product:
This ensures every product has a bid calculated from its true economics — not averages or guesswork.
Validating Your Margins
Theory meets reality in Sale Analysis. While MarginStack calculates expected margins, Sale Analysis shows your actual realised margins after sales data comes in. This reveals products with higher-than-expected return rates or cost discrepancies — so you can refine your calculations based on real performance.
GROW Your |
Deliver on your commitment to cut costs, improve profit margins & grow sales, with smart automation tools.
GROW is a profit-first automation layer for global e-commerce brands — turning real-time COGS and CAC data into fully automated, SKU-level advertising that can launch, rebuild, and update millions of products in minutes.