How does COGS work in practice?

COGS is calculated over a period using: COGS = Beginning Inventory + Purchases − Ending Inventory. Common components include purchase costs, freight/handling, packaging materials, and warehouse labor related to order prep.

Why does COGS matter for distributors?

It guides decisions across finance and operations by: 1) measuring profitability, 2) improving pricing accuracy, 3) supporting inventory planning, 4) enabling better forecasting, and 5) boosting efficiency through cost control.

How does SimplyDepo help track product costs and COGS?

SimplyDepo centralizes purchase costs and inventory signals, provides real-time margin dashboards, integrates with ERP/accounting, and reports beginning/ending stock to improve pricing and profitability decisions.

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What Is Cost of Goods Sold (COGS) in Distribution?How COGS Works in Practice Why COGS Matters for Distributors How SimplyDepo Helps Track Product Costs

Glossary

Cost of Goods Sold

cost of goods sold

Q: What is Cost of Goods Sold (COGS) in distribution?

COGS is the total direct cost of the products a distributor sells in a given period. It covers acquisition and other direct expenses tied to getting goods into customers’ hands, and it’s used to assess gross profit.

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What Is Cost of Goods Sold (COGS) in Distribution?How COGS Works in Practice Why COGS Matters for Distributors How SimplyDepo Helps Track Product Costs

What Is Cost of Goods Sold (COGS) in Distribution?

Cost of Goods Sold (COGS) refers to the total cost a business spends to purchase or produce the goods it sells within a specific time. In distribution and wholesale, it includes all direct expenses tied to acquiring and delivering products.

For example, if a distributor buys 10,000 cases of water at $5 each, the total product cost equals $50,000. This figure excludes overhead items like marketing or office expenses.

Understanding COGS helps distributors measure gross profit, plan pricing, and improve overall financial accuracy.

Simply put, this metric shows what it truly costs to get goods into customers’ hands.

How COGS Works in Practice

COGS is calculated over a chosen period — monthly, quarterly, or annually — and includes only direct costs related to the products sold. Administrative and indirect expenses stay out of the equation.

Here’s the basic formula:

COGS = Beginning Inventory + Purchases During Period − Ending Inventory

Example:

Beginning inventory: $20,000
Purchases: $50,000
Ending inventory: $10,000
COGS = $20,000 + $50,000 − $10,000 = $60,000

That $60,000 represents the total direct cost of the goods sold that month.

Typical COGS components include:

Purchase costs
Freight and handling fees
Packaging materials
Warehouse labor tied to order preparation

Accurate tracking ensures teams can price products correctly and maintain healthy profit margins.

Why COGS Matters for Distributors

Knowing your cost of sales helps guide financial and operational decisions across the business.

1. Measures Profitability

By subtracting total product costs from sales revenue, businesses can calculate gross profit and assess performance.

2. Improves Pricing

Understanding direct costs helps set sustainable and competitive prices for distributors and brands.

3. Supports Inventory Planning

Tracking cost trends highlights fast-moving or slow-selling items, helping teams optimize stock.

4. Enables Better Forecasting

Reliable cost data gives finance and sales teams better insight into future revenue and demand.

5. Boosts Efficiency

Lowering freight, packaging, or waste costs can directly improve margins and cash flow.

In essence, COGS helps companies stay competitive by linking costs, pricing, and profitability.

How SimplyDepo Helps Track Product Costs

SimplyDepo helps distributors and brands monitor and manage COGS across every order and location in real time.

Using Order Management and Catalog Management tools, teams can track purchase costs, analyze margins, and sync data across departments.

Key SimplyDepo benefits include:

Automated cost tracking by product and customer
Real-time profitability dashboards
Integration with ERP and accounting systems
Inventory reporting for beginning and ending stock
Analytics tools for pricing and margin optimization

By giving teams visibility into all direct costs, SimplyDepo helps businesses improve pricing accuracy and make faster, data-driven decisions.

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