The Real Cost of Making Your Product: Understanding Your COGS (Cost of Goods Sold)
Week 24 - Know your costs - step one to understanding retail pricing and profit margin.
Welcome to Week 24 of our 52-Week Business in Plain English Challenge! Last week, we tackled professional photography and resources to help you photograph for social media.
This week, we're starting a discussion on how to price your products. It all starts with knowing your costs.
When I first started selling candles in 2021, I thought I had a pretty good handle on what they cost me to make. After all—wax, fragrance, tin, wick—how complicated could it be?
Then I sat down one rainy afternoon to “just run the numbers” and ended up staring at a list that included wick stickers, top labels, bottom labels, shipping on every single supply, and even the tape on the box.
That was the day I met my real COGS—Cost of Goods Sold—and let me tell you, it was surprising how much it all added up to. But it started to show me where I could save.
Why Knowing Your COGS Matters
If you don’t know exactly what it costs you to make each product, you’re basically driving your business with the gas light on. Sure, you can keep going for a while, but one wrong turn (or one unexpected shipping increase) and you’ll be running on fumes.
COGS is different from your operating costs. Your internet bill, your rent, and the coffee that fuels your late-night work sessions? Those are operating expenses.
COGS is the list of everything it takes to get one specific product into your customer’s hands—from the raw materials to the little sticker that says “Yay! Your order is here!” on the box.
Let’s Make This Feel Familiar
Think about making a pie for a bake sale. The apples, sugar, pie crust, and cinnamon are your COGS.
The cost of keeping the lights on in your kitchen or buying a new mixing bowl? Those are operating costs.
The key is keeping these two lists separate so you have a true picture of your per-item cost.
A Real Example
Let’s take a candle. Your COGS might include:
Wax
Fragrance
Tin
Wick
Wick sticker
Labels (top and bottom)
All of this + shipping
Then there’s packaging: the box, crinkle paper, custom tape, and the little thank-you card you slip inside. If you’re shipping, those packaging costs may change depending on whether you’re sending one candle or a case of twelve.
💡 You may ask - are the box and packaging costs part of the candle’s COGS?
Yes — if you’re calculating the COGS for a candle as it’s sold to the customer, then the box and tape are part of it.
Here’s the rule of thumb I use:
If the item is required for that specific product to be sold (and you wouldn’t incur the cost without making that sale), it belongs in COGS.
If it’s a general business supply you use for many purposes (like the tape you use for both candles and mailing holiday cards to your aunt), then only the portion tied directly to the product’s shipment goes in COGS.
So for candles:
Box → Yes, if you box each candle for shipping or retail.
Custom tape → Yes, if it’s used to seal that box for the customer.
Crinkle paper or inserts → Yes, if they’re specific to packaging the candle for sale.
If the candle is sold in person and handed to the customer without a box, those packaging items wouldn’t be in that candle’s COGS—but they would be for the ones you ship. So it’s a good idea to know your candle costs and your packaging costs separately depending on how you want to take a look at your numbers.
Common COGS Misconceptions
“I don’t include shipping on supplies.”
You should. That shipping cost is part of what it takes to get your product made.“I include my printer, rent, and internet in my COGS.”
Those are operating costs, not COGS.“I have one set COGS number forever.”
In reality, COGS changes over time. Shipping rates go up, tariffs shift, suppliers change prices. That’s why it’s important to revisit and update your COGS regularly.
The Power of Your Numbers
Once you know your COGS, you can:
See if your retail price actually makes sense
Decide whether wholesale pricing is even possible for that product
Know if you can sell on Amazon or other platforms with extra fees
Spot opportunities to reduce costs without cutting quality
And here’s a big one: You might realize that some products can be wholesaled and others can’t—and that’s okay. Not every product has to fit every sales channel.
Try This Today
Pick one product you sell and gather every receipt, invoice, and shipping charge related to making it. Break each supply down to a per-item cost. Yes, even the stickers on your packaging. Add it all up.
Organize your costs in a software that is easy for you to update over time such as:
Excel
Numbers
Calconic
I love to build custom calculators in Calconic. It’s free, easy to use, and makes keeping track of variables on costs SO much easier than other tools I’ve used. Take a look - it says it’s for putting a calculator on your website - but I simply use it to make cost calculators for my businesses (that are kept private - it won’t display your calculator on your website).
Now you have your COGS for that product—a real number you can use to make better decisions.
Next week, we’ll take these numbers and talk about establishing your retail price and the week following will be about understanding profit margins. Essentially how to use these COGS to make sure you are selling products in a sustainable way that enables your business to pay you, pay for it’s supplies, and sell wholesale if you want to go that direction.
Let’s keep building one simple, powerful piece at a time.
You’ve got this.
