In response to the global crisis, many businesses have turned sharply toward remote and online sales. However, for those used to simply selling off the shelf, there are many more logistics to consider regarding e-commerce. One thing that surprises a lot of business owners is the sometimes high and unpredictable cost of packaging and shipping different kinds of goods. It’s no surprise that businesses all over the country are asking themselves, “Are shipping supplies cost of goods sold?”
When it comes to protecting margins, costs of goods sold—or CoGS—is an important metric. Using a simple formula, the cost of the final product is subtracted from the cost to the customer. The sum is pure profit. The cost is also important, as it impacts the tax details of a business’s expenses. In more detail, CoGS are the ingredients and materials that cost a business to provide it.
For instance, the CoGS for a bakery include flour, eggs, salt, toppings, and so on. It does not include the electric bill to run an oven, packages for the bread, or anything the customer doesn’t need to enjoy the product. The same goes for wholesale stores. CoGS don’t include any part of the upkeep it takes to maintain the space where customers will find and buy an item.
Even so, many argue that shipping is completely essential to a product in this era of e-shopping, which is why so many wonder whether shipping supplies are cost of goods sold. Besides CoGS, businesses must pay for a whole slew of items that have almost nothing to do with the final exchange with a customer. This may include having a building space, maintaining a website, purchasing ordinary cleaning supplies, paying for utilities, and much more. These expenses are akin to what a homeowner pays but are unique to the business.
These costs come out of the margins just the same, but for tax purposes, they are kept separate. When business owners file their taxes, they need to provide a clear tabulation of the correct costs and their categories. Ultimately, business costs have a huge impact on the income of a business but also how they are taxed.
Shipping costs can certainly be a pain to any business. Whether your company is a brick-and-mortar store that’s adapting to more remote options or an e-commerce company that primarily ships goods, the costs add up. Nearly everyone is looking for a way to better leverage the silent margin killer that is pricey shipping and packing. Utilizing categories for expenses can help do just that in most cases.
Costs of goods, unfortunately, only refers to what the final product in the customer’s hands costs. It does not include what the business had to pay to get it into their hands in the case of remote purchases. Business expenses may fall into other categories of deductibles and discounts, but unfortunately, they are not part of the CoGS calculation.
We understand how frustrating shipping costs can be. One of the best ways to slash shipping costs is to pack efficiently and buy supplies effectively. By ordering bulk shipping supplies, businesses can stay on top of their needs and track costs more effectively. Sheships is dedicated to helping other businesses stay afloat by providing high-quality shipping supplies at a great price.