Calculating cost of goods sold (COGS) helps brands identify profitable products and price products accurately.
Decreasing COGS wherein costs like production, labour and material are involved can help businesses reduce overall expenses and boost overall profit. To calculate COGS, brands must add their opening inventory and purchases made during the period and subtract them from the closing inventory.
To reduce COGS, stop manufacturing products that don’t sell, as these can act as a deadstock, and add to expenses like warehousing rent. Using the latest manufacturing technologies, buying from different suppliers, and reducing raw material waste can help businesses lower production costs, and thereby COGS.
Automate processes like shipping and consider options like manufacturing on-demand or drop-shipping to further decrease COGS. Businesses can also move production to off-shore sites with cheaper labour, raw materials and negotiate prices with suppliers to reduce costs.
[10 minute read]