Marketing in a Minute – Episode 8 | Ahmed Moaaz

Cost of goods sold (COGS) takes the first slice out of each order. The margin left afterwards determines how much room you have for advertising, discounts and mistakes.

What is cost of goods sold (COGS)?

Cost of Goods Sold includes the direct costs of obtaining or making a product ready for sale: the supplier’s price or manufacturing cost, basic packaging and other directly attributable product costs. If you buy an item for EGP 120 and its packaging costs EGP 10, the product cost is EGP 130.

The formula is: Gross margin = (selling price − cost of goods) ÷ selling price × 100. A product selling for EGP 300 with a cost of EGP 130 has a gross margin of 170 ÷ 300 × 100, or approximately 56.7%.

Why does gross margin matter before launching an ad?

Margin is the space available for everything else: advertising, shipping, discounts, returns and, finally, profit. A 60% margin means every EGP 100 of sales leaves EGP 60 to cover those costs. A 25% margin leaves much less room, and an extra expense can turn an order into a loss.

Many store owners discover too late that a seemingly profitable product cannot support paid advertising. A product with a 30% margin cannot sustain a customer acquisition cost equal to 40% of its selling price on that sale, however impressive the ad is. A marketing campaign cannot repair broken unit economics.

How do you calculate your margin properly?

A common mistake is using the supplier’s purchase price alone and forgetting other direct costs. Build a consistent per-item cost calculation that considers:

• The supplier’s price or manufacturing cost.
• Basic packaging, such as the box, bag and labels.
• Inbound shipping from the supplier, allocated across the units.
• Directly attributable customs and storage costs, where applicable.
• Marketplace commissions if you sell through a marketplace or app, tracked clearly in your per-sale economics.

Customer delivery, payment fees and returns are normally considered after gross margin when working toward net profit, as discussed in the previous episode. The precise accounting classification of fees can differ; what matters for this business calculation is including every cost once, consistently.

What is a good e-commerce margin?

It depends on the sector. The broad reference ranges in this article are 50-65% for clothing and accessories, 10-25% for electronics, where volume can compensate, 60-80% for beauty and personal care, and 30-50% for food. These are illustrative ranges, not universal targets. If your gross margin is below 40% and you intend to rely on paid advertising, calculate the economics carefully before spending.

A practical approach is to calculate gross margin, then deduct expected shipping, payment and return costs. Ask how much remains to acquire the customer. That gives you a starting ceiling for the CPA discussed in the CPA and CPL episode.

How can you improve margin without raising prices?

• Negotiate volume pricing: A 5% reduction in purchase cost improves the margin directly. The increase in margin percentage points depends on cost relative to selling price; it is not automatically five points.
• Private label: Selling a product under your own brand may allow a higher margin than reselling another brand.
• Bundles: Bundles can increase order value and spread fixed order costs across more items, as explained in the AOV episode.
• Review packaging and logistics: A smaller box may reduce both packaging and shipping costs.

A practical example

A handmade-candle store owner believed her margin was 70% because she compared selling price only with wax and fragrance costs. After adding glass containers, boxes, printed cards and supplier shipping, the true margin fell to 41%. This changed two decisions: she stopped 30% discount coupons that were creating losses and repriced two of her three bundles. Profitability improved the next month even though sales fell slightly. This is the lesson from the previous episode: sales are not profit.

How does margin affect the advertising decision?

Connect this with the earlier episodes. If gross margin is 55% and the product price is EGP 300, gross profit before the other costs is EGP 165. Deduct average shipping, fees and expected return costs. Suppose EGP 100 remains. CPA needs to stay comfortably below that amount to leave room for profit. The further below it acquisition cost remains, the larger the safety buffer.

This simple calculation helps you assess whether the economics can work before launching a campaign, rather than discovering the answer after spending the budget.

Frequently asked questions about COGS and margin

Should I include my own time? Track it separately at first so you do not mislead yourself, and give it a value when evaluating the business. A business with a 15% margin that consumes all your time may be less attractive than a job.

Should I calculate margin per product or for the whole store? Start per product. A store average can hide loss-making products supported by profitable ones. Understand each product’s margin before deciding which deserves advertising.

What if margin is low and I cannot increase the price? Investigate supplier and logistics costs, improve order value through bundles and assess whether the product is suitable for paid acquisition at all. It may work better as an entry product alongside higher-margin products.

Summary

Review product costs at least every quarter. Supplier and shipping prices change, and a comfortable margin from six months ago may no longer leave a profit. Make margin reviews part of normal store management rather than waiting until cash runs short.

COGS is the first major cost, and gross margin defines the space for your marketing decisions. Calculate it accurately for each product, compare it with the acquisition-cost ceiling and avoid spending on ads when the underlying margin leaves no path to profit.

Related reading: Episode 7: Sales Are Not Profit.

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