COGS (Cost of Goods Sold)

COGS is the direct cost of producing or acquiring the products you sell. It is the first cost you subtract from revenue to find your gross profit, and it is the foundation of every margin calculation that follows.

For TikTok Shop sellers, COGS is the starting point that determines whether you have room to cover platform fees, creator commissions, ad spend, and still make a profit.

The Formula

The standard formula for COGS is:

COGS = Beginning Inventory + Purchases − Ending Inventory

In simpler terms, it is the cost of everything you sold during a period. For TikTok Shop sellers who operate on a per-unit basis, the formula looks like this:

COGS = Product Cost + Inbound Freight + Duties + Packaging + Per-Unit Overhead Allocation

If you sell a product for $25 and your COGS is $10, your gross profit is $15. That $15 is the pool from which you pay every other cost.

What COGS Includes for TikTok Shop

COGS covers everything it takes to get a sellable unit into your hands or into TikTok’s fulfillment network.

  • Product cost: the price you pay to manufacture or source the item
  • Inbound freight: shipping from your supplier to your warehouse or to TikTok’s FBT center
  • Duties and import taxes: customs fees on imported goods
  • FBT inbound fees: costs to get inventory into TikTok’s Fulfilled by TikTok network
  • Packaging: boxes, inserts, labels, and materials directly tied to the product
  • Direct labor: wages for people assembling or finishing the product

What COGS Does Not Include

COGS is only direct costs. It does not include operating expenses that are not tied to the production or acquisition of a specific unit.

  • Platform fees — TikTok’s referral fee, commission, and transaction costs
  • Creator commissions — affiliate payouts to influencers
  • Ad spend — TikTok Ads, GMV Max, or any paid promotion
  • Outbound shipping — the cost to send the product to the buyer (this is fulfillment, not COGS)
  • Office rent, software, salaries — general overhead not tied to a specific unit
  • Returns and refunds — these are handled separately in your P&L

These excluded costs come later in the margin stack. Understanding operating profit vs gross profit helps clarify where COGS sits relative to the full cost picture.

Why COGS Matters for TikTok Shop Sellers

COGS sets the headroom for everything else. The lower your COGS relative to your sale price, the more you can offer in creator commissions and spend on ads while still making a profit. This directly affects how competitive your affiliate program can be.

A seller with a $20 product and a $6 COGS has a 70% gross margin. A seller with the same $20 product and a $14 COGS has a 30% gross margin. After TikTok’s referral fee, fulfillment, and creator commissions, the second seller may have no profit left at all.

This is why dropshipping profitability is a constant debate on TikTok Shop. Dropshippers often have higher COGS because they buy one unit at a time from suppliers, which compresses their margin and limits their ability to compete on price or commission.

How to Calculate COGS for TikTok Shop

If you buy inventory in bulk and hold it in stock, use the standard formula: Beginning Inventory + Purchases − Ending Inventory, divided by units sold.

If you source per order or use a third-party fulfillment model, use the per-unit method. Track the exact cost of each unit plus the inbound freight and duties allocated to that batch.

For sellers using TikTok Shop’s FBT program, add the FBT inbound fee to your COGS calculation. This is the cost to get your inventory into TikTok’s fulfillment centers, which is a direct cost of making the product available for sale.

COGS Target for TikTok Shop Sellers

TikTok Shop sellers generally target COGS at 30% to 50% of revenue. This leaves enough room for platform fees, creator commissions, ad spend, and net profit. If your COGS exceeds 60% of your sale price, you will struggle to run a profitable shop unless you have an exceptionally efficient ad and creator program.

How to Track COGS Properly

Most sellers start with a spreadsheet, but that breaks quickly at scale. The right approach is to track COGS at the SKU level in your profit tracking tool. When you know your COGS per unit, you can calculate contribution margin per order and determine which products are actually worth promoting.

For sellers who want to automate this, TikTok Shop profit trackers  pull COGS data directly from your orders and calculate net profit after all fees. 

How to calculate TikTok Shop profits Walks through the full stack from COGS to net income.

Related Terms

  • Gross Profit: revenue minus COGS; the first margin checkpoint
  • Operating Profit: gross profit minus operating expenses; the true business profit
  • Contribution Margin: gross profit minus variable costs like platform fees and commissions
  • Net Profit: what remains after all costs including COGS, fees, and overhead
  • FBT: TikTok’s fulfillment program; affects COGS through inbound fees
  • TikTok Shop Fees: the costs that come after COGS in the margin stack