How we define cost of goods sold (COGS) for eCommerce

At Blink, we define COGS more broadly than most. For us, COGS isn’t just the landed cost of inventory - it’s every variable cost that has to be paid in order to make, move, sell, and fulfil a unit. We do this because our forecasts are designed to show true profitability, not just gross margin. If we leave something out, the model risks overstating gains and understating the value of the work we do.

Why this matters

• It anchors our forecasting - every revenue forecast rolls down from COGS to contribution and profit.

• It captures the real per-unit costs of trading online.

• It makes brand-to-brand comparisons consistent, so we know growth is genuine, not a quirk of accounting.

Our definition of COGS (Blink standard)

We include every variable cost that scales with units sold:

• Product cost from supplier or internal manufacturing cost (materials + direct labour).

• Inbound freight, duties and customs clearance.

• Packaging that ships with the product (branded boxes, protective inserts, labels, swing tags).

• Outbound shipping to customer (including any subsidy).

• Pick, pack and warehouse handling fees (internal or 3PL).

• Payment processing and BNPL fees.

• Returns shipping and refurbishment write-offs.

• Per-order platform and app fees that scale with volume (Shopify, Klarna, Recharge etc. if unavoidable).

• Subscription incentives (e.g. free gifts, trial products for first orders).

What we exclude from COGS

The only costs we leave out are fixed overheads that don’t scale directly with orders:

• Salaries and internal team costs.

• Rent, energy, office expenses.

• Core software licences not charged per unit.

• Long-term marketing investments (brand, content, PR).

The Blink margin stack

With this definition, our stack becomes simpler and more transparent:

• Net Revenue = Gross sales - discounts - VAT/GST - refunds.

• COGS = All direct, per-unit costs (as above).

• Contribution Margin = Net Revenue - COGS.

• Operating Profit = Contribution Margin - fixed overheads.

A quick example

Basket: £100 including VAT. VAT is 20%. Discount £5.

• Net Revenue = (£100 ÷ 1.20) - £5 = £78.33.

• COGS (product £28, freight £2, fulfilment £2.40, packaging £0.60, outbound shipping £3, payment fee £2.12, return allowance £1) = £39.12.

• Contribution Margin = £78.33 - £39.12 = £39.21 (50.1%).

• Fixed overhead allocation per order £20 → Operating Profit = £19.21.

Forecasting impact

Because every Blink forecast rolls down from this “all-in” COGS, we can model the full effect of doubling organic revenue - not just at the top line, but all the way down to net profitability. That’s what shows the real value of the work.

TL;DR

If the cost exists to make, move, sell, or fulfil a product, we treat it as COGS. The only things left out are fixed overheads. This way, our forecasts reflect reality, and the improvements we deliver are visible at the bottom line.