How-to budget Cost of Goods Sold

How-to Budget Cost of Goods Sold

Today we’re diving into how-to budget your COGS.

At its core, COGS is calculated by adding together your per-unit costs of creation, freight, packaging, and any directly related expense. The cost of goods sold budget will use your sales budget by units as the foundation. For the sake of this exercise, we’re going to say our company sells handbags, we outsource manufacturing, and that our inventory costs are comprised of Materials and Packaging.

Budgeting for Materials and Packaging

To make a handbag there are many different things that will comprise your materials costs, and they will vary by each different design you create. Just as we did in Predicting Future Sales, we will want to look at every single item that you sell and associate those costs accordingly.

When buying a bolt of fabric, that bolt will make a certain number of bags. For a per unit cost, take the cost of a single bolt of fabric and divide it by the number of bags a bolt creates. Repeat this for each layer of fabric that is needed (Outer, inner lining, trim, etc…). Finally, add together each component’s per-unit cost to get your total Material cost per unit.

For packaging first, we look at what you add to the unit to make it ready for sales such as product tags, tissue paper or cardboard to shape the bag, clear plastic bag to keep the merchandise safe, or anything else that you put on or into your unit before shipment.

Next, we need to figure out anything that your business has to purchased to ship your product to customers or to resellers. This consists of the boxes used to ship, product cards, special tissue paper, or tape… you get the idea.

It will look like this when you’re done:

Up next

Keep an eye out for next week’s blog: How-to Budget Overhead Expenses.

About the author: Jeanine Hall is the founder of Quant Solutions. As an entrepreneur herself, Jeanine is an active supporter of the startup/entrepreneur ecosystem and enjoys helping others manage and grow their business.

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