According to Investopedia, the cost of goods sold, or COGS, refers to the “direct costs of producing the goods sold by a company.” To calculate cost of goods sold, take your beginning inventory costs, add your purchases during the accounting period and subtract your ending inventory.
For example, let’s say you have $10,000 of inventory at the beginning of the year and $5,000 of additional inventory. You have $7,000 of inventory remaining at the end of the period (your ending inventory), leaving you with $8,000 cost of goods sold.
Seems simple enough, but it’s a big deal. Determining your cost of goods sold can help you make smarter business decisions, such as setting prices that will leave you with a healthy profit margin.
Let’s talk about margin for a second. Your gross profit margin is calculated by dividing gross profit by total revenue. For example, if your company with revenue of $100,000 and COGS of $74,000 would have a gross profit of $26,000 and a gross profit margin of 26%.
But, what if we could increase that margin even more? Let’s say you can get a reduction in your cost of goods sold of 50% (which you can get through Zirks). Great, right? But let’s see what else that does for you.
Here’s a scenario to demonstrate how Zirks can help you improve gross profit margin.
The Current Way:
- You typically buy a product for $1.00
- You sell it at $1.35
- You guarantee roughly 26% gross profit margin
The Zirks Way:
- You buy the product from Zirks for $0.50
- You continue to sell at $1.35
- That takes you from a 26% margin to 63%, increasing your margin by at least 37%
By boosting your margin, you can even lower your selling price, allowing you to be more competitive in the marketplace.
We say this all the time, but really, the numbers don’t lie.
Check out our current inventory and start boosting your margin today!