Glossary

The terms that come up when you work out what a product costs, each with a formula where there is one and the same worked example throughout.

Break-even price

The break-even price is the lowest price at which a sale covers its own costs. The formula with percentage fees included, and a worked example.

Contribution margin

Contribution margin is the price minus every cost that varies with a sale, including fulfilment and payment fees. The formula and a worked ecommerce example.

Cost of goods sold (COGS)

COGS is the direct cost of the products you sold in a period. What it includes, what it leaves out, the formula, and a worked example for a Shopify store.

Cost per item

Cost per item is the field where Shopify stores what a variant costs you. What Shopify means by it, what uses it, and what the single field cannot hold.

FIFO (first in, first out)

FIFO assumes the oldest stock is sold first, so each sale takes the cost of the earliest batch still on hand. A worked example and a comparison with average cost.

Gross margin

Gross margin is gross profit as a percentage of revenue. The formula, a worked example, how it differs from markup, and why a missing cost inflates it.

Gross profit

Gross profit is revenue minus the cost of the goods sold. The formula, a per-unit and a per-period example, and how it differs from gross margin and net profit.

Landed cost

Landed cost is what a product costs by the time it reaches your warehouse: purchase price, freight, insurance, duties and handling. Formula and worked example.

Markup

Markup is the amount added to cost to reach the price, as a percentage of cost. The formula, how to convert between markup and margin, and a conversion table.

Product bundle

A bundle is several products sold together as one item. The types of bundle, how to work out a bundle's cost from its components, and the common mistakes.

SKU (stock keeping unit)

A SKU is your own code for one sellable variant of a product. What makes a good SKU, how it differs from a barcode, and why costs are matched by SKU.

Unit cost

Unit cost is what one unit of a product costs you to buy or make. How to calculate it for bought and made goods, and what belongs in it.

Weighted average cost

Weighted average cost blends the cost of stock on hand with the cost of new stock, by quantity. The formula, a worked example, and how it compares with FIFO.