Why product cost matters
Product cost is usually the biggest cost on an order. Without it, every sale looks like profit. With it, you can answer three questions:
- What did each order leave you? Revenue minus product cost, shipping and fees.
- What is each product’s margin? A $28 mug and a $28 candle can earn quite different amounts.
- Which products lose money? A product with a thin margin can end up below zero once you add free shipping or a discount code.
Your options for storing costs
WooCommerce’s built-in cost field
Recent versions of WooCommerce include a cost of goods field on the product edit screen. If you don’t see it, update WooCommerce and check whether the feature needs to be switched on in your settings. It keeps everything in WooCommerce with no extra plugin. Check how your version treats past orders before you rely on it for history.
A cost-of-goods plugin
Two common choices are WPFactory’s Cost of Goods for WooCommerce and SkyVerge’s Cost of Goods. WPFactory’s has a free version on WordPress.org. SkyVerge’s is sold on WooCommerce.com. Both add a cost field to products and variations and record the cost on each order line. Check each plugin’s page for its current features and price.
A spreadsheet
A sheet with SKU, product name, unit cost and the date the cost started works if you have a small catalog. The downside is that WooCommerce can’t see it, so you have to match orders to costs by hand.
What a unit cost should include
At minimum, the unit cost is what you paid your supplier for one item. Many stores also add inbound freight and import duties per unit, which gives you the landed cost. Which one you use is your choice. Pick one and use it for every product, so your margins compare fairly.
Landed unit cost = purchase price + (inbound freight + duties) ÷ units in the shipmentLeave out outbound shipping to customers. That is an order cost, not a product cost.
Here is a stoneware mug. You bought 500 at $6.40 each, and freight for the shipment was $300, or $0.60 per mug.
| Line | Amount |
|---|---|
| Price, excluding tax | $28.00 |
| Purchase price | −$6.40 |
| Inbound freight ($300 ÷ 500) | −$0.60 |
| Left after product cost | $21.00 |
So the landed unit cost is $7.00, and the mug keeps $21.00 of its $28.00 price. That is a 75% margin after product cost, before shipping, fees and ads.
Variations need their own cost
If a product comes in sizes or materials, each variation can have its own cost. A large mug at $9.10 and a small one at $5.80 shouldn’t share one number. Enter the cost on each variation, not only on the parent product. If you sell the variations at the same price, their margins will still differ.
When costs change over time
Supplier prices move. Say your mug supplier raises the price to $7.20 from 1 October. Your landed cost becomes $7.80. Orders from 1 October should use $7.80. Orders from September should keep $7.00.
Two habits keep this right:
- Record the date each cost starts. A note in your sheet or a dated entry in your tool is enough.
- Don’t overwrite the cost on old orders. If you apply today’s cost to last year’s orders, last year’s profit changes after the fact. Historic orders should keep the cost at the time of sale.
Common mistakes
- Missing costs counted as zero. A product with no cost looks like 100% margin. One popular product with no cost can make a whole month look better than it was. Treat a missing cost as unknown, not free.
- Costs that include VAT you reclaim. If you pay $8.75 for the mug including 25% VAT and reclaim the VAT, your cost is $7.00. Entering $8.75 makes the product look worse than it is.
- Forgetting bundles. A gift set with two mugs and a pour-over stand costs the sum of its parts. With a $7.00 mug and a $38.20 stand, that is $52.20. A bundle with no cost of its own counts as missing.
- Mixing cost methods. If some products use purchase price and others use landed cost, their margins don’t compare.
How to check your costs
- List your products and variations and find every one without a cost. Start with your best sellers.
- Open a few recent orders and check that each line shows the cost you expect.
- Work out one product’s margin by hand, like the mug above, and compare it with what your report says.
- Look for margins above 90% or below zero. Either one is often a typo or a missing cost.