Managing pricing and profitability is crucial for any eCommerce business. As competition intensifies, having a clear understanding of your product costs and gross margins becomes more important than ever. BigCommerce, one of the most robust and scalable eCommerce platforms, provides various tools to help merchants manage their online stores effectively. However, to truly maximize profits, integrating a cost management system that tracks the Cost of Goods Sold (COGS) is essential.
In this blog, we'll dive deep into how businesses can leverage BigCommerce's Cost of Goods capabilities to manage pricing, monitor profit margins, and ultimately grow their online business.
What is the Cost of Goods Sold (COGS)?
The Cost of Goods Sold (COGS) represents all direct costs associated with the production or purchase of products you sell. This typically includes raw materials, manufacturing labor, shipping, and other direct expenses. Accurately tracking your COGS allows you to calculate gross profit, ensuring that your pricing strategy is built on a solid financial foundation.
By monitoring COGS, BigCommerce store owners can not only assess the profitability of each product but also make more informed pricing decisions and optimize overall business performance. Partnering with a BigCommerce development company can provide the expertise needed to analyze COGS effectively and implement strategies that enhance profitability and operational efficiency.
Why Track Cost of Goods in BigCommerce?
Many BigCommerce users overlook the importance of tracking COGS, focusing solely on revenue. But without understanding how much you're spending to acquire or produce products, it's impossible to know whether your business is profitable. By tracking your costs, you can gain insights into which products are driving profit and which are underperforming.
The BigCommerce Cost of Goods feature (or using third-party apps designed for this purpose) offers several key benefits:
Accurate Profit Tracking: Know how much profit you’re making on each product.
Better Pricing Strategies: Ensure pricing covers costs and aligns with desired margins.
Improved Inventory Management: Monitor how much capital is tied up in unsold products.
Informed Business Decisions: Use data-driven insights to adjust marketing, pricing, and stock strategies.
Key Features of BigCommerce Cost of Goods Tracking
Whether using BigCommerce’s native tools or third-party integrations, COGS tracking can transform how you manage your online store. Below are the key functionalities that can help you monitor costs and grow your profit margins.
1. Input and Track Product Costs
BigCommerce allows merchants to enter the cost of goods for each product or product variant directly in the product settings. This means that each product's cost is accounted for, from simple items to complex variants (e.g., different sizes or colors).
Once the costs are entered, the platform can automatically calculate the gross profit by subtracting the cost of goods from the sale price. This provides instant insight into how each product is performing.
Actionable Tip: Regularly update your product costs to reflect any changes in production or procurement. This will ensure that your profit data is always accurate and help prevent surprises when profit margins suddenly drop due to rising costs.
2. Comprehensive Profit Reporting
Once you’ve input the cost of goods for each product, BigCommerce’s reporting features can calculate total revenue, cost of goods sold, and gross profit margins in real-time. This functionality is crucial for merchants looking to make informed pricing decisions based on actual profit, not just sales volume.
For example, if your reports show that a particular product generates significant revenue but has slim margins, you can adjust its pricing or negotiate better supplier deals to improve profitability.
Actionable Tip: Use BigCommerce's profit reporting tools to identify top-performing products by gross profit margin. Invest more in marketing these items while considering price adjustments or cost reduction strategies for products with lower margins.
3. Optimized Inventory and Reordering
BigCommerce’s COGS tracking integrates seamlessly with its inventory management tools, giving merchants a clear view of their current inventory value. Knowing the cost of your unsold products helps you make better decisions about restocking and optimizing inventory levels.
For example, if you notice that high-cost inventory is moving slowly, you might consider offering discounts to clear stock or reallocating marketing resources to boost sales for those products.
Actionable Tip: Use inventory value reports to maintain healthy stock levels. Avoid overstocking products with low margins or slow turnover, as this can tie up valuable capital and hurt overall profitability.
4. Improved Pricing Strategy
Having accurate data on the cost of goods allows you to develop a pricing strategy that ensures profitability. Rather than simply marking up products by a set percentage, you can use BigCommerce’s COGS data to determine how much profit each product generates at different price points.
This helps you strike the right balance between being competitive and maintaining healthy profit margins. By incorporating promotions or dynamic pricing strategies, you can boost sales without sacrificing profitability.
Actionable Tip: Develop pricing tiers for products based on cost and desired margin. For high-margin products, consider offering discounts or promotions, while maintaining stricter pricing strategies for low-margin items to protect your profit.
Optimizing Profitability with COGS and BigCommerce
To maximize profits, businesses need more than just an understanding of COGS—they need to apply that knowledge to their broader strategy. Here’s how you can use COGS data to streamline operations, optimize pricing, and grow profits with BigCommerce.
1. Reduce Production or Procurement Costs
If your COGS data reveals that profit margins are shrinking, it may be time to renegotiate with suppliers or find more cost-effective ways to produce your products. Cost management is key to maintaining long-term profitability.
Actionable Tip: Work with your suppliers to explore bulk-purchasing discounts or adjust your manufacturing processes to reduce expenses without sacrificing product quality.
2. Run Targeted Promotions Without Losing Profit
Promotions can be an excellent way to boost sales, but only if they don’t eat into your profit margins. By using BigCommerce’s COGS data, you can calculate how much of a discount you can afford to offer without undermining profitability.
Actionable Tip: When running a promotion, calculate the minimum price for each product that will still allow you to break even or maintain a profit. This will prevent you from offering discounts that reduce your profit margins too drastically.
3. Focus on High-Profit Products
Not all products in your catalog will contribute equally to your bottom line. BigCommerce’s COGS reporting makes it easy to identify the products that generate the most profit, allowing you to focus marketing and sales efforts where they’ll have the greatest impact.
Actionable Tip: Use targeted advertising campaigns and special promotions to drive more traffic to your high-margin products. This focused approach can increase profitability without requiring significant new investments in product development or sourcing.
Conclusion: Maximizing Profitability with BigCommerce and Cost of Goods
Understanding and managing your Cost of Goods Sold is critical to ensuring the long-term profitability of your eCommerce store. With BigCommerce’s built-in features and third-party apps designed for COGS tracking, merchants can gain valuable insights into their cost structures, improve pricing strategies, and optimize inventory management.
By using accurate COGS data, you can confidently adjust pricing, run promotions that enhance sales without cutting into margins, and focus on the products that contribute most to your bottom line. To effectively manage and leverage this data, consider hiring BigCommerce developers who can provide the expertise needed to optimize your store’s performance and ensure that your pricing strategies are data-driven and effective.
