How to Configure COGS

Understanding and properly configuring your Cost of Goods Sold (COGS) is crucial for accurately assessing your brand's profitability and calculating LTV. 

LTV = ∑ Net Revenue - ∑ COGS

Inaccurate COGS can lead to misleadingly high LTV figures, especially for customers with missing or outdated COGS data. Let's explore your options for easily setting up COGS in your RetentionX account to ensure your profitability metrics are accurate and meaningful.

What Does COGS Mean?

A simple way to think about COGS is all the costs involved in getting an item into your inventory and preparing it for sale. The following costs are often included in COGS:

• Product cost: How much it costs to order items from your manufacturer or distributor

• Freight in: How much it costs to get those purchased products delivered to you

• Duties and fees: Any costs associated with design, kitting, or assembly of the products
   

How to Configure Your COGS

Under Company Settings > Cost of Goods Sold, we offer you three options (plus one add-on) to easily set rules to configure your COGS in your RetentionX account. 

 

Option 1: Automatic Import

Many eCommerce platforms, such as Shopify, allow you to input the "cost per item" directly in their interface. Once the COGS are added, we automatically import them and apply them to all historical data - this is the default setting of your RetentionX account. So, once all your COGS are entered into your store data (or your custom data feed), no further action is required.

If certain information is missing, such as COGS for discontinued products that have been deleted from your eCommerce platform, RetentionX may not have data for these items. In this case, you can easily set a percentage of the net selling price as a fallback. The underlying logic is explained in Option 2.

 

The only caveat is historical changes. eCommerce platforms typically do not track historical changes to your COGS. If you have changed the field in the past, your historical values will not be reflected in RetentionX. However, any changes you make after implementing RetentionX will be reflected as we track these changes ourselves. However, if your COGS have changed over time, we recommend importing the COGS with our historical COGS importer.

Option 2: Percentage of the Net Selling Price

RetentionX offers an alternative method to calculate COGS if you prefer not to rely on the imported data. You can set COGS as a fixed percentage of the net selling price (excluding sales tax) of your products. This method is particularly useful if your COGS is consistently proportional to your selling price.

Example:

• Net selling price of a product: $100

• Set COGS percentage: 23%

• COGS: $23

Option 3: Always $0

If you don't want to consider COGS in RetentionX at all and only want to look at your revenue when calculating the LTV, you can set the COGS in RetentionX to always be $0. By eliminating COGS, RetentionX will calculate the gross margin as 100% for all products and set the LTV equal to the net revenue of your customers. Using this option can provide a simplified view of your revenue, but does not reflect profitability.

 

Extra: Historical COGS Importer

Additionally, you can import COGS per SKU directly into RetentionX. Regardless of any potentially outdated or inaccurate data stored in your eCommerce platform, the importer will override these.

This allows you to account for changes in COGS over time—such as economies of scale—and calculate a more accurate, true LTV. All historical value calculations are automatically updated based on the imported COGS. Click here for more details; including an import template.

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