The fastest way to kill an e-commerce business isn’t a failed product launch or a social media mishap—it’s losing track of what things actually cost. The moment a brand starts scaling, one metric begins to matter more than almost anything else: Cost of Goods Sold, or COGS.

COGS is the backbone of financial awareness, yet too often, it’s treated as an afterthought—something to be sorted out later when books are closed or taxes are filed. But waiting too long to get COGS right can warp the entire financial picture of a business. If you don’t know your true costs, you can’t price correctly, can’t forecast accurately, and can’t see the warning signs when margins are shrinking. Worse, messy COGS prevents books from closing properly, which means owners and operators are making decisions based on incomplete or misleading numbers. That’s not just an accounting problem—it’s a survival problem.

The Problem with “Good Enough” Accounting

Many e-commerce founders start with rough estimates of COGS: the supplier charges $8 per unit, shipping adds another $2, packaging is $1, and suddenly it’s a neat $11 per unit. On paper, that math looks fine. But reality is never that simple. What about bulk order discounts? Freight costs that fluctuate? Payment processing fees? Waste from damaged goods? The difference between a business that thrives and one that slowly bleeds out is often found in these details.

This is where “good enough” accounting breaks down. If COGS is even slightly off, every other metric becomes unreliable. Profit margins look healthier than they actually are. Customer acquisition cost (CAC) can seem sustainable when it isn’t. Cash flow projections don’t line up, and suddenly, the business is running out of money months earlier than expected. In short, COGS isn’t just a line item on a balance sheet—it’s a control system for the entire business.

The Hidden Complexity of Landed COGS

COGS isn’t just a simple input cost. It can come from multiple sources, each of which changes how a business needs to think about financial planning. Some brands buy fully assembled goods, with factories handling freight forwarding and building those costs into a fixed per-unit price. Others take on more complexity, sourcing finished goods but managing freight and customs separately—paying one entity for manufacturing, another for logistics, and yet another for customs clearance.

And then there are brands that go even deeper, purchasing raw materials and managing their own assembly, absorbing breakage, labor inefficiencies, and production waste before ever moving to logistics. Each of these models requires a different approach to financial tracking, yet too many brands treat them the same. They assume that as long as the supplier’s invoice is correct, the business has a firm handle on its costs. That assumption can be fatal.

What Happens When COGS Is Wrong?

Even a small miscalculation has a domino effect. Take an e-commerce brand that assumes its COGS is $11 per unit when the true landed cost—after freight, duties, and operational waste—is closer to $13.20. That 20% gap doesn’t just shrink margins. It throws off every financial assumption the business is making.

Marketing teams operate with CAC targets that aren’t realistic, leading to inefficient ad spend. Operators assume they have more margin to reinvest in inventory, only to find themselves short on cash. Founders budget for growth based on inflated gross margins and end up in a financial crunch months earlier than expected. Everything hinges on getting this number right, because when it’s off, the business is operating on bad data, making bad decisions.

When Books Won’t Close, the Business Stalls

At FlowFi, we see a pattern again and again: e-commerce businesses trying to close their books each month, only to get stuck because something isn’t adding up. More often than not, the culprit is COGS.

Accountants and finance teams rely on accurate COGS to reconcile financial statements, match expenses to revenue, and ensure everything balances. When those numbers aren’t clear, books stay open longer than they should. And when books stay open, so do financial blind spots.

An e-commerce operator might believe they had a profitable Q4, only to realize in February that high return rates and underestimated fulfillment costs wiped out the gains. By the time they see the issue, it’s too late to course-correct. Without a clear and accurate COGS process in place, businesses aren’t just working with outdated numbers—they’re flying blind.

How to Fix It Before It Becomes a Problem

The solution isn’t just tracking COGS—it’s embedding it into every financial workflow. That means treating COGS as a dynamic number, one that shifts with supply chain changes, fulfillment adjustments, and customer behavior. Brands that take COGS seriously don’t just track supplier invoices; they integrate real-time data from freight partners, payment processors, and fulfillment centers to maintain an evolving, accurate picture of what their products truly cost.

The difference between businesses that scale profitably and those that constantly fight cash flow surprises isn’t just the quality of their products—it’s the clarity of their numbers.

For e-commerce brands, the question isn’t whether COGS is important. It’s whether they have the systems in place to get it right—before they find out the hard way.