Calculate the COGS Percentage

Calculating the percentage of Cost of Goods Sold (COGS) over total revenue is crucial to deeply understand how your business is performing. Generally, a lower percentage of COGS is considered better. Let’s calculate your IT with this COGS percentage calculator and learn more about it.

COGS Percentage Calculator

What is a Good COGS Percentage?

Although a good COGS percentage depends on the industry to which your business belongs, a typical good percentage of COGS can range from 45% to 65% for most industries. A lower percentage of COGS is expected across all industries. A lower percentage of COGS indicates better profitability. This percentage can also depend on operating and non-operating expenses.

Why should you calculate the COGS percentage?

You should calculate the COGS to understand several factors related to your business’s accounting and management, as it is an important element of the cost sheet.

  1. Cost Control: You can get an idea about the factory overhead and direct costs incurred. It helps you to know where the money is during the costing. You can also identify where costs can be reduced.
  2. Product Pricing: Product pricing is an important part of a business. COGS percentage helps you to set appropriate pricing for products and services.
  3. Profitability: A lower COGS indicates more profit, and a higher COGS means less profit. So it provides a great insight into profitability.
  4. Industry Standard: Businesses can compare their COGS percentage to the industry standard to assess their financial performance relative to others in the industry.
  5. Increase Efficiency: To keep your business always in control, you should calculate both COGS and COGS percentage, because a rising percentage of COGS may decrease efficiency.

How to keep a good COGS percentage?

Keeping a good COGS percentage is crucial to maintaining a good business overall. Here are some ideas to control it efficiently.

  1. Proper Financial Strategies: A proper financial strategy can have a good impact on the COGS percentage.
  2. Cost of Goods: Is the main element of COGS. Optimizing raw material prices, supplier costs, and production expenses can reduce the COGS percentage.
  3. Inventory Management: Managing inventories efficiently will keep your COGS percentage at a good level. Minimizing waste and optimizing storage can also help lower COGS
  4. Reduce Direct Costs: Excessive direct costs can increase COGS, so reduce it where possible.
  5. Leveraging Modern Technologies: You keep the COGS percentage at a minimal stage by implementing technologies in various business steps.

COGS Percentage Formula:

COGS percentage is calculated by using this simple formula: (COGS / Total Revenue) * 100

Example:

Suppose the COGS to produce a product is $6,000 and the total revenue is $10,000.

So, the COGS percentage is ($6,000 / $10,000) * 100 = 60%, which is good in general.