How to Calculate COGS for Handmade Products

Cost of goods sold (COGS) for a handmade item is what it costs you to make one: the materials it uses, plus packaging, plus your labor if you pay yourself for it.

Start with unit costs

For each supply, divide what you paid by how many units you got. A 10 lb bag of wax at $40 is 160 oz, or $0.25 per ounce.

Unit cost = Price paid ÷ Units in the pack

Add up one item

Multiply each material's unit cost by how much one item uses, then add them up. An 8 oz soy candle:

In a sheet, with quantity used in B and unit cost in C:

=SUMPRODUCT(B2:B5, C2:C5)

Include labor if you want a real margin

If a batch of 12 candles takes 1.5 hours and you value your time at $20 an hour, add $2.50 per candle. Leaving labor out makes your margin look better than it is.

Margin from COGS

Margin = (Price − COGS) ÷ Price

At a $16 price, the candle above has a margin of (16 − 4.20) ÷ 16 = 74% before labor and selling fees.