How to Track Cost of Goods Sold for Etsy Products

If your Etsy shop sells physical products, revenue alone tells you very little. A candle that sells for $28 might be profitable, barely profitable, or quietly losing money once wax, jars, labels, wicks, packaging, fees, and shipping supplies are included. Cost of goods sold is how you get closer to the truth.

What counts as product cost?

For management purposes, start with costs directly tied to making and preparing the item for sale: raw materials, components, blanks, labels, product packaging, and any outside production work. If you use custom boxes or protective mailers for every order, track those too, even if your accountant later groups them differently for tax reporting.

I may be wrong here for your specific filing situation, so verify tax treatment with a qualified professional. The practical owner goal is simpler: know what each product actually costs you.

Build a product cost sheet

1. List every material used in one finished item.
2. Calculate the unit cost of each material.
3. Add product packaging and labels.
4. Add average waste or spoilage if it matters.
5. Keep shipping supplies separate if they vary by order.
6. Review the sheet whenever supplier prices change.

Example

Suppose you sell handmade earrings for $24. The beads cost $3.20, findings cost $1.10, card and bag cost $0.60, and the mailer averages $0.75. Your direct product and packing cost is $5.65 before Etsy fees, ads, shipping labels, tools, and your time. That number helps you see whether the price still makes sense.

Common mistakes

• Counting every supply purchase as immediate profit reduction without looking at when products sell.
• Ignoring small packaging costs because they feel tiny per order.
• Forgetting waste, failed batches, or damaged materials.
• Using old supplier prices after costs increase.
• Pricing from competitor listings instead of your own margin.

How often to update COGS

For a small shop, monthly review is usually enough. If supplier prices move quickly or you launch many products, update your cost sheets more often. The important thing is not perfection; it is having a repeatable estimate that is close enough to guide pricing.

How Compass fits

Compass Finance can help organize transactions for materials, packaging, shipping, and Etsy payouts so you are not hunting through bank statements at month end. Compass is $79/month or $649/year, with a 7-day free trial and no card required.

For the full Etsy workflow, start with Bookkeeping for Etsy Sellers.