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9 min readReviewed 2026-07-04

COGM vs COGS for handmade businesses

COGM tells you what finished goods cost to make. COGS tells you what sold. Mixing them makes profit look better or worse than it really is.

Quick answer

COGM is cost of goods manufactured, the cost of products completed during a period. COGS is cost of goods sold, the cost of products sold during a period. A maker can produce 100 candles and sell 60; COGM covers 100 candles, while COGS covers only the 60 candles sold.

Test the answer with your own cost, fee, and margin numbers.

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Decision checkpoints

  • COGM is about production.
  • COGS is about sales.
  • Unsold finished goods stay in inventory.
See worked examples

Use the numbers while you read

Product Pricing Calculator

Open this guide beside the calculator and test your own cost, fee, margin, or ad assumptions. The examples below are useful, but your decision should use your own numbers.

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Core formulas

The formulas to keep straight

COGM = direct materials used + direct labor + manufacturing overhead + beginning WIP - ending WIP
COGS = beginning finished goods + COGM - ending finished goods
Gross profit = sales - COGS
Unit manufacturing cost = COGM / units completed

What is the difference between COGM and COGS?

COGM measures what it cost to make finished products during a period. COGS measures what it cost to make the products that actually sold.

If you made 100 candles at $8 each and sold 60, COGM is $800. COGS is $480. The other $320 stays in finished-goods inventory until those candles sell.

COGM vs COGS example

MetricQuantityUnit costTotal
Candles made100$8$800 COGM
Candles sold60$8$480 COGS
Candles left40$8$320 ending inventory

What is the simple COGM formula for makers?

For many small makers, COGM starts with materials used, labor used to make products, and production overhead. If you do not track work in process, keep the formula simple and consistent until the business needs more detail.

The biggest mistake is using materials purchased instead of materials used. Buying wax is not the same as selling candles made from that wax.

Maker COGM fields

FieldExample
Materials usedWax, jars, wicks, labels.
Direct laborPouring, curing checks, labeling.
Production overheadSmall allocation for tools and workspace.
Units completedFinished, sellable units.
Unit costCOGM / units completed.

Why does COGS matter for profit?

COGS keeps unsold inventory out of current-period expense. That matters because a large supply buy can make a profitable month look terrible if all of it is expensed at once.

A clean COGS record lets the seller price better, see product profit, and avoid treating inventory as if it vanished the day it was purchased.

  • COGS ties cost to sold units.
  • Inventory keeps unsold units on hand.
  • Gross profit becomes easier to read.
  • Pricing decisions become less emotional.

Decision table

COGM vs COGS decisions

QuestionUseReason
What did I make?COGMProduction cost.
What did I sell?COGSProfit reporting.
What is on the shelf?InventoryUnsold value.
What should I charge?Unit cost plus marginPricing floor.
Did the month profit?Sales minus COGSGross profit.

Worked examples

Examples you can compare against your own numbers

Example: sticker batch

A seller prints 200 sticker sheets at a $1.10 unit cost and sells 75 sheets this month.

COGM$220200 sheets x $1.10.
COGS$82.5075 sheets sold x $1.10.
Ending inventory$137.50125 sheets left x $1.10.

Takeaway: The unsold 125 sheets are inventory, not current-month COGS.

Action checklist

Before you use this number in the real business

  1. 1Track materials used, not only materials bought.
  2. 2Track units completed.
  3. 3Calculate unit manufacturing cost.
  4. 4Move sold units into COGS.
  5. 5Keep unsold units in inventory.
  6. 6Use unit cost in pricing.

Common mistakes

Mistakes that make the answer look better than reality

Expensing all supplies when purchased.
Ignoring labor in COGM.
Treating damaged units as sellable inventory.
Using average cost without checking supplier price changes.
Comparing revenue to purchases instead of COGS.

FAQs

Questions people ask before making the decision

Is COGM the same as COGS?

No. COGM is the cost of goods completed. COGS is the cost of goods sold.

Do handmade sellers need COGM?

They need the idea, even if the spreadsheet is simple. Knowing what each finished unit costs keeps pricing and profit grounded.

Can COGS be lower than materials purchased?

Yes. If materials were purchased but not sold through finished goods yet, those costs can remain in inventory.

What is the easiest first step?

Track finished units made, unit cost, units sold, and units left. That gives you the core COGM and COGS relationship.

Sources and notes

Where the assumptions come from

IRS: Guide to business expense resources

Official IRS resource map for business expenses, inventory, records, depreciation, and related forms.

IRS: About Schedule C

Official IRS page for Schedule C and sole proprietor business income or loss.

FeeProofed methodology

FeeProofed source, calculator, and review methodology.