Small business guides > Your guide to starting a business > Pricing strategies and the cost of goods sold
Pricing strategies and the cost of goods sold
Your prices can influence the number of sales you make and the profit you earn on each transaction. We look at some pricing strategies to help find a balance between the two.
The first rule of price setting
You need to get more money out of a sale than you put into it. Which means you need to know the cost of the goods sold (also known as cost of sales).
What is cost of goods sold (or services sold)?
Cost of goods sold, or COGS, tells you what your business spends to deliver a product or service to your customer. It’s treated differently to general costs like rent or employee wages.
Identifying what COGS is in your business
Look for expenses that:
occur only when a service or good is provided
go up and down as sales go up and down
COGS formula
You can get a good idea of your COGS by performing this calculation:
Some may not apply
Some may not apply
Permanent wages and salaries are generally not included in COGS because they stay the same no matter how many sales you make.
Chapter 5: Types of business structure
Learn how business structure affects what you can and can’t do. We break down the pros and cons for different business types from solo owners to companies.
Read chapter 5All chapters:
4. Pricing and cost of goods sold
This guide is intended as general information only. Always check with a professional for advice.
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