You’ve got sales rolling in. The notifications keep pinging. But when someone asks, “How much profit are you making?”—you freeze.

Why? Because you don’t actually know.

The culprit? Not tracking your cost of goods sold (COGS).

For Etsy sellers, COGS is the single most overlooked piece of bookkeeping. And without it, your “profit” is just a guess.

This post is going to cut through the fluff and show you:

1. What COGS actually means for Etsy sellers.

2. Why skipping it wrecks your profit picture.

3. A no-nonsense, 3-step method to track it without overwhelm.

What Is COGS (Really)?

COGS = Cost of Goods Sold. It’s what it costs you to make the product you just sold.

For Etsy sellers, that usually includes:

• Materials: Wood, yarn, beads, fabric, clay, etc.

• Supplies directly tied to production: Glue, paint, thread, finish.

• Packaging (if unique to the item): Custom boxes, tissue, ribbon.

What it does not include:

• Etsy fees (those are selling expenses).

• General supplies (scissors, rulers, shipping tape—unless item-specific).

• Marketing costs.

Why Not Tracking COGS Hurts You

When you ignore COGS:

1. You overestimate profit. A $30 sale feels like $30 in the bank—but if it cost you $15 to make, your profit is half that.

2. You underprice your work. Without knowing costs, you can’t set sustainable prices.

3. You look sloppy to the IRS. COGS is a standard deduction line on your Schedule C. If you’re skipping it, you’re either overpaying taxes or leaving yourself open to questions.

The 3-Step No-Fluff Method for Tracking COGS

You don’t need a fancy system or complicated formulas. Here’s the simple way to stay on top of COGS:

Step 1: Track Purchases by Category

Every time you buy materials, log it. Example:

• $50 beads

• $80 yarn

• $25 clay

Keep receipts and categorize them by material type.

Step 2: Assign Costs Per Product

When you make an item, estimate the materials used. Example:

• Necklace: $5 beads + $2 clasp + $1 chain = $8 COGS

• Mug: $3 clay + $2 glaze = $5 COGS

Don’t overcomplicate—just approximate reasonably.

Step 3: Match COGS to Sales

When you sell, record the item’s COGS alongside the sale price. Example:

• Sale price: $30

• COGS: $8

• Profit before fees: $22

• 
  

Now you know your real margins.

A Real Example

Let’s say you sell 100 necklaces in a month at $30 each.

• Sales = $3,000

• COGS per necklace = $8

• Total COGS = $800

• Profit before fees = $2,200

• 
  

Without tracking, you’d assume $3,000 profit. Reality? $2,200 before Etsy fees. That’s an $800 gap you can’t afford to ignore.

Why Sellers Avoid COGS

Most Etsy sellers skip COGS because:

• It feels overwhelming. Too many materials, too many items.

• They don’t know where to start. The concept feels “too accounting.”

• They rely on deposits. If money’s in the bank, they assume it’s profit.

But here’s the truth: if you can write a materials list for your product, you can track COGS.

The IRS Angle

The IRS expects small businesses to track and report COGS. It’s not optional. In fact, they may ask for:

• Material purchase receipts

• Inventory logs

• Production cost breakdowns

• 
  

If you can’t provide them, your deductions may get denied. And that means higher taxes.

The Simple Tool That Helps

At Zero Fluff Books, we’ve built an Inventory & COGS Tracker specifically for Etsy sellers. It does three things:

1. Logs material purchases.

2. Tracks usage per product.

3. Connects sales to COGS automatically.

It’s straightforward, built in Excel, and doesn’t require an accounting degree.

Final Word

COGS is the line between a hobby and a business. If you’re serious about making money on Etsy, you can’t afford to ignore it.

The fix isn’t complicated: track purchases, assign costs, and match them to sales. Do it consistently, and you’ll finally see your real profit.

👉 Want a shortcut? Grab our Inventory & COGS Tracker today—or talk to us about cleanup if you’re already in the weeds.

No fluff. Just clean books.