Tracking COGS (Cost of Goods Sold) for Resellers

Cost of Goods Sold is the single most important number most resellers don't track properly. COGS represents what you actually paid to acquire the items you sold, and it's the foundation of understanding whether you're actually making money or just moving inventory.

Here's the problem: if you sell a jacket for $50 but you can't prove you paid $8 for it at Goodwill, you can't deduct that $8 on your taxes. You'll pay taxes on $50 instead of $42. Multiply that by hundreds of sales over a year and you're potentially paying thousands in unnecessary taxes.

Beyond taxes, tracking COGS tells you which sourcing methods are profitable, which categories make sense for your business, and whether that "great deal" you thought you found actually made money after everything shook out. If you're not tracking this, you're flying blind.

What Counts as COGS for Resellers

COGS includes everything you spend to get an item ready for sale. The obvious part is the purchase price—what you paid at the thrift store, estate sale, or online marketplace. But it goes further than that.

Shipping costs to get the item to you count as COGS. If you buy something on eBay and pay $12 shipping, that $12 is part of your cost. Cleaning and repair costs necessary to make an item sellable are included too. The OxiClean you use to remove stains from that vintage shirt, the Shoe Goo for reattaching a loose sole, the dry cleaning bill for a wool coat—all COGS. Our guide on cleaning thrifted clothes covers the supplies you'll need.

Platform fees and outbound shipping to buyers are deductible business expenses but technically aren't COGS—they're selling expenses. The distinction matters for accounting purposes but the end result is the same: they reduce your taxable income. The tax guide covers the full picture.

The Receipt Problem (And How to Solve It)

Thrift stores give you receipts, but those receipts don't itemize what you bought. "Misc clothing - $14.00" doesn't tell you or the IRS anything useful. This is the tracking challenge every reseller faces.

The solution is documentation at time of purchase. When you check out, take a photo of your haul with the receipt visible. Or take a quick video showing each item and what it cost. This creates a record tying specific items to specific costs. You can also write on the receipt itself—"blue jacket $4, Nike shoes $6, vintage tee $4"—before photographing it.

Allocating Costs for Lots and Bundles

Sometimes you buy multiple items for one price—an estate sale lot, a Goodwill Bins purchase by the pound, or a "fill a bag for $10" deal. You need a reasonable method to allocate costs to individual items.

For by-the-pound purchases at the Goodwill Outlet, the math is straightforward. If you pay $1.59 per pound and your total purchase weighs 20 pounds, you paid $31.80. Weigh each item individually or estimate based on category (shirts are usually 8-12 oz, jeans around 1-1.5 lbs, etc.) and allocate proportionally.

For estate sale lots or "fill a bag" deals, you can allocate by estimated value, by item count, or by some other reasonable method. The key is consistency—use the same method every time. If you buy a lot of 10 items for $30 and allocate $3 per item, that's simple and defensible. If you estimate the vintage leather jacket is worth more and allocate $15 to it and $1.67 to each of the remaining items, that's also fine.

Tracking Methods That Actually Work

The best system is the one you'll actually use consistently. Here are approaches that work for different selling volumes and preferences.

Spreadsheet Method (Under 50 Sales/Month)

A Google Sheet or Excel file with columns for date purchased, item description, purchase cost, any prep costs, date sold, sale price, platform fees, shipping cost, and net profit. Enter items when you buy them, update when they sell. Simple, free, and flexible. You can build your own or use our template from the profit tracking guide.

Inventory Software Method (50+ Sales/Month)

Tools like Sellerkit, My Reseller Genie, or Airtable databases let you scan items, track inventory location, manage costs, and generate reports. There's a learning curve and often a monthly fee, but at higher volumes the automation saves time and reduces errors. These connect with platforms to auto-import sales data.

The SKU Tag Method

Assign each item a unique SKU when you acquire it—something like "2501-A034" meaning 2025, January, item number 034. Write this SKU on the item's tag or storage bin, enter it in your tracking system with the cost, and include it in your listing's SKU field. When it sells, the platforms report the SKU, making reconciliation automatic.

Calculating Your True Profit

Once you're tracking COGS properly, you can calculate what you're actually making per item and per hour. The formula is simple: Sale Price minus COGS minus Platform Fees minus Shipping Costs equals Net Profit.

Here's a real example: You buy a vintage band t-shirt for $4 at Goodwill. You spend $0.50 worth of OxiClean treating a small stain. You list it on eBay and it sells for $35. eBay charges $4.55 in fees (13%). You ship it for $5.50 using your own packaging. Your net profit is $35 - $4.50 (COGS) - $4.55 (fees) - $5.50 (shipping) = $20.45.

That $20.45 is what you actually made, and it's what you pay taxes on (not the $35 sale price). Knowing this number for every item helps you understand which categories and sourcing methods are worth your time. If similar shirts consistently yield $20 profit in 20 minutes of work, that's $60/hour. If another category yields $10 profit in 45 minutes, it's $13/hour. Track long enough and patterns emerge that transform your sourcing strategy.

What Happens When Items Don't Sell

Not every item you buy will sell. Some go to the death pile, some get donated, some get damaged. How do you handle COGS for unsold inventory?

You can only deduct COGS for items you actually sell during the tax year. Unsold inventory at year-end isn't a deduction—yet. It becomes deductible when you sell it next year, donate it (at fair market value), or write it off as worthless.

If you donate unsold inventory to a qualified charity, you can deduct the fair market value—which is usually what you could have sold it for, not what you paid. Keep the donation receipt. If items are truly worthless (damaged beyond repair, zero market demand), you can write off your cost as a business loss.

Putting It All Together

Start tracking COGS today, even if imperfectly. Grab receipts, photograph your hauls, and enter data into whatever system works for you. Perfect tracking from day one isn't required—consistent tracking is.

Review your numbers monthly. Which items are most profitable? Which sourcing locations yield the best COGS-to-sale ratios? Where are you spending time on low-margin items? The data tells you where to focus and what to skip. This transforms reselling from a treasure-hunting hobby into a data-driven business.

With proper COGS tracking, you'll minimize your tax burden, understand your real profit margins, make smarter sourcing decisions, and build a business that scales. It's the foundational skill that separates profitable resellers from those who just think they're making money.