If you are selling a physical product, the cost of goods sold (also called COGS, cost of sales, direct costs of sales, variable costs) forecast answers the question of how much it will cost to produce or stock your product.

COGS vary directly with sales or production; the more items you sell or make, the more stock or components you need to buy, so the COGS forecast relates directly to the sales forecast.

To calculate the COGS forecast, include all direct costs of getting your products into inventory and ready for sale. For example:

• the wholesale cost of buying completed goods, raw materials or parts;
• freight in;
• freight insurance;
• commissions paid on sales; and
• direct labour costs used to manufacture the product.

What's next...

• Work out the establishment costs for your business
• Find out how to work out your expenses forecast
• Prepare a sales forecast for your business