The Ultimate Guide to Food & Beverage COGS: What You’re Probably Missing
Key Takeaways
COGS isn’t just ingredients and packaging—it includes fulfillment, co-packing, freight, spoilage, and other hidden costs that impact margin.
Most early-stage CPG founders are missing critical inputs in their COGS models, leading to pricing missteps and inaccurate margin forecasts.
A detailed, channel-specific COGS breakdown improves financial visibility, investor readiness, and operational discipline.
Cultivar helps founders move beyond theory to rebuild their unit economics based on how their business actually operates.
Most food and beverage founders think they have a decent handle on COGS. And at first glance, it might look right: ingredient costs, packaging, maybe a co-packer fee. But that 60% gross margin you told your investor? When we break open the spreadsheet, it’s closer to 22%. Why? Because the model is missing freight, fulfillment, shrink, and half a dozen other real-world variables.
This guide is about getting real. Real costs, real models, real margins. It’s not here to shame you—it’s here to show you how to build a margin model that actually reflects how your business works. Whether you’re pre-launch or already on shelf at Whole Foods, understanding your true COGS is the difference between building a brand and building a burn.
Ingredients and Packaging: The Obvious Starting Point
Start here, but don’t stop here.
Ingredients
Use batch-size pricing, not bulk pricing. If you're paying $3.25 per pound for peanut butter but only using 8 grams per bar, calculate that unit cost with actual waste factored in. Most co-packers lose 3% to 5% in yield due to container scraping, machine startup, or overfill. Add it.
If you manufacture in-house, estimate ingredient loss across your full run and divide it into cost per unit produced—not just packed.
Packaging
Founders tend to oversimplify packaging: box + label + pouch. But that misses big cost drivers like:
MOQ overage: Did you have to order 25,000 pouches when you only needed 10,000?
Sleeving labor: Some co-packers charge $0.10–$0.25 per unit to apply sleeves or custom labels.
Waste: Torn sleeves, dented cans, or misprinted boxes that never leave the warehouse.
Versioning: If you run multiple SKUs with slightly different packaging, model the cost impact of switching mid-run.
Most early-stage CPG brands pay a premium for packaging because of low volumes and startup costs. That’s normal. Just don’t ignore it.
And always use landed costs—not catalog quotes. If it costs you $0.60 for a box but freight-in and palletization add another $0.07, your real cost is $0.67. That difference matters when you're modeling margin per unit across thousands of units.
Fulfillment and Co-Packing: The Variable Killers
If you’re using a 3PL, you have to include pick-and-pack fees, storage charges, and fulfillment freight in your COGS. These are direct costs tied to every sale. If you’re fulfilling in-house, estimate labor per order, materials (tape, boxes, inserts), and average time spent per shipment.
3PL Fulfillment
Pick & pack: $0.75 to $1.50 per unit is common
Storage: Usually per pallet per month
Zone-based delivery fees: Can push your unit cost up 10–20% if you ship nationally
Returns: If you offer free returns, model them as a percent of total volume
Co-Packing
Most co-packers charge by the run or per unit. But that’s just the starting line. Additional costs often include:
Setup charges per SKU or formulation
Surcharges for short runs, allergens, or equipment sanitation
Labor-based fees for custom assembly or bundled products
Wait fees or penalties if your materials arrive late or mislabeled
All of these should be layered into your COGS. Even if the co-packer doesn’t bill them regularly, they’re part of your real cost stack.
If your run is 10,000 units and setup fees are $2,000, that’s $0.20 per unit—regardless of where it shows up on the invoice.
Freight and Distribution: Always Higher Than You Expect
Inbound freight is often missing from early models. But it’s real, and it adds up. If you’re sourcing ingredients or packaging from multiple vendors, each with separate freight terms, map those out per PO and average over your production volume.
Inbound Freight
Freight for raw ingredients to the manufacturer
Freight for packaging to co-packer
Fuel surcharges and LTL minimums
We recommend adding 3% to 6% of material cost as a freight buffer in most CPG categories. If you’re importing goods, that number climbs.
Outbound Freight
Your COGS must include:
Freight to distributor or 3PL
Freight from 3PL to customer (if you’re covering it)
Amazon FBA prep freight if you're using third-party logistics
Don’t forget that some retailers require free-on-board delivery to multiple DCs—and you’re eating that cost.
If you haven’t modeled outbound freight per case, use pallet yield and weight to estimate.
Spoilage, Shrinkage, and Write-Offs: The Ugly Truth
Every food and beverage business deals with some level of loss. It might be product damaged in transit. It might be returns from a retailer. It might be bad labeling. But it will happen.
Spoilage is a cost. Shrinkage is a cost. And you need to model them.
Common Loss Types:
Leaky pouches
Melted gummies in hot warehouse months
Short-dated product that misses a promotion window
Product returned and not resellable
Don’t bury spoilage in your COGS. Set up a separate line item and model it as a percent of production. For refrigerated products, assume 3%–5%. For shelf-stable, 1%–2%.
And when writing off product, also factor in:
Freight paid to get it there
Labor to dispose of it
Lost revenue
Loss hurts more when you ignore it.
Channel-Specific Adjustments: DTC vs Wholesale vs Amazon
COGS is not static. Your cost to sell on Shopify is different than selling through KeHE or Amazon FBA. Here’s how to break it out:
DTC
3PL fulfillment
Parcel freight (zone pricing)
Packaging inserts
Return fees
Credit card or merchant fees (typically 2.9% + $0.30)
DTC also tends to have higher spoilage risk and customer service costs. These aren’t always COGS, but the fulfillment components usually are.
Wholesale
Distributor markups (often 15%–25%)
Slotting fees
Free fills
Scanbacks and billbacks
Freight to retailer or distributor DC
Track these as line items. Promo deductions and chargebacks should go in contra revenue, but freight and free fill costs belong in your COGS or marketing accruals, depending on structure.
Amazon / FBA
15% referral fee
FBA pick/pack fees (can exceed $2.50 per unit)
Storage fees
Prep and labeling (if not done upstream)
Higher return rate (bake in refund loss %)
Even if you sell the same SKU across all three channels, your margin will vary. If you haven’t modeled per-channel COGS, your pricing strategy is flying blind.
You Can’t Fix Margins You Don’t Understand
Founders rarely miss big cost buckets out of laziness. They miss them because the finance tools out there are either too vague or too theoretical. This post isn’t theory—it’s a checklist.
If your COGS model is missing any of the categories above, now’s the time to fix it.
Understanding your true unit economics isn’t just about impressing investors. It’s about:
Knowing where your margin actually lives
Understanding your breakeven by SKU and by channel
Setting realistic goals for growth and cash flow
Want help fixing what’s broken? We do this every day.
Contact us today to rebuild your COGS model from the ground up. We’ll help you get your pricing right, prep your margins for scale, and build a business that’s profitable before the next fundraise.
FAQs
How often should I update my COGS model?
At minimum, review it quarterly. Ingredient and freight costs change fast, especially in food and beverage. A small supplier price hike or packaging redesign can swing your margins by several points. For brands scaling quickly, monthly reviews tied to new POs or co-packer runs are ideal. The goal is to catch shifts early so pricing and production decisions stay grounded in current data.
How should I use my COGS data when setting prices?
Start with your true, fully loaded COGS—ingredients, packaging, freight, fulfillment, and co-packing—and work backward from your target gross margin by channel. If your wholesale target is 40% and your COGS per unit is $1.80, your minimum sell price should be around $3.00 before trade spend. Then layer in expected discounts, promos, and distributor fees to confirm your final margin still holds. COGS isn’t just a number—it’s the foundation for pricing decisions that actually protect your profit.
Should R&D and pilot run costs be included in COGS?
Only if the product is already commercialized. R&D belongs in operating expenses because it supports future products, not the current one. However, once you move from test batch to production batch, the associated materials, labor, and freight should flow into COGS. Many founders blur this line, which makes early margins look worse or better than they actually are.
What’s the best way to present COGS to investors or potential buyers?
Show clarity, not complexity. Break COGS into clear buckets—ingredients, packaging, production, freight, and fulfillment—and show how each scales with volume. Include a sensitivity table that models how margin changes with small shifts in cost or price. Investors want to see that you understand your cost levers and have the systems in place to manage them. The stronger your COGS reporting, the more credible your growth projections become.