Employ a Detailed Approach to Merchandise Analysis

These are truly components of COGS and should be factored, as should the cost of returns (the difference between returns to good stock and those returns that are damaged).

Another factor that’s often overlooked is the hidden cost of inbound freight. If it has been factored into the initial cost of goods as most companies do for landed cost, you’ve done a great job. If not — as most companies don’t factor domestic freight — inbound freight can run 2 to 4 percent of sales, and can be a significant number.