You’re hitting your revenue goals. Orders are up. Sales are climbing.
But somehow, you’re making less money than you did six months ago.
If this sounds familiar, you’re not alone. Today I’m showing you why growth exposes COGS problems you didn’t even know you had, and what to do about it.
The Million-Dollar Problem
Picture this: You’re a seven-figure Shopify seller. Things are going well.
You hit your first million doing inventory the quick way → buying product, expensing it immediately, keeping things simple.
Then you double your revenue. And suddenly, nothing makes sense anymore.
- Your profit margins look wildly different month to month.
- Your accountant is asking questions you can’t answer.
- And you’re wondering where all the money went.
Here’s the real problem: Growth didn’t break your COGS. Growth just exposed the problems you already had.
The Default Rookie Error: The Cash Approach
Let me show you what most sellers do when they start out.
You buy $100,000 in inventory in January. You expense it all immediately.
Your P&L that month shows a massive loss, even though you just stocked up for the quarter.
Then February and March look amazing because you’re selling through that inventory with zero cost showing up.
Your financials swing wildly. One month looks terrible; the next looks great.
And when your business is small, you can sort of feel your way through it. You know what’s in the warehouse. You remember what you paid for things. You can keep it in a spreadsheet relatively easily.
What Happens When You Grow
But here’s what happens when you grow.
- You’re ordering from multiple suppliers.
- You have SKUs with different costs.
- You’re running promotions.
- You’re managing returns.
- You’re dealing with freight costs that vary by shipment.
And suddenly, that simple method stops working. The spreadsheet isn’t keeping up anymore. And your gut feel isn’t enough.
Growth didn’t create these problems. The problems were always there. Growth just made them impossible to ignore.
The Fix: Track COGS the Right Way
Here’s what should happen instead.
When you buy that $100,000 in inventory, it goes on your balance sheet as an asset. It’s not an expense yet because you haven’t sold it.
Then, as you sell products, the cost moves from inventory assets into cost of goods sold.
Now, let’s assume that you have a 33% gross profit margin. If you do $100K in sales, that means you sold $66K worth of product. That is your COGS.
Breaking It Down Month by Month
- Month one: You do $30K in sales. That means you sold $20K in COGS.
- Month two: You do $15,000 in sales. That’s another $10K in COGS.
- Month three: You do $24K in sales. There’s another $16K in COGS.
Now your margins are consistent. You can see exactly how your business is performing. And you can make real decisions.
Real-World Example: The $2M Wake-Up Call
Here’s an example. We had a client who was doing $2 million a year using the cash approach. They thought they were profitable.
But some months showed 80% margins. Others showed negative margins. Nothing made sense.
We cleaned it up and implemented the right COGS method.
Turns out they weren’t as profitable as they thought. But now they actually knew what was happening. They could fix pricing, negotiate better with suppliers, and grow strategically.
That clarity is everything.
What You Need to Know
Here’s what you need to know:
Small businesses can probably do the cash approach and get away with messy COGS for a while.
But growth makes the cost of poor visibility much greater.
Truly fixing your COGS is going to require a commitment to financial and operational maturity.
Because it is your largest cost, visibility here will make a huge difference in your business AND is worth the effort.
The important part is this: Fix it now, before growth forces your hand.
What Proper COGS Tracking Gives You
Because here’s the thing: when you get COGS right, everything changes.
You can finally see which products are actually profitable.
You can make smart decisions about what to reorder and what to drop.
You can price with confidence instead of guessing.
You stop having those confusing months where your numbers don’t match reality.
And most importantly, you can grow without feeling like you’re flying blind.
That’s what proper COGS tracking gives you.
Find Out Where Your COGS Tracking Stands
Not sure if your inventory setup is ready for growth—or quietly holding you back?
Take our FREE 3-minute Inventory Reality Check diagnostic and get instant clarity on:
- Where your inventory system stands right now (and why it feels the way it does)
- The specific gaps creating blind spots in your margins and cash flow
- Your step-by-step action plan to close the gaps in 60-90 days
- Whether to handle this yourself or when expert help makes sense
Take the Inventory Reality Check →
You’ll receive a personalized PDF action plan sent directly to your email with exactly what to fix first.
Other Ways to Get Help
If you’re managing inventory in Excel and need help, we’ve created a free Inventory and COGS Template that will help you set up a product cost catalog and track quantity and values. It will also help you compute COGS accurately.
For multi-channel sellers, spreadsheets are not robust enough to handle that amount of complexity. You’ll need something more automated. When you’re ready for an inventory management system, we can help you choose the right one for your business, so your IMS and your accounting software actually talk to each other.
Want to talk it through? Schedule a free discovery call with our team. We’ll walk through your business, discuss the challenges you’re facing, and see whether our services are the right fit to help you grow with clarity and confidence.
