Subtract cost of goods sold from your sales and you have gross profit, which for a bespoke studio is the single most useful number there is — because it tells you whether the prices you quoted were the prices you should have quoted.
The accounting formula is short, and here it is before anything else.
The exact formula
COGS = Opening inventory + Purchases during the period − Closing inventory
Read left to right: what you had in materials at the start, plus everything you bought while the period ran, minus what is still unused when the period ends. What is left is what got consumed by the work you sold.
Each term, plainly:
Opening inventory — the value of raw materials, components and work-in-progress you held on day one of the period, at what you paid for it, not what it is worth now.
Purchases — materials and components bought during the period, including inbound freight and duty, less any returns or supplier credits.
Closing inventory — the same count on the last day. Count it properly: the tubesets in the rack, the half-cut fabric, the case of tuners, the boards still in the mould.
If you would rather build it up from the job than down from the stock count, the same number arrives by a different road:
COGS = direct materials + direct labour + direct production costs, for the jobs delivered in the period
Both routes should land in roughly the same place. The stock-movement version is what your accountant wants for the year end; the job build-up version is what tells you whether the Henderson frame made money. Small studios need both, and most only ever calculate the first.
Work out yours
Both routes, in the same calculator. Nothing is sent anywhere — it all runs in your browser.
Figures are ex-VAT. This is a working aid, not tax advice — your accountant owns the statutory number.
A worked example
Say a framebuilder starts the quarter with £4,200 of tubing, dropouts, headsets and paint in the workshop. Over the quarter they spend £9,800 with suppliers, including carriage. At the end, they count £3,600 of stock still unused.
COGS = 4,200 + 9,800 − 3,600 = £10,400
If the frames delivered that quarter invoiced at £26,000, gross profit is £15,600 — a gross margin of 60%. That £15,600 is what has to cover rent, tooling, insurance, software, the accountant, and whatever the maker takes home. Written down that way, a 60% margin stops sounding generous and starts sounding like arithmetic you should check every quarter.
Direct or overhead? The line that trips makers up
The test is simple: if you made one fewer commission this month, would the cost go away? If yes, it is direct and belongs in COGS. If you would pay it regardless, it is overhead and sits below the gross profit line.
Direct — goes into COGS. Materials and components consumed by the build: tubing, Adirondack tops, East Indian rosewood, silk lining, casting metal, stones, foam blanks, resin. Consumables you can attribute to a job: brazing rod, sandpaper, abrasives, finishing oil, thread. Outsourced production: heat treatment, powder coat, plating, CNC work, a casting house, a weaver. Inbound freight and duty on materials, and outbound carriage to the client if you carry it. And direct labour — the hours a person actually spent on that build, including a subcontracted finisher or a part-timer paid by the job.
Overhead — stays out of COGS. Rent, rates, heat, light, insurance. Machine and tool purchases, which are capital and depreciated rather than consumed. Marketing, photography, your website, software subscriptions. Admin time, quoting time, the morning you spent ordering parts. Your own drawings, sales calls and email.
The awkward case is your own labour if you are a sole trader taking drawings rather than a salary. Strictly, drawings are not a cost and do not belong in COGS. Practically, if you leave your own bench hours out of the calculation entirely, you will conclude that a £4,000 commission carrying £900 of materials made £3,100 — and price the next one from a fiction. Many makers keep two views: statutory COGS for the accounts, and a shadow figure with a notional hourly rate for their own time, used purely for pricing. That is a sound habit, as long as you do not mix them up in the same spreadsheet.
How COGS shapes what you charge
Gross margin is COGS turned round the other way: (Revenue − COGS) ÷ Revenue. Work out the margin you need to cover your overheads and your own income, and you have a floor under every quote.
Two things go wrong in bespoke work specifically. The first is spec creep — the client upgrades the groupset, moves to a rarer timber, asks for hand-stitched buttonholes — and the material cost climbs after the price was agreed. The second is that material prices move between the quote and the order, sometimes by a lot, on a build that runs six months.
Both are visibility problems more than pricing problems. If you can see the running material spend against the agreed price while the build is still on the bench, you can have the conversation about the upgrade at the moment it happens, rather than discovering the erosion at the year end when you can no longer tell which job caused it.
Where the numbers can live instead
That is what the worksheet in Vidual does. Every project can carry a component list in which each line holds a description, the quantity, what it cost you, who supplied it and any notes worth keeping — and those costs total up on their own against the price the client agreed. What you paid is never shown to the client: the portal lists the items, not your numbers. If you run Lightspeed R-Series or Cycle, searching your catalogue pulls the description, cost and SKU straight in, so the numbers in your COGS working are the numbers your POS holds rather than a figure typed from memory.
There is one more wrinkle that bites on long builds. A cost you entered eighteen months ago is not a cost, it is a memory — and quoting from it is how a healthy-looking margin turns out to have evaporated. So when you add a part whose price nobody has confirmed in a while, Vidual says so, shows you when it was last set, and lets you correct it there and then. Not a queue of admin to work through on a Sunday; a single line at the moment you are already thinking about that part.
The change, once it is running, is a quiet one: you open the project instead of opening a spreadsheet, and the material spend on that build is simply there, current, next to what you quoted. Come the quarter end, the per-job costs already exist, so working out COGS is reading and adding rather than an evening of reconstructing supplier emails.
The mistakes worth avoiding
Treating every purchase as a cost. Buying £2,000 of tubing in March does not make it a March cost — it becomes cost as it is consumed. Ignore closing stock and your profit swings wildly month to month for no real reason.
Forgetting freight and duty. On imported hardware, plates, movements or specialist timber, carriage and duty can add a meaningful percentage. They are part of what the material cost you.
Leaving out outsourced steps. Powder coat, plating, heat treatment and a casting house are as direct as the metal itself.
Losing scrap and waste. The offcut you binned, the top that split, the failed pour. Costing only the material that ended up in the finished piece understates your real consumption, sometimes badly on figured timber or hide.
Counting stock once a year and hoping. A rough count each quarter is far more useful than a perfect one each January, because a quarterly number is soon enough to change a price.
Questions makers ask
What is the exact COGS formula?
COGS = opening inventory + purchases during the period − closing inventory. Alternatively, built from the job side, it is direct materials plus direct labour plus direct production costs for everything you delivered in the period. Both should reach the same figure; the first is the one your accounts use.
What counts as a direct cost versus an overhead for a small maker?
A direct cost disappears if the commission does not happen — materials, components, attributable consumables, outsourced processes like plating or powder coat, inbound freight, and hours worked at the bench on that specific build. Overheads carry on regardless: rent, insurance, software, marketing, tooling, and the time you spend quoting and answering email. Machines are capital, not COGS, and are depreciated instead.
How does COGS affect pricing and margin?
Gross margin is (revenue − COGS) ÷ revenue, and it has to cover every overhead plus your own income. Knowing the margin you need gives you a floor under each quote, and knowing your COGS per job tells you which kinds of commission actually clear that floor. Many makers discover that their most enjoyable work is their thinnest, which is a pricing decision, not a fate.
What is the most common mistake makers make calculating COGS?
Ignoring inventory movement — treating the month’s supplier invoices as the month’s cost, which makes a large tubing or timber order look like a terrible month and the month you work through it look like a brilliant one. Close behind: leaving out freight, duty, scrap and outsourced processes, all of which quietly understate what a build genuinely consumed.
How does COGS differ from unit cost?
COGS is a period total across everything you sold; unit cost is the direct cost of making one specific thing. You use COGS in your accounts and to check your overall gross margin, and unit cost to price an individual commission. In bespoke work, where no two pieces are identical, unit cost is really per-job cost — and costing the components project by project is the practical way to get both numbers out of the same records.
Do I need accounting software for this?
You need somewhere reliable for material costs per job; the accounts package handles the rest. Vidual connects to QuickBooks Online and Xero, and issuing a work order to a client sets that customer up in the accounting system and raises the invoice against it — so the per-job costs you keep for pricing and the figures your accountant works from start out as the same records rather than two versions of the truth.
COGS tells you what a period cost. To turn that into a number you can quote, see how to price handmade items without guessing. For how the component list, calendar and payments connect: Keep making, stop managing.