How to Reduce COGS When Manufacturing Overseas

COGS (costs of goods sold) is a company's total direct costs of producing the product it sells. It includes raw materials, manufacturing supplies, direct labor, factory overhead, and WIP (work-in-process) goods still on the factory floor.

When determining how to reduce COGS, today's top founders and operational leads go beyond squeezing the unit price and focus on restructuring how and where goods are produced.

Here's what to know when considering COGS reduction while managing real production spend.

What Actually Sits Inside Your COGS

COGS generally comprises all direct expenses tied to making a product, including:

• Direct materials – This includes raw materials purchased from suppliers, as well as parts and tooling used to manufacture or assemble a product.,

• Freight-in – Freight-in is the total cost of shipping, inspection, duties, and other import fees of acquiring raw materials and getting them to the factory.

• Direct labor – This is the cost of wages and benefits for factory and assembly-line workers.

• Factory overhead – This line item includes the cost to rent or lease a facility, along with utilities, insurance, and equipment depreciation.

COGS vs. OpEx

Cost of goods sold and operating expenses (OpEx) are separate business expenses that cover different categories. COGS is explicitly the direct costs to produce or buy parts to make products. OpEx is indirect, day-to-day expenses needed to run a business.

Another key difference beyond direct vs. indirect expenses is that COGS is subject to change. OpEx tends to stay mostly the same until a company scales.

Quality assurance (QA) costs, such as batch sample testing, might be included when calculating COGS, but only if it's part of routine manufacturing practices. If not, QA would go under OpEx.

Research and development (R&D) costs are also excluded from COGS and usually tracked as operating expenses.

Why Landed Cost Matters More Than FOB

Landed cost is the total expense of making a product, including getting the raw materials, producing it in a factory, and getting it to a warehouse. It combines the price of the actual item or parts, plus all other logistical costs (like shipping and import fees). The value allows you to calculate your true cost per unit.

Landed cost matters more than quoted FOB (free on board). The FOB quote is a shipping and pricing agreement that states who covers all costs (typically the seller) until the goods are loaded onto a shipping vessel. Landed cost includes the supplier's FOB price, plus ocean freight, customs, duties, local delivery, and insurance.

How Brands Usually Try to Cut COGS

When considering how to reduce manufacturing costs, some companies cut corners on materials or quality control (QC) practices, though this can create problems downstream with defective products or sustainability concerns., Others move production to a less costly location or ask their incumbent factory for a lower price.

Relying on a single supplier for materials or factory production limits leverage when attempting to lower COGS. The vendor may know you don't have immediate alternatives, which hinders bargaining power.,

Other COGS line items aren't as renegotiable. For instance, proprietary raw materials, custom tooling, skilled craftsmanship for specialty items, or compliance testing.

Where the Real Savings Are

When it comes to how to lower cost of goods sold, here's where brands can find realistic savings that doesn't hurt their bottom line:,,

• Factory-direct pricing instead of layered agent markups and commissions

• Matching the product to the right country and factory rather than defaulting to one

• Order consolidation

• Optimized MOQ (minimum order quantity) structuring

• Freight and duty optimization

• Better payment terms

Cavela helps businesses streamline these cost-reducing strategies. We can negotiate on your behalf to lock in fair pricing and better terms. Our platform matches product brands with factories to find the best fit worldwide. You can also count on better freight rates with end-to-end logistical oversight.

"As much as 15% of a factory's headcount goes into administrative project management, sales - work that is not manufacturing. We substitute that layer. We take out their admin cost, add ours, and because ours is leaner, it nets out lower overall." Anthony Sardain, CEO and Founder. Call. .

What Leading Operators Do Differently

Top operators are able to lower their COGS without sacrificing quality or risking logistical setbacks. Many leading businesses:,

• Use competitive bidding to get lower prices on raw materials

• Use predictive analytics to detect prototype design flaws before factory production starts

• Rebid production on a cadence instead of renewing orders by default

• Build a multi-factory bench to create real negotiating leverage, such as volume discounts for MOQs

• Track landed cost per SKU (stock-keeping unit) rather than a blended average

Cavela can support these strategies as well. Our robust manufacturing management services include requesting samples to ensure quality is up to standards before a production run starts. We can also match you with multiple supplier options to allow more negotiation power and tell you what MOQ is realistic before you commit.

The Trade-Offs Worth Naming

Before implementing COGS-reducing strategies, brand operators are wise to consider the potential trade-offs.

For example, a lower unit cost might result in a higher percentage of defects. This could warrant a rework of the prototype or delays in getting batch runs out to customers.

Also, while it's good to get quotes from multiple suppliers and factories, know that the cheapest quote rarely results in the lowest total expenses. Companies that go with the cheapest option may face quality issues, shipping delays, or reworks that eat up any initial savings.

Protecting quality and avoiding substantial delays are crucial. The most successful operators find ways to maintain quality and lead time while improving margins.,

How Cavela Lowers COGS Without Compromising Quality

Cavela's product manufacturing process is fully managed on our end, from finding the right factory for your product to fulfilling your first production run. Trusted by over 530 leading brands, our comprehensive services provide a host of valuable benefits:

• A vetted global network of over 200,000 factories matched to your product category

• Competitive factory-direct pricing with no hidden markups

• Negotiation support for better pricing and contract terms

• Success-based pricing, so the incentive is aligned with your savings

• Product sample requests

• Support navigating tariffs, duties, and other international fees

• End-to-end quality checks and logistical oversight that scales

Cavela has no platform subscription fee or separate service charges. Brands only pay for the unit cost of the goods they source—nothing else. QA, supplier coordination, and freight are built into that price.

Learn more about pricing, or register your business to start sourcing for free.

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