Quick answer
Target COGS is the amount left after VAT, route costs, hidden selling costs, and the margin the business needs to keep.
Working backwards from RRP gives founders and engineers a clearer cost target than treating the retail price as if it belongs to the factory.
Product teams often set a target retail price and then ask engineering to make the cost work. That only becomes useful once the target COGS is derived properly. Retail price is not factory value. It has to absorb VAT, route-to-market fees, warehousing, packaging, logistics, selling costs, and the margin the business needs to keep.
Start with the money you do not keep
| Cost layer | Typical examples | Why it matters |
|---|---|---|
| Tax and channel take | VAT, marketplace fees, retailer margin | This can remove a large share of the top line before operations even start |
| Operational selling cost | Warehousing, pick and pack, secondary packaging, outbound logistics | These costs rise with every unit sold |
| Commercial cost | Site and payment fees, paid acquisition, trade spend, account support | These are often split across teams and missed in the product economics |
| Business margin | The profit needed to fund growth, overhead, and future product work | If nothing is left here, the product is not commercially healthy |
A simple way to think about it
- Remove VAT if the RRP includes it.
- Remove the route-to-market share you do not keep.
- Remove the hidden selling and fulfilment costs attached to that route.
- Remove the margin the business needs to keep.
- What remains is the maximum COGS the product can afford.
Two products with the same 180 GBP RRP can need very different target COGS depending on whether they are sold DTC, through Amazon, or through retail. If the route changes later, the product may need redesign because the original cost target was based on the wrong commercial model.
Why this matters for design teams
- It sets a clearer brief for cost-down and design-for-manufacture work.
- It shows whether the route-to-market idea and the product architecture fit each other.
- It helps avoid late commercial surprises that force rushed redesign.
- It gives founders and engineers a shared number to design toward.
The Target COGS by Route to Market tool works backwards from RRP to the COGS ceiling for DTC, marketplace, and retailer routes. The Launch Margin Planner then shows what those assumptions mean at annual launch level once route mix and overhead are included.