FIFO (First In, First Out)
FIFO is an inventory valuation method that assumes the oldest units on hand are the ones sold first, so the oldest costs flow into COGS and ending inventory carries the most recent costs. It usually matches how physical stock actually moves, it's accepted everywhere, and it's the default choice for most ecommerce sellers. Its one quirk: when supplier costs are rising, FIFO shows higher margins than what replacing the stock will cost you.
Example: you bought 1,000 units at $8 in March, then 1,000 more at $10 in May after a freight increase. You sell 1,200 units in June. Under FIFO, COGS is 1,000 × $8 plus 200 × $10, so $10,000, and the 800 units left on the shelf are valued at $10 each. Your P&L shows the margin earned on the cheap batch, which is real, but your next reorder happens at $10 or worse.
That gap matters for pricing. Sellers who price off FIFO margins during cost inflation feel profitable right up until the cheap layers run out, then margins compress with no price change to blame. The fix isn't abandoning FIFO; it's watching replacement cost alongside it, which is easy when landed costs are tracked per receiving. Method choice and layer tracking are set up during onboarding for monthly bookkeeping, and our COGS guide shows the flow end to end.
Where this shows up in our work
This isn’t textbook material for us; it’s the day-to-day of keeping seller books right. See how we handle it in practice:
Monthly Ecommerce Bookkeeping→