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COGS moves with revenue more closely than any other P&L line. The right forecasting method depends on how variable your cost structure is and how much granularity the model needs.

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What approach to use

Driver-based is the right default for most COGS lines. If you can express cost as a function of revenue or volume, model it that way. Use statistical when you don’t have the granular data for a clean driver, or when costs are stable enough that historical patterns are a reliable guide. Hardcoded is for exceptions: a fixed contract, a one-off cost, or a fallback when there’s no signal worth modeling.

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Where to forecast COGS

  • Directly on the P&L: right for most cases. A percentage-of-revenue formula or statistical projection lives on the COGS row itself. Simple to set up, easy to maintain.
  • Supporting sheet: right when COGS is driven by multiple inputs (unit economics, inventory levels, multiple product lines with different margin profiles). The sheet handles the complexity; the P&L row references the result.
If you’re unsure, start directly on the P&L. A supporting sheet is straightforward to add later once the model’s complexity justifies it.

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Forecasting approaches

The default for variable direct costs. Add a formula to the COGS row that references your revenue group and applies a cost percentage. When revenue assumptions change, COGS updates automatically.
= "Revenue"[0] * "COGS % of Revenue"[0]
Add your COGS % of Revenue assumption to a separate assumptions sheet. The formula references it directly.For unit-based forecasting, the same driver logic applies with volume × unit cost as inputs instead of a revenue percentage. If unit costs vary by product line or are tied to inventory movements, build a supporting sheet and reference the total into the COGS row.Driver-based breaks down when the cost-to-revenue relationship is unstable: a business going through a significant change in cost structure, or where purchasing is lumpy and doesn’t track revenue closely.