Knowing your actual profit margins is the foundation of a sustainable Amazon business. Many sellers focus on revenue without fully understanding their costs — and revenue is not profit. Here is how to calculate your true margins accurately.
The Complete Cost Formula
Your profit per unit is: Selling Price minus Product Cost minus Amazon Referral Fee minus FBA Fulfilment Fee minus Prep Cost minus Inbound Shipping Cost minus any Advertising Cost per unit minus any Storage Fees allocated per unit.
That is a lot of deductions. Let us walk through each one.
Product Cost
This is what you paid for the item — the wholesale price, the retail clearance price, or the manufacturing cost. It should include VAT if you are not VAT-registered (since you cannot reclaim it).
Amazon Referral Fee
A percentage of your selling price, typically 15% for most categories. Use the exact percentage for your product's category — some categories charge less (like electronics at 7%) and some charge more.
FBA Fulfilment Fee
Amazon's fee for picking, packing, and shipping the product to the customer. Based on size tier and weight. Check the current fee schedule or use the Revenue Calculator for exact figures.
Prep Cost
If you use a prep centre, this is straightforward — your per-unit prep fee. If you prep yourself, estimate the cost of labels, poly bags, bubble wrap, and your time. Many self-preppers underestimate this cost because they do not value their own time.
Inbound Shipping
The cost to ship products from your prep location to Amazon's fulfilment centre, divided by the number of units. If a box of 30 items costs £6 to ship, that is £0.20 per unit.
Advertising Cost (Optional but Important)
If you run PPC, allocate a portion of your ad spend to each unit. If you spend £100 on ads per month for a product and sell 200 units, that is £0.50 per unit in advertising cost. Not every seller includes this in per-unit calculations, but it gives a more accurate picture of true profitability.
Worked Example
Selling price: £20.00. Product cost: £6.00. Referral fee (15%): £3.00. FBA fulfilment fee: £2.50. Prep cost: £0.80. Inbound shipping: £0.20. Total costs: £12.50. Profit per unit: £7.50. Profit margin: 37.5%. ROI on product cost: 125% (£7.50 profit on £6.00 investment).
That is a healthy product. Now you know that if prices drop or competition increases, you have a £7.50 buffer before the product becomes unprofitable.
Tracking Margins Over Time
Margins are not static. Amazon adjusts fees annually. Prices fluctuate as competition changes. Prep and shipping costs vary. Track your actual margins monthly — not just your estimated margins from when you first sourced the product.
A simple spreadsheet tracking actual selling prices, actual fees, and actual costs per product gives you the data to make informed decisions about what to continue selling, what to reprice, and what to discontinue.
The Minimum Margin
Most experienced sellers target a minimum 30% ROI after all costs. This provides a buffer for returns, price fluctuations, and occasional slow-moving stock. If a product's margin drops below your minimum, it is time to either reprice, reduce costs, or move on.