Indicated below is a simple yet effective model to calculate profitability that each Amazon seller must know. This is a critical initial step that analyzes profitability for products on Amazon. The understanding of calculation on the expenses and profits will show an accurate picture of whether or not Amazon activity for a specific product is worthwhile.
This model grasps the day-to-day account management fee and it does not cover initial expenses.
The setup expenses are usually one-time investments such as, photos, giveaways, writing the listings, and everything else that’s required for setting up a product and launching its campaign. I recommend setting a budget aside for these costs.
In order to calculate profitability on Amazon, one must know the following parameters:
The retail price – how much will this product cost the consumer?
Cost of goods (COGS) – how much did it cost to manufacture the product and its packaging?
Inbound shipping – how much would it cost to ship the goods to Amazon’s retail centers?
Amazon Referral Fees – what is the commission Amazon collects on each sale? See this table.
Cost of collection and shipping (FBA Fees) – calculate your fulfillment costs and see real-time cost comparisons between your fulfillment and our offering for customer orders fulfilled on Amazon.com. If you don’t have a product yet, search for similar products that already exist on Amazon.
USA – This Calculator
Europe – This Calculator
Calculate the total cost of the product:
Total Cost = COGS + Inbound Shipping + Amazon Referral Fees + FBA Fees
(Retail Price – Total Cost)/Retail Price
After we found the profit margins, we can calculate the budget we have left for paid promotional campaigns on Amazon (Cost of Advertisement = Advertising Spend), additional expenses and of course the neat profit.
Calculate the total cost:
Total Cost = 7$ + 2.2$ + 2.99$ + 3.31$
Total Cost = 15.5$
Cost of Profit Margins:
The profit margins we got is 38%
Additional fees must be taken into account:
Monthly subscription to use the Amazon Professional Platform at $39.99
Total Cost of Advertising: usually varies from 5%-20% according to budget, the products, the CPC of the product.
Additional unexpected fees such as returns and storage. It is recommended to take a certain percentage for such expenses in advance.
For more info:
- Amazon FBA Calculator | How To Calculate Your Profits | Jungle Scout
- How to Calculate Amazon Pure Profit Margin and Why It Matters
- Amazon Seller Fees in 2020: Costs and Metrics to Consider to Increase Profit Margins
- Amazon Profitability Calculator | How to compute cost, fees, margin, ROI and more
- Amazon FBA Cost Calculator – All You Need to Know
If you have any questions, comments, or concerns, you are welcome to contact me at the form on my home page.