Ask most Amazon sellers what their margin is and you'll get a confident number. Ask how they got it and it usually turns out to be the sale price minus the cost of the product, maybe minus Amazon's referral fee if they've been thorough. That number is comforting, and it's wrong — often by ten or fifteen points.
True profit is what's left after everything Amazon, HMRC and your own supply chain take out of each sale. The good news is it's not complicated; it's just a list most people don't finish. Here's the whole list, in the order the money leaves.
Start at the sale price, then subtract in order
Work per unit, at the price you actually sell at (after any coupons or deals), and take the costs off one layer at a time. The order matters, because VAT comes off the top before anything else.
1. VAT — if you're registered
If you're VAT-registered in the UK, a fifth of your sale price was never yours. At the standard 20% rate, a £24 item contains £4 of VAT you owe to HMRC, leaving £20 that belongs to the business. Sellers who skip this step overstate every margin by the full VAT fraction — the single biggest reason a US-built calculator will flatter a UK P&L.
It cuts both ways: the VAT Amazon charges on its fees is reclaimable, so your fees effectively cost a little less than the invoice says. If you're not registered, you keep the full sale price, but you can't reclaim anything — so Amazon's fees cost you 20% more than the headline.
2. Landed product cost
Not the ex-works price — the landed cost. That's the unit cost plus freight, duty, and any inspection or prep, divided across the units in the shipment. If you import, exchange-rate movement between order and payment quietly changes this number too. Use what the stock actually cost to get to Amazon's shelf, not the quote from the factory.
3. Amazon's fees — referral and FBA
Two separate charges, both per unit:
- Referral fee — a percentage of the sale price, commonly around 15% in most categories (some differ, so check yours).
- FBA fulfilment fee — a flat charge per unit based on size and weight, for pick, pack and shipping.
Both are easy to look up and easy to forget to re-check when Amazon updates its rate card or your product tips into a heavier size band.
4. Storage, returns and the quiet costs
These don't show up per order, so they're the ones that get left out — and they're exactly where a thin product tips negative:
- Monthly storage, which spikes in Q4, plus any long-term storage or ageing-inventory surcharges on stock that isn't moving.
- Returns — not just the refunded sale, but the fee you don't get fully back and stock that can't be resold as new.
- Removals, disposals and the occasional reimbursement you forgot to claim.
Spread across your units, these are rarely huge, but they're rarely zero — and "rarely zero" is the difference between a 6% and a 9% net margin.
5. Advertising — the one most people bolt on wrong
Ads are a real cost of the sale, so they belong in the profit calculation, not in a separate "marketing" box you look at once a month. The cleanest way to hold it is TACOS — total ad spend as a percentage of total sales, not just ad-attributed sales. That tells you what advertising is costing the whole business, including the organic sales your ads help along.
Your breakeven ACOS is simply your margin before ads. Spend more than that to win a sale and the sale loses money; how far below breakeven you aim depends on whether the product is launching (deliberately thin) or meant to be paying you now.
What "good" looks like
Once everything above is out, a private-label product keeping 20–30% net is healthy, 10–20% is workable at volume, and under 10% leaves no room for a price war, a fee rise or a bad batch. If your "margin" was 35% and your true net is 12%, nothing has gone wrong — you've just stopped counting with the comforting number.
Why the number keeps moving
Here's the part a one-off calculation misses: true profit isn't a fixed figure you work out once. Fees change, ad spend swings week to week, returns arrive late, a storage surcharge lands, the exchange rate drifts. The sellers who stay profitable aren't the ones with the cleverest spreadsheet — they're the ones who look at the real number regularly and act on what moved.
That's the whole idea behind SellerMatrix: it reads your actual numbers, keeps this calculation current every week, and tells you the one thing worth doing about it — in plain English, every Monday.