As a rough rule of thumb, private-label FBA sellers often look for a gross margin of 50 percent or higher before fees, because Amazon fees and advertising will consume a large share of what is left. There is no official target, and the number that matters is what survives after fees (contribution margin) and after everything (net margin), so treat a high gross margin as necessary but not sufficient.
How do you calculate Amazon gross margin?
Subtract your cost of goods sold from revenue, then divide by revenue. For a product selling at 50 dollars with a 15 dollar landed cost, gross profit is 35 dollars and gross margin is 35 / 50 = 70 percent. Use landed cost, not the bare factory price, or the margin is overstated from the start.
Andrew Erickson is the founder of Inventory Hero. He has spent years working with Amazon FBA sellers on demand forecasting, restock planning, and the cash flow side of running a private-label brand. Inventory Hero exists because every spreadsheet-based inventory system he tried eventually broke — usually right before Q4.
What is the difference between gross margin and net margin on Amazon?
Gross margin subtracts only cost of goods, so it is the profit before Amazon fees, advertising, and overhead. Net margin subtracts all of those, so it is your true bottom-line profit. On FBA the gap between them is large because referral and fulfillment fees plus ads are substantial, which is why gross margin alone overstates how profitable a business really is.
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Amazon gross margin is your revenue minus the cost of goods sold, divided by revenue: the profit left in a sale before Amazon fees, advertising, and overhead. The short version: it is a useful first screen, but on FBA it flatters you, because the largest costs (the referral fee, the fulfillment fee, and ads) all sit below the gross line. A SKU with a great gross margin can still lose money. Below is the formula, a worked example, and what gross margin is actually good for.
Cost of goods sold should be your landed cost, the factory price plus freight, duties, and inbound, not the bare invoice. Using the invoice alone overstates the margin before you have even started.
Advertising, often 15 to 20 percent of revenue for a SKU that relies on PPC.1
Storage, returns, and overhead, which chip away further.
Carry the 50 dollar example down: subtract a 7.50 referral fee and a roughly 5.50 fulfillment fee and the 35 dollars of gross profit is already down to about 22 dollars before a cent of advertising. Add 8 dollars of ads and you are near 14 dollars, a real margin less than half what the gross number implied. That gap is why gross margin overstates FBA profitability.
Gross margin is not useless; it is just the wrong number for the wrong job. Where it earns its keep:
Screening sourcing decisions. Before fees enter, gross margin tells you whether a product has enough room to survive them. A sub-40 percent gross margin rarely leaves enough for FBA fees and ads, so it is a fast first filter: if a product cannot clear roughly 40 percent gross at your target price, walk away or renegotiate the unit cost before you commit a purchase order.
Comparing supplier quotes. At the sourcing stage, gross margin cleanly compares two cost options on the same revenue.
Setting a floor. Many private-label sellers want 50 percent or more gross margin as a rule of thumb, precisely because they know fees and ads will eat much of it.1 The floor is not arbitrary: as the walk-down above shows, fees and ads can consume 35 to 40 points of margin, so you need roughly 50 to 55 percent gross just to land in territory where a healthy net margin is still possible.
Just do not stop there. Gross margin is the entry test, not the verdict.
Gross margin is only as honest as the cost you feed it, and the cost is where most sellers slip. Use true landed cost, not the factory invoice:
Factory (FOB) price per unit, the number most people stop at.
Ocean or air freight allocated per unit across the shipment.
Duties and tariffs on the goods.
Inbound shipping from the port or your prep center into Amazon.
Divide the all-in shipment cost by the units in it, and that per-unit figure is your COGS. Pull the FOB price from your supplier invoice, freight and duties from your freight forwarder's bill, and inbound from your shipment records. A gross margin built on FOB alone can be 10 to 15 points too high before you have accounted for a single fee, which is exactly the kind of error that makes a doomed product look viable at the sourcing stage.
The three margins form a ladder, and each answers a different question:
Gross margin (this article): revenue minus COGS. The sourcing screen.
Contribution margin: minus all variable costs including fees and ads. The per-SKU decision number.
Net profit margin: minus everything including overhead. The business verdict.
Screen with gross, decide with contribution, judge the business with net. Using gross margin for a job the other two should do is how sellers end up scaling a catalog that loses money on every sale. To see the full stack on a specific ASIN before you commit a PO, run it through the FBA profit calculator.
Amazon gross margin is revenue minus cost of goods over revenue: a genuine but incomplete read, because the referral fee, fulfillment fee, and ads all sit below it. Use it to screen sourcing and set a floor, then move to contribution margin for SKU decisions and net margin for the whole business. It is one rung of the profitability picture inside your wider FBA cash flow.
The 50 percent gross-margin floor and the 15 to 20 percent advertising range are common private-label rules of thumb, not measured or Amazon-published figures. Your own targets depend on category, fees, and ad reliance; treat these as orientation. ↩↩2