Overhead Cost for Amazon Sellers: What Counts and Why | Inventory Hero
·5 min readAccounting
Overhead Cost for Amazon Sellers: What Counts and Why
Overhead cost is the indirect expense not tied to a unit: software, salaries, rent. Why it is separate from COGS, and how to fold it into true net margin.
Overhead cost is the indirect expense of running your business that is not tied to producing or fulfilling any single unit: software subscriptions, salaries and contractors, office or warehouse rent, insurance, accounting, and general advertising not attributable to a product. It is separate from cost of goods sold, which is the direct per-unit cost, and it must be covered by your product margins before you actually make a profit.
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.
COGS is the direct cost of the units you sold, the landed product cost plus per-unit fees. Overhead is the indirect cost of running the business regardless of how many units you sell, like software and salaries. COGS scales with each sale; overhead is largely fixed month to month. Keeping them separate is what makes your gross margin (after COGS) and net margin (after everything) both meaningful.
How do you calculate overhead per unit?
Total your overhead for a period, then divide by the units you sold in that period. If you spent 6,000 dollars on overhead in a month and sold 3,000 units, that is 2 dollars of overhead per unit. Subtract that from each unit's contribution margin to see true per-unit net profit. This allocation is rough because overhead is fixed, but it shows whether your volume actually covers your running costs.
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Overhead cost is the indirect expense of running your business, software, salaries, rent, insurance, accounting, that is not tied to any single unit you sell. The short version: it is separate from COGS (the direct per-unit cost), it sits between your contribution margin and your net profit, and you have to cover it before you actually make money. This is a practical overview, not tax advice. Below is what counts as overhead, why separating it from COGS matters, and how to fold it into real net margin.
Facilities: office or warehouse rent, utilities, your own storage (distinct from a 3PL's per-unit fees).
Professional services: accounting, legal, insurance.
General marketing not attributable to a specific product, like brand-level content or non-product ads.
The common thread is that none of these change when you sell one more unit. They are the fixed cost of being in business, which is exactly what separates them from COGS.
If you mix overhead into COGS, both your margins go wrong:
Gross margin (revenue minus COGS) gets understated, because you loaded fixed costs into a per-unit number, making healthy products look weak.
Net margin loses its meaning, because the line between per-unit economics and whole-business costs is gone.
Clean books keep the two apart: COGS captures what each unit costs to buy and fulfill, overhead captures what the business costs to run. Keeping that split is part of sound inventory accounting: each overhead cost posts as its own operating-expense journal entry, separate from the COGS entries that move with each sale. That separation is what lets you see whether a product is unprofitable or whether your overhead is simply too high for your volume, two very different problems with different fixes.
Gross profit minus per-unit selling costs (ads, referral, fulfillment) gives contribution margin, what each unit contributes.
Total contribution minus overhead gives net profit.
Overhead is the final hurdle. Your units can each be contributing nicely, but if their combined contribution does not clear your overhead, the business loses money. That is why a catalog of thin-margin products can be busy and still unprofitable: the contribution never covers the fixed cost of running the operation.
To see real profitability, allocate overhead across your volume:
Total your overhead for the period (say 6,000 dollars a month).
Divide by units sold in that period (say 3,000 units), giving 2 dollars of overhead per unit.
Subtract from contribution. If a unit contributes 7 dollars, its true net after overhead is 5 dollars.
Worked across the business: 3,000 units times 7 dollars of contribution is 21,000 dollars, minus 6,000 dollars of overhead is 15,000 dollars of net profit. The allocation is rough (overhead is fixed, not truly per-unit), but it answers the real question: does your volume cover your running costs with room to spare? See net profit margin for the full picture.
For a typical private-label seller, overhead clusters into a familiar set of lines:
Software stack: a research tool (Helium 10, Jungle Scout), an inventory system, an analytics or review tool, and an email platform. At a 500,000-dollar-plus scale this stack commonly runs 800 to 1,500 dollars a month combined, not a token amount.
People: a virtual assistant or two, a part-time bookkeeper, maybe an agency retainer for ads or design. Usually the largest overhead line once you hire.
Professional services: accounting or bookkeeping, legal, business insurance.
Facilities: home office or a small warehouse and its utilities, if you hold any stock yourself.
One line trips up every FBA seller: advertising. Sponsored Products spend tied to a specific SKU belongs in that unit's economics (it reduces contribution margin, not overhead). Brand-level spend you cannot attribute to a single unit, like Sponsored Brands or top-of-funnel campaigns, is overhead. Split it that way or your per-unit margins and your overhead will both be wrong.
As a directional rule of thumb (hedge it against your own numbers, not a benchmark), a seller doing 80,000 dollars a month might carry 300 to 500 dollars in software, 1,500 to 2,500 in a VA and part-time labor, and 200 to 400 in professional services, totaling roughly 2,000 to 3,400 dollars, or about 2.5 to 4 percent of revenue at that scale. The exact numbers vary widely, so the useful move is to total your own and track it as a percent of revenue: a business doing 100,000 dollars a month with 8,000 dollars of overhead is running 8 percent, and whether that is healthy depends on your margins, but watching the trend tells you if overhead is scaling with you or being outgrown.
Two practical rules keep overhead from quietly eating your profit:
Watch overhead as a percent of revenue. As you scale, fixed overhead should shrink as a share of sales; if it is not, your costs are growing with you and the leverage is gone.
Do not solve a margin problem by cutting COGS alone. Sometimes the fix is trimming overhead or raising volume over the same fixed base, not squeezing the product.
Overhead is where operational discipline shows up in the numbers, and watching it is how you keep a growing business profitable rather than just bigger.
Overhead cost is the indirect, largely fixed expense of running your business, separate from the per-unit COGS of what you sell. Keep the two apart so your gross and net margins both mean something, remember overhead is the final hurdle between contribution and profit, and allocate it across your volume to find true net margin. For the whole stack, see Amazon seller accounting and net profit margin.