When assessing potential earnings from the sale of a listing, there are two primary methods to calculate profit: Profit Margin and Return on Investment (ROI).
Profit margin is calculated as:
Profit / Revenue
Your expenses include your item's purchase costs and any fees (including FBA fees) added by the marketplace the item is sold on.
For example, if you bought an item for $20, sold it for $100, and Amazon took a cut of 15% ($15), you would have a profit of $65 and a profit margin of 65%:
Profit = Revenue ($100) - Cost ($20) - Fees ($15)
Profit Margin = Profit ($65) / Revenue ($100) = 65%
ROI is calculated as:
Profit / Cost
Using the same example above, a $20 item sold for $100 with a 15% category fee, you would have profit of $65 and a Return on Investment of 325%
Profit = Revenue ($100) - Cost ($20) - Fees ($15)
ROI= Profit ($65) / Cost ($20) = 325%
One of the major differences between profit margin and ROI is that profit margin can never exceed 100%, while ROI can. There are pluses and minuses to each way of calculating profit, but one is not inherently better than the other.
