What is the gross margin formula?

Gross margin percentage = (revenue − COGS) / revenue. On Amazon, use net revenue after refunds and a fully landed unit cost for COGS, so the number reflects reality rather than just your supplier price.

What's the difference between gross margin and net margin on Amazon?

Gross margin is revenue minus product cost, before Amazon fees and advertising. Net margin is what's left after referral fees, FBA fees, storage, ads, and overhead. The gap is large on Amazon, so a strong gross margin can still produce a thin net margin.

Should Amazon fees be included in COGS when calculating gross margin?

No. Referral fees, FBA fees, storage, and advertising are operating expenses, not cost of goods sold. Keep them out of COGS so your gross margin isolates product profitability, then apply the fee stack separately to reach net margin.

What is a good gross margin for an Amazon product?

It depends on your category and fee burden, but you generally want gross margin high enough that net margin stays comfortably positive after fees and ads. Because Amazon can take a large share of each sale, thin gross margins rarely survive the full cost stack.

Why does my gross margin look wrong some months?

Usually because COGS is off — either it ignores freight and duty, or it uses a stale unit cost while your real cost has changed. Use a proper landed cost and an inventory valuation method like weighted average or FIFO so COGS tracks reality and margin stops jumping around.

Glossary

What is Gross margin?

Revenue minus COGS, as a percentage of revenue.

Gross margin is revenue minus cost of goods sold, expressed as a percentage of revenue. The formula is stable and universal: gross margin % = (revenue − COGS) / revenue. It tells you how much of every sales dollar is left after paying for the product itself, before any operating costs, advertising, or overhead. For an Amazon seller, your Amazon gross margin is the first honest checkpoint on whether a product is even worth selling.

The trap on Amazon is deciding what belongs in revenue and what belongs in COGS. Many sellers compute a healthy-looking gross profit margin on Amazon using only their supplier price, then wonder why the business has no money. True gross margin starts from net revenue after refunds and uses a fully landed unit cost, so the number reflects reality instead of wishful thinking.

How to calculate gross margin for an Amazon product

Start with net revenue: gross sales minus customer refunds and returns for the period. Then subtract COGS, which for a physical product is the landed cost of the units actually sold, not the units you bought. Landed cost includes the supplier price plus inbound freight, duty, and any prep or labeling. Divide the result by net revenue and you have your gross margin percentage.

Note what is deliberately excluded. Amazon referral fees, FBA fulfillment fees, storage, and advertising are not COGS in the strict accounting sense; they are operating expenses that hit further down the P&L. Mixing them into COGS gives you a hybrid number that is neither true gross margin nor net margin. Keep the layers separate so each one tells you something distinct.

•Net revenue = gross sales − refunds and returns
•COGS = landed cost of units sold (product + freight + duty + prep)
•Gross margin % = (net revenue − COGS) / net revenue
•Exclude Amazon fees and ad spend from COGS — they belong lower in the P&L
•Use cost of units SOLD, not units purchased, to avoid distorting the period

Gross margin vs net margin: why Amazon sellers confuse them

Gross margin measures product profitability before the cost of running on Amazon. Net margin is what survives after referral fees, FBA fees, storage, advertising, returns processing, and overhead. On Amazon the gap between the two is enormous, because the platform's fee stack and ad spend can swallow 30 to 50 percent of a sale. A product with a strong 60 percent gross margin can still finish at a thin net margin once the full cost stack is applied.

This is why gross margin alone never tells you whether a SKU makes money. It tells you whether there is enough room in the product to survive the Amazon cost stack. If gross margin is already thin, advertising and fees will push the SKU underwater. Sellers who track only revenue and gross profit margin on Amazon routinely scale products that lose money at the net line.

What a healthy Amazon gross margin looks like

There is no single correct number, because it depends on your category, your fee burden, and how aggressively you advertise. As a working rule, many private-label sellers want gross margin high enough that net margin still lands in a comfortable double-digit range after fees and ads. If your referral fee, FBA fee, and advertising together consume a large share of price, you need a higher gross margin just to break even.

The discipline is to model the full stack before sourcing. Take your expected price, subtract the landed cost for gross margin, then layer in referral fee, FBA fee, storage, returns, and a realistic TACOS for advertising. The remainder is your real profit. Fee rates vary by category and change over time, so pull current rates from your own settlement data rather than assuming.

Why accurate gross margin depends on accurate COGS

Gross margin is only as honest as the COGS feeding it. If your unit cost is a rough guess, your margin is a rough guess. The two common failures are using supplier price alone (ignoring freight and duty) and using a static cost across price changes (ignoring that newer inventory cost more). An inventory valuation method like weighted average cost or FIFO keeps your COGS current as costs shift.

Booked on an accrual basis with proper landed cost, gross margin becomes a number you can actually steer by. BeanHawk ties settlement revenue to per-unit landed cost so your gross margin reflects the units that truly sold in the period, which is the difference between a margin you can trust and one that flatters a failing SKU.

Frequently asked questions

What is the gross margin formula?: Gross margin percentage = (revenue − COGS) / revenue. On Amazon, use net revenue after refunds and a fully landed unit cost for COGS, so the number reflects reality rather than just your supplier price.
What's the difference between gross margin and net margin on Amazon?: Gross margin is revenue minus product cost, before Amazon fees and advertising. Net margin is what's left after referral fees, FBA fees, storage, ads, and overhead. The gap is large on Amazon, so a strong gross margin can still produce a thin net margin.
Should Amazon fees be included in COGS when calculating gross margin?: No. Referral fees, FBA fees, storage, and advertising are operating expenses, not cost of goods sold. Keep them out of COGS so your gross margin isolates product profitability, then apply the fee stack separately to reach net margin.
What is a good gross margin for an Amazon product?: It depends on your category and fee burden, but you generally want gross margin high enough that net margin stays comfortably positive after fees and ads. Because Amazon can take a large share of each sale, thin gross margins rarely survive the full cost stack.
Why does my gross margin look wrong some months?: Usually because COGS is off — either it ignores freight and duty, or it uses a stale unit cost while your real cost has changed. Use a proper landed cost and an inventory valuation method like weighted average or FIFO so COGS tracks reality and margin stops jumping around.

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