The formula is simple. Revenue minus all costs, divided by revenue. The problem is that most Amazon sellers aren’t tracking all their costs, so the margin they calculate is higher than what they’re actually earning.

Start with landed cost, not just product cost. Landed cost includes what you paid for the product plus freight, customs duties, and shipping to your warehouse or prep center. If you pay $3 for a product but spend $1.50 getting it to the US, your true cost is $4.50 per unit.

Amazon fees add up faster than most sellers expect. Referral fees run 8-15% depending on category. FBA fees vary by size and weight. Long-term storage fees hit inventory sitting over 181 days. Removal and disposal fees apply when you pull unsellable inventory. Most sellers track referral and fulfillment fees but forget about storage, inbound placement fees, and the small per-item charges that accumulate.

Advertising is where margins disappear without sellers noticing. Track advertising cost of sale by product, not just overall. A product with 30% ACoS and 25% gross margin is losing money on every sale, but if it’s averaged with better-performing products, the overall number looks acceptable. Per-product tracking reveals which SKUs are actually profitable.

Returns cost you twice. You refund the customer and often can’t resell the returned item as new. If you’re seeing 8% returns on a product but only accounting for 3% in your margin calculation, you’re overstating profit on every unit sold.

Add prep center costs, shipping to Amazon, software subscriptions for inventory management or repricing tools, and any freelancer costs for photography or listing creation. These reduce profit even though they don’t appear in Amazon settlement reports.

For per-unit margin, take sale price and subtract landed cost, all Amazon fees, allocated advertising cost, and estimated return cost. Divide what remains by your sale price. That percentage is your actual margin.

E-commerce sellers who think they’re running at 25% margin are often closer to 12-15% when all costs are captured. The gap comes from advertising that’s higher than expected, storage fees that were ignored, and return rates that were underestimated.

The Amazon settlement report shows what was collected and deposited, but it doesn’t tie back to your actual costs per product. Without proper small business bookkeeping that tracks cost of goods sold by SKU, Amazon fees by category, and advertising spend allocated to products, you’re calculating margin with incomplete data.

Accurate margin data isn’t just for curiosity. It tells you which products to keep selling, which to discontinue, and where advertising spend actually generates profit. Guessing at margins leads to scaling products that lose money and cutting products that were actually performing.