In the Amazon Launchpad Discord, this question comes up a lot.
It’s the whole reason why we’re doing this, right? And these “gurus” sure as hell won’t tell you how much they make.
I’m no guru, I’m no expert; I just share freely what I’ve learned. I have affiliate links to recoup the costs of running this site; I’m definitely not getting rich with 1-4% commissions. Through experience and common sense, I’ve learned two things:
- Expect 10-20% realistic net profit.
- 3rd party sellers make about 50% of all sales on Amazon. If there was no profit, there wouldn’t be that many sales.
Amazon Fees
According to Amazon’s Fee Schedule, Amazon charges different fees depending on several factors. First, how much Amazon charges depends on if you have an Individual (free) or Professional ($39.99 monthly subscription) selling plan. The Individual plan sounds great until you find out there’s a $0.99 fee per item sold, you can’t get ungated in any brands or categories, and you don’t qualify for the buy box. That makes the Individual plan good for selling items here and there.
On top of either the monthly subscription fee or the $0.99 per item fee, Amazon charges a referral fee: the greater of $0.30 or 8% – 45% of the sale price. The percentage depends on the category.
Fulfillment by Amazon (FBA) carries an extra pick and pack fee per sale as well as monthly storage fees for inventory waiting to be sold. The pick and pack fee basically equates to shipping and handling, and the monthly storage fees depend on the size and weight of the product. Amazon charges pennies usually for monthly storage fees, and don’t impact costs much for the first 3 months of storage, but they start charging long term storage fees after that. So it’s important to sell fast!
Fulfillment by Merchant (FBM) doesn’t include the pick and pack fee, but the seller pays the cost of shipping the product to the customer. 9 times out of 10, the cost to ship is more than the FBA pick and pack and monthly storage fees.
There are other fees that may be charged, so check out the fee schedule link above for more information.
To watch a video instead of reading the next section:
So, How Much Will I Make?
In my experience, Amazon deducts about 40% from each sale for all fees. So that makes choosing low cost inventory important. You need to know three pieces of data:
- Cost of Goods Sold (COGS)
- Sales Revenue
- Net Profit
These three pieces of info help you figure out your cost to revenue (C/R) ratio and your net profit percent.
First, calculate C/R ratio: divide COGS by your total revenue.
Second, calculate net profit percent: divide net profit by total revenue.
If you’re a brand new seller and don’t have any data, use conservative estimates: 50% C/R ratio and 10% net profit.
What does all this mean?
C/R ratio tells you how much revenue you make for every $1 of inventory. So, if your C/R ratio is 50%, for every $1 of inventory you buy, you’ll make $2 of revenue. 1/2 = 50%.
Net profit percent is the percentage of net profit to sales revenue. So 10% net profit on $1 million in sales revenue = $100,000. For comparison, Amazon made 14.1% net profit in 2021. While any profit percent is good, you’re crushing it if you hit 15% or better.
Real world examples
Example 1:
Let’s say your monthly bills (rent, utilities, food, gas, Internet, credit card bills) add up to $3,000/month. What would it take to run a full time Amazon business?
We’ll use the conservative figures of 50% C/R ratio and 10% net profit.
First, divide target income by net profit percent for target sales revenue. $3,000 ÷ 10% = $30,000.
Second, multiply target revenue by C/R ratio for inventory. $30,000 x 50% = $15,000.
At 50% C/R ratio and 10% net profit, you would need to buy $15,000 of inventory per month, sell $30,000 per month, to make $3,000 per month.
Example 2:
How much will you make if you buy $1,000 of inventory?
Again, we’ll use 50% C/R and 10% net profit.
First, divide by C/R to calculate revenue. $1,000 ÷ 50% = $2,000 revenue.
Second, multiply revenue by net profit percent. $2,000 x 10% = $200
At 50% C/R and 10% net profit, you’ll make $2,000 in sales and $200 profit off $1,000 in inventory.
You can also use these formulas to get the real story of how much “gurus” make from selling on Amazon. $250,000 in sales in one year sounds impressive, but ask them their net profit % to get the real story. Odds are it’s not more than 15%, so they only pulled in $37,500 in one year.