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How to Calculate True Amazon Profit: A Complete Guide for E-Commerce Sellers

Selling More on Amazon Doesn’t Always Mean Making More Money

For Amazon sellers, increasing sales is important, but revenue isn’t the same as profit.

An Amazon store can generate $100,000 in monthly sales and still have surprisingly low profitability after accounting for inventory costs, Amazon fees, advertising, refunds, shipping and operating expenses.

That is why understanding your true Amazon profit is essential for making informed decisions about pricing, inventory, advertising and business growth.

In this guide, we’ll explain how Amazon sellers can calculate their actual profit and why accurate Amazon bookkeeping and accounting are important for growing e-commerce businesses.

What Is Amazon Profit?

Amazon profit is the amount remaining after deducting the costs associated with selling your products from your revenue.

A simplified formula is:

Amazon Profit = Revenue − COGS − Amazon Fees − Advertising − Operating Expenses − Other Costs

However, calculating each component accurately can be more complicated than it looks.

Amazon sellers may have to account for:

Without properly accounting for these transactions, your reported profit may not accurately represent the performance of your business.

Step 1: Calculate Your Total Amazon Revenue

Start by determining your total sales for the period you’re analyzing.

For example, if your Amazon store generated $100,000 in sales during a month, that is your starting revenue figure.

However, gross sales alone don’t tell you how profitable your business is.

If you also sell through Shopify, Walmart or another marketplace, keep each channel identifiable in your accounting records. This allows you to compare the profitability of different sales channels instead of looking only at total company revenue.

Step 2: Calculate Your Cost of Goods Sold (COGS)

Cost of Goods Sold (COGS) is one of the most important numbers for an Amazon seller.

COGS represents the cost of the products that were actually sold during a specific period.

Depending on your business, product costs may include:

A basic inventory accounting formula is:

Beginning Inventory + Purchases − Ending Inventory = COGS

Simply looking at how much you paid suppliers during a month may therefore not provide an accurate picture of your monthly profitability.

Accurate inventory and COGS accounting becomes increasingly important as your number of SKUs, suppliers and sales channels grows.

Step 3: Include Amazon Fees

Amazon charges various fees depending on your selling and fulfillment model.

These may include:

These expenses should be properly recorded and reconciled with your Amazon transactions.

For example, if you generate $100,000 in sales but incur $18,000 in Amazon-related fees, your revenue figure alone significantly overstates the money available to cover other business expenses.

Step 4: Include Advertising Costs

Advertising can be a significant expense for Amazon sellers.

Your business may spend money on:

For example, suppose your store generates $50,000 in sales but spends $8,000 on advertising.

That $8,000 needs to be included when evaluating your actual profitability.

Tracking advertising alongside sales can also help you determine whether increased revenue is producing sufficient profit.

Step 5: Account for Refunds and Returns

Returns and refunds can have a substantial effect on e-commerce profitability.

Your business may experience costs related to:

Your accounting should therefore distinguish between gross sales and the revenue that remains after refunds and adjustments.

This provides a more realistic picture of your actual financial performance.

Step 6: Include Your Operating Expenses

Amazon sellers often have business expenses that aren’t directly charged by Amazon.

These can include:

These costs should be included when calculating your overall net profit.

Step 7: Calculate Your True Amazon Profit

Consider this simplified example:

Amazon Revenue: $100,000
 COGS: $35,000
 Amazon Fees: $18,000
 Advertising: $12,000
 Shipping & Fulfillment: $5,000
 Operating Expenses: $10,000

Your estimated profit would be:

$100,000 − $35,000 − $18,000 − $12,000 − $5,000 − $10,000 = $20,000

Your net profit is therefore $20,000, or a 20% net profit margin.

This gives you a much more meaningful picture of your business than simply looking at $100,000 in sales.

Don’t Confuse Profit With Cash Flow

A profitable Amazon business can still experience cash-flow problems.

This is particularly common when sellers need to purchase inventory well before receiving the revenue generated from those products.

The typical cycle may look like:

Purchase inventory → Manufacture → Ship → Store → Sell → Receive Amazon payout

During this cycle, significant amounts of cash can be tied up in inventory.

Therefore, Amazon sellers should monitor both profitability and cash flow.

Understanding when inventory purchases, supplier payments and Amazon payouts occur can help you avoid unexpected cash shortages.

Calculate Profitability by Product and SKU

Knowing your total Amazon profit is useful, but it may not be enough.

You should also understand which products are actually making money.

For example:

Product Sales Total Costs Profit
Product A $30,000 $20,000 $10,000
Product B $25,000 $22,000 $3,000
Product C $20,000 $12,000 $8,000

 

Product B generates significant revenue, but its profit is much lower than Product A or Product C.

SKU-level profitability can help you identify products that may require:

7 Signs You May Not Know Your True Amazon Profit

You may need better financial reporting if:

  1. Your sales are increasing but your cash balance isn’t.
  2. You don’t know your profit by SKU.
  3. Amazon settlements don’t match your accounting records.
  4. You aren’t confident about your inventory value.
  5. You calculate profit using sales minus supplier invoices only.
  6. You don’t know how advertising affects your margins.
  7. You wait until tax season to understand your financial performance.

These challenges can become more difficult as your Amazon business grows.

When Should You Consider Professional Amazon Bookkeeping?

DIY bookkeeping may be manageable for a small seller with limited transactions.

As your business grows, however, professional bookkeeping services for Amazon sellers can help manage:

Berg Advisors provides e-commerce accounting and bookkeeping support for Amazon, Shopify, Walmart and other online sales channels, including reconciliation, inventory and COGS accounting, financial reporting and profitability analysis.

Understand Your Numbers Before You Scale

Growing Amazon sales is only valuable when those sales generate sustainable profits.

Accurate accounting can help you understand your revenue, COGS, Amazon fees, advertising expenses, inventory, cash flow and net profit – giving you the information needed to make better business decisions.

If you’re unsure about your true Amazon profitability or spending too much time managing transactions and reconciliations, Berg Advisors can help.

Need Help With Amazon Bookkeeping and E-Commerce Accounting?

Berg Advisors can help Amazon and multi-channel sellers organize their financial records, reconcile marketplace transactions, track inventory and COGS, and gain a clearer understanding of their business performance.

Schedule a free consultation with Berg Advisors and take the guesswork out of your e-commerce finances.

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