What's Your Margin Target for Amazon?

Looking for the most simple answers.

Simple:
If a product landed costs you $20, you try to sell for $50 on Amazon.

What’s your usual markup and how do you typically factor it besides the market demand?

Cheers!
Ryan

Not to be mean, but if you are looking for a markup amount off landed costs without considering what the product is actually going to cost you delivered to the customer, you are going to lose money. What markups others charge is irrelevant as your costs per unit are your costs per unit, not theirs.

Make sure you know your exact (or at least as close as you can calculate it) costs delivered to customer BEFORE you list anything. Only then can you figure out what price you can sell it at and make a profit. This means your cost to pick, pack ship the product which might just be your time plus shipping expense. You need to figure out if your product can be shipped as packaged or will require you to buy boxes, tape, etc to get it ready to ship. If you decide to use FBA or a 3PL for fulfillment, you need to know your exact costs for those services.

For instance, one of the products that I sell my landed cost is around $4. My total FBA cost to customer is around $8 so my actual cost to customer is $12. If I tried to figure out my markup based on landed product cost only ($4) I would probably be losing money.

Good Luck,

TJB

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In line with what @TJB has noted I would suggest working BACK from what you think the selling price MIGHT be.

The answer will depend on the size and weight. There is a huge difference between something that weighs three ounces and ships for $4 and something that is three pounds and costs $10 to ship.

Take your $50 item minus shipping of $10 leaves you with $40. Subtract Amazon 15% or $7.50 you’re down to $32.50. Reduce that by the costs of packaging, label printing, etc. and you might be at $30 as a leftover IF you can sell it at that $50.

What percentage are YOU happy with? Using the traditional ‘retail margin’ that $10 profit would represent 20% which is about half (or less) of what a retail store needs to stay in business. On the other hand, if you work from home you can look at it as being 50% since you have to live someplace, right?

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Lots of factors to consider. And no real simple answer.

  1. FBA or FBM? If FBA, use the revenue calculator to get a good estimate of the entire cost to deliver including fees and cost of goods, include any and all extra packaging and the cost to get it to a FC. If FBM you need to figure out the cost of packaging (time and materials), then use a shipping service like Shipstation or Pirateship to calculate shipping cost to the furthest destination you deliver to.

  2. What category do you sell in and what is the selling fee and what is the average return rate? Is it something that if returned can be re-sold somewhere else as used to recover some of the loss?

  3. Assume you are not going to be able to sell 100% of landed goods for QA/QC issues and make adjustment to actual COGS.

  4. Marketplace competition. How many other offers for similar or identical products are there and what do they sell for. You don’t need to be the lowest but if the previous 3 points put you at the highest price you may have issues moving the volume needed to justify the opportunity cost.

  5. Volume. How in demand is the product? Obviously everyone would love to sell 1000’s of units a month, but few do. If I invest in the stock market, I will see a long term average return of 10%. If what I’m selling doesn’t beat that by a fair bit then I’m not interested. IE. If I spend $100k on goods and can’t sell them within a year and see at least 15% net margin then it’s not that appealing, there’s just too much work and risk involved.

  6. Ads. This one is tough and can only really be learned from experience, but you can probably subtract another 15% of the sale as advertising expense. It may be higher than that before you get organic traction, ranking and reviews.

For me, I need to see north of 20% net minimum, ideally around 30%. I manufacture my own products in house and I have to charge about 4x my cost of the finished product to hit my target. YMMV

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I have always used flat rate shipping targeted to a monthly breakeven when selling on Amazon so shipping has never influenced my product pricing.

I buy books, music and collectibles in a way that allows me to treat my product cost as zero and my margin is effectively my sell price - fees on all sites.

I have a minimum sell price of $8 which gives me a profit of at least $5 which more than covers contribution to overhead costs, and shipping and listing labor as well as profit.

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If a product landed costs you $20, you try to sell for $50 on Amazon.

I always understood the consensus to be around 2.5 - 3x cost.

I can’t remember now where I heard that, it’s been years, but I always thought 3x was a reasonable guide for lower-priced, lightweight items (under $50, less than 2 lbs) to earn you a decent profit after all Amazon fees and costs.

As the selling price gets higher, the margin can get smaller and still net a good profit because shipping costs take a smaller percentage.

With competition, they can drive it down to 2.5x, but I personally find it starts to get questionable whether the profit is worth the effort it if drops lower than that.

What’s your usual markup and how do you typically factor it besides the market demand?

‘Usual’ depends on the item, but pretty much everything I sell is in the 2.5 - 3x range. That covers the packing supplies and shipping costs, and since I don’t use FBA or pay for advertising, there are none of those expenses to factor in.

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There is so many different data points and variables that there is no one size fits all answer. Something with a small profit margin but easy volume to scale might make you more money than with a large profit and harder to produce.

Also besides factoring in your costs and shipping costs you need to also figure out taxes and more for customer service. There will be people’s orders who end up missing or broken. I factor that into my overall pricing. When someone’s order is broke or missing….no big deal because I already calculated it and will gladly send a replacement. Keep your customer happy!

This is kind of a poor way to calculate Amazon sales.

You should be looking at gross margin, where COGS includes the referral fee and FBA (or shipping/handling) fees.

Gross margin is basically the most important number for almost any business, because if that number is low or negative there’s a serious problem.

I believe that including all fees is NET margin; Gross margin is COGS and selling price, without factoring the rest.
Of course, your point is correct; for some of us (such as most of the booksellers), COGS is a minor part of the total cost. But bookselling is so different from wholesale, that advice on how to run one is worthless (or worse) in regards to the other.

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Net margin typically includes ALL expenses, that includes rent on your warehouse, advertising costs, etc.

Gross margin is after deducting costs directly associated with selling that particular unit of product. For a B&M store that would basically just be COGS, but for ecommerce it makes more sense to include shipping and referral fees when thinking about that number.

Anyway, I’m not 100% sure on the terminology, but that’s the most logical way to determine if selling a product makes sense.

lol. My initial post was going to have “Simple” and “Actual”, I left the simple for the most simple responses.

You are right of course, we find our logistics to be just as important as our manufacturing costs.

Was just going for the most simplified as I thought people may think Actual would be too revealing of business practices.

But again, I agree with you, I just didn’t want to request too complicated of responses that would have sellers thinking they were giving too much away.

Case in point, Shopify has a built-in that tries to get cost/asking at a particular margin. It’s insanely basic, doesn’t factor size, weight nor chance of return, but I was sort of playing off of that simplicity.

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That’s sort of the simplicity. :slight_smile:
Yeah, I totally get factoring all the costs, I thought compicating the question might make some sellers hesitant to comment. A general broad stroke to encourage input. :slight_smile:

Also, I try not to only factor Amazon, as I can cut myself way down for margins, but then it’s impossible to wholesale or bulk sale, since I’m already doing it for volume on Amazon.

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perfect simple answer. :slight_smile: thank you

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@ModernSwitch @GGX My initial post was going to factor all that, but didn’t want people think I was requesting private info, so I went simple answers.

Of course I factor all that, as some of our products can see insane logistical costs.

Just was getting a broad sense of formulas people were applying for margins (without revealing too much inner workings).

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Yes my basic calculation is 3X.

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landed price + shipping cost + fees +30% profit = my selling price

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And the most important question…do you look at all of these costs and your desired margin to set a reasonable price on a product BEFORE or AFTER you list and actually sell one on Amazon? :eyes:

I’m a very small seller so it might not be helpful for your question, but I monitor my COGS and margins very carefully - I have excel spreadsheets for every single expense, from materials to packaging, shipping, fees, stickers, tissue, bags, etc… Every time I purchase a supply I update my COGS spreadsheets accordingly. I do factor in a labor cost, but only for labor-intensive items that take me more than 10 minutes to produce.

That said, I try to keep my margin in the 50-55% range. A few are 39% and a few are 63% - And this includes things that I bundle and wholesale, since packaging is one of my biggest costs. To give one example, something with a final COGS of $19.99, I sell for $33. Margin 51.54%.

HTH!

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do that math for me?

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My biggest cost is Amazon fees.