Product Margin Calculator: Margin, Markup and Price

Product margin, or profit margin, is the share of a product's selling price you keep after what it costs you. Sell something for $10 that costs $6 and you keep $4, a 40% margin.

Markup measures the same $4 against the cost instead of the price: $4 ÷ $6 is a 66.7% markup. Margin can never reach 100%; markup can go past it. Set a price with one when you meant the other and it comes out too low.

profit per unit  = price − cost − fees
margin           = profit ÷ price
markup           = (price − cost) ÷ cost

price for a target margin, no fees:   cost ÷ (1 − margin)
price for a target margin, on Amazon: (cost + FBA fee) ÷ (1 − margin − referral rate)

• Cost: what one unit costs you landed, including packaging and freight to your warehouse or Amazon's.
• Referral fee: Amazon's commission, a percent of the price. Most categories charge 15%; the Amazon referral fees guide lists every category.
• FBA fee: Amazon's fee to pick, pack and ship each unit, set by size and weight. The FBA fee calculator works it out. If you ship orders yourself, put your shipping cost here instead.

The referral fee goes in the price formula's bottom line because it grows with the price. Raise the price by $1 and Amazon takes 15 cents of it.

A made-up product sold through FBA. These are the calculator's example values.

1. Before fees. Cost $8.00, price $30.00. Profit $22.00: a 73.3% margin and a 275% markup.
2. After Amazon's fees. A 15% referral fee of $4.50 and an FBA fee of $5.50 take $10.00. Profit drops to $12.00, a 40% margin.
3. Pricing for a target. For a 30% margin after fees: ($8.00 + $5.50) ÷ (1 − 30% − 15%) = $24.55, rounded up to the cent.
4. Break-even. Below $15.89, each sale loses money after fees, before any ads.

Fees cost more than the product here. A margin worked out from cost alone, 73.3%, would make each sale look almost twice as profitable as it is.

One that pays for your ads and your fixed costs, like software and salaries, and still leaves profit at the volume you actually sell. There's no single number: it depends on your category, price and costs, so compare your products with each other and with your own past months.

For a brand that advertises, the margin after fees sets the ad targets:

• Break-even ROAS = 1 ÷ margin after fees. At 40%, ads need a ROAS of 2.50 to pay for themselves.
• Break-even ACoS = the margin after fees itself, 40% here.

A thin margin leaves little room for ads: at 10%, ads need a ROAS of 10. The break-even ROAS calculator works out both targets, and the contribution margin guide covers which costs to count.

• Using markup as margin. Adding 30% to the example's $8.00 cost gives $10.40, a 23.1% margin, not 30%.
• Leaving out fees. On Amazon, referral and FBA fees can take more of the price than the product costs.
• Adding the referral fee to cost. It's a percent of the price, so it rises when you raise the price. Use the formula above.
• Forgetting minimums and extras. Most categories have a $0.30 minimum referral fee per item, and storage, returns and ads aren't in either fee. The Amazon profit calculator adds ads and monthly costs.

Margin tells you what each sale is worth. Whether your ads pay off depends on how many sales they add, and ad reports don't show that: they count sales the ads got credit for, including some that would have happened anyway.

Multiply the sales your ads caused by your margin after fees and compare it with spend. A test with a holdout group measures the caused sales: size one with the holdout test calculator, read how lift is calculated, and turn the result into a return with the incremental ROAS calculator.