Last Updated on November 30, 2021 by Jay Clover
We want to aim for at least a 30% profit margin.
How to calculate profit margin?
Profit Margin = Sales price – Purchase cost – Shipping cost – Amazon Fees
Purchase cost
We can check our purchase cost by looking up our product on Alibaba. In the results, you will already see some prices. However, these prices vary greatly based on quantity and other factors. So to get an even more exact price you can send a couple of suppliers a message asking for a quote.
Make sure you understand the difference between FOB & EXW at this point, so you know what price to ask for 😉
Shipping cost
Personally, I also have a very rough estimation for shipping cost, based on the product size:
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Product fits in my hand: $0,50 shipping cost
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Product is the size of a shoebox: $1 shipping cost
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Bigger than shoebox but not oversize: $2 shipping cost.
Shipping also differs on a lot of factors. For instance, the time of year (before Christmas you tend to pay a lot more for shipping than the rest of the year for example), if you are shipping a full container and the shipping port you are shipping from.
If you want to get a more exact shipping estimate you can already perform the step: Request Shipping Quote, in the shipping module.
Amazon Fees
To find out how much Amazon fees we are going to pay we will use the Amazon Fee Calculator. To use the fee calculator you enter a competitor’s product whose product looks most like ours (we will use their product dimensions & weight to calculate our fee).
After that, we will fill in our Item Price and it will show you all the Amazon fees we are going to pay. Amazon fees consist of:
- Selling on Amazon Fees: Fixed 15% for most categories.
- Fulfillment by Amazon Fees: A variable fee based on the size & dimension of your product. For this fee Amazon will: Store, pick, pack & send out our products and handle any returns. Pretty much the fee to use FBA.
We can even enter our Product Cost & Shipping Cost to get a complete overview of our Net Margin.
