What Is Gross Margin for Amazon FBA?
Gross margin is the percentage of revenue remaining after subtracting cost of goods sold (COGS). For FBA sellers, COGS means your landed cost: the product cost from your supplier plus freight, duties, and prep required to get inventory into Amazon's warehouse. Gross margin does not include Amazon referral fees, FBA fulfillment fees, PPC, or any other selling expense.
Most FBA private-label sellers see gross margins between 60% and 75%. That number looks impressive compared to traditional retail (30-50%), but it is misleading if used in isolation. Amazon's fee stack typically consumes another 30-40% of revenue, so the more actionable metric for FBA decision-making is contribution margin, which subtracts all variable selling costs.
Gross margin still matters for financial statements, tax reporting, lender evaluations, and comparing profitability across sales channels. If you sell the same product on Amazon, Shopify, and wholesale, gross margin is the only metric that holds constant across all three because it excludes channel-specific fees.
Gross Margin Formula
Gross Margin % = ((Revenue − COGS) / Revenue) × 100Gross Profit = Revenue − COGSWhat counts as COGS for FBA sellers:
| Included in COGS | NOT Included in COGS |
|---|---|
| Product cost (ex-factory price) | Amazon referral fee |
| Ocean/air freight to US | FBA fulfillment fee |
| Customs duties and tariffs | Monthly storage fees |
| Prep and labeling | PPC advertising |
| Inbound shipping to FBA | Returns processing fee |
Worked Example: FBA Gross Margin
Product selling at $39.99 on Amazon.
COGS breakdown (landed cost):
Product cost: $7.00. Sea freight (allocated): $2.50. Customs duties: $1.20. Prep and labeling: $0.80. Total landed cost: $11.50
Gross profit: $39.99 − $11.50 = $28.49
Gross margin: $28.49 / $39.99 = 71.3%
Now compare to contribution margin after Amazon fees:
Referral fee (15%): $6.00. FBA fulfillment fee: $5.40. Storage (allocated monthly): $0.30. PPC (allocated): $3.50. Total selling costs: $15.20.
Contribution margin: $28.49 − $15.20 = $13.29 → 33.2%
The 71.3% gross margin drops to 33.2% contribution margin once Amazon fees and advertising enter the picture. Both numbers are useful, but contribution margin drives operational decisions.
Why Gross Margin Matters (and Where It Falls Short)
Lender and investor metric. Banks and Amazon lending programs evaluate your P&L using standard accounting metrics. Gross margin is the first profitability line they check. A healthy gross margin (60%+) signals strong product economics before channel costs.
Multi-channel comparison. If you sell on Amazon (45% fee load), Shopify (3% payment processing), and wholesale (50% discount off retail), gross margin is the common denominator. It strips out channel-specific costs and shows your core product profitability.
Where it falls short for FBA. A 70% gross margin means nothing if Amazon fees eat 35% of revenue. Two products can have identical gross margins but wildly different contribution margins based on size tier, referral category, and PPC requirements. Use gross margin for financial reporting and contribution margin for operational decisions.
Common Gross Margin Mistakes
Including Amazon fees in COGS. Some sellers lump referral fees and FBA fees into COGS. This inflates your cost of goods sold, deflates gross margin, and misrepresents your P&L. Amazon fees are selling expenses, not production costs. Keep them separate.
Confusing gross margin with contribution margin. Quoting 70% gross margin to justify a SKU's profitability ignores the 30-40% of revenue consumed by Amazon fees and advertising. Always check contribution margin before making pricing or catalog decisions.
Not including all landed cost components. Some sellers only count the factory invoice price as COGS, omitting freight, duties, and prep. This overstates gross margin and gives you a false sense of product profitability. Use your fully loaded landed cost.
Related Glossary Terms
Revenue minus all variable costs including Amazon fees.
Read →Bottom-line profit per unit after all costs.
Read →Direct cost of inventory sold during a period.
Read →Complete set of Amazon fees per unit sold.
Read →Total per-unit cost from factory to FBA warehouse.
Read →Frequently Asked Questions
What is a good gross margin for Amazon FBA?
Most FBA sellers see gross margins of 60-75%. Because COGS for private-label products sourced from Asia is typically 15-30% of the selling price, the gross margin looks high. The more useful benchmark is contribution margin (after Amazon fees), which healthy sellers keep above 20-30%.
What is the difference between gross margin and contribution margin?
Gross margin subtracts only COGS (landed cost) from revenue. Contribution margin also subtracts variable selling costs like Amazon referral fees, FBA fulfillment fees, and PPC spend. For FBA sellers, contribution margin gives a more complete picture of per-unit profitability.
Should Amazon fees be included in COGS?
No. Under standard accounting practice, COGS includes only the costs to acquire and prepare inventory for sale: product cost, freight, duties, and prep. Amazon referral and fulfillment fees are selling expenses, not COGS. Including them inflates COGS and misrepresents gross margin on your P&L.