Avoiding Common Amazon Margin Mistakes: My Personal Experience and Guide to Accurate Calculations

Selling on Amazon offers huge opportunities, but many sellers struggle to maintain healthy amazon margins. One of the biggest challenges is calculating profitability correctly before it’s too late. Overlooking key costs or misjudging fees can turn a seemingly successful product or potential product idea, into a loss-maker. I almost made these mistakes when I started my brand, back in 2015 but quickly changed that. Many clients, that I've consulted with, have struggled to get this right. I'm hoping this guide will help UK Amazon sellers avoid common margin mistakes and show how to calculate ecommerce profitability with confidence.

Understanding the Full Scope of Amazon Fees

Many new and, so I've found out over the years, established sellers focus only on the product cost and selling price, missing the full picture of amazon fees and all the other costs. It's cost them and their business money, time and slowed scaling.

Amazon fees include:

• Referral fees: A percentage of the sale price, varying by category.

• FBA costs: Storage, picking, packing and shipping fees charged by Amazon for fulfilment.

• Amazon Sponsored Ads PPC costs: Advertising expenses that directly impact profitability.

• Refund & Return fees: Customer returns FBA fees, product write off fee

  
  

For example, a product priced at £20 with a 15% referral fee means £3 goes to Amazon. Add FBA costs of £2.50 and PPC costs of £1.50, and the total fees reach £7. If you only considered product cost to calculate your sell price, the missed fees will reduce your margin significantly.

Here's what to include and how to Calculate More Accurate Margin based on actual Costs

To more accurately calculate your amazon margins, include every relevant cost:

1. Product Cost

   The price you pay to buy or manufacture the item. Ensure you also take in to account any packaging, insert costs, labelling and also the exchange rate / fees on the payment (for UK sellers, use the actual GBP payment detail from your bank)

   
   

2. Shipping & Import Costs

   Include freight from your supplier to your own UK warehouse and/or direct to Amazon warehouses, import tax and customs duties.

   
   

3. Amazon Fees

   Referral fees, FBA costs, storage fees, removal fees and any other charges from Seller Central.

   
   

4. Amazon PPC Costs

   Advertising spend directly linked to the product. Until data received, we can use an approx. cost per sale in the first instance. For me, I used £1.50 per sale as a starting point until I had PPC data to analyse.

   
   

5. Amazon Reimbursements

   Account for reimbursements from Amazon for lost or damaged inventory, which can improve margins. For new Amazon sellers, this data will come in time.

   
   

6. VAT  

   If you reach the requirements to be VAT registered, you need to include this in your calculations (VAT is 20% as of Jan 2026). The sell price will need to include VAT. Remember VAT is not your money, it is owed to the HMRC and will need to be paid. So calculate you margin based on Sell price excluding VAT. (do your own research on VAT, it's important)

   
   

7. 3PL

   If you store your product at a 3PL warehouse for FBM or before sending to Amazon, you must remember to include these fees in your calculations

   
   

8. Operational Costs

   Of course, when you are running a business you will have other overheads such as wages, tax, software, accountant etc. These will be taken into account when calculating your overall NET profit for the business.

For this purpose, we are calculating a more accurate product margin, not an overall operational cost at this stage, based on FBA and stored at an FBA warehouse

Formula for Cost of Sales :

1) Incorrect calculation is Total Cost = Product Cost only

2) Correct calculation is where Total Costs = Product Cost + Shipping & Import Costs + Amazon Fees + Amazon PPC Costs Per Sale - Amazon Reimbursements

Example Correct Calculation

• Product Cost: £10

• Shipping: £0.50

• Import Cost: £0.37

• Amazon Fees (Referral + FBA): £5

• Amazon PPC Costs Per Sales: £1.5

• Amazon Reimbursements: £0.50

  
  

Total Costs = 10 + 0.5 + 0.37 + 5 + 1.5 - 0.5 = £17.87

Now lets see what margin we will make based on a few Sell Prices

Incorrect Method using just product buy cost

Not VAT Registered

Sell = £25.....Margin = (£25 - £10) / £25 x 100 = 60%

Sell = £30.....Margin = (£30 - £10) / £30 x 100 = 66%

Correct Method using full product costs

Not VAT registered

SELL = £25

Margin = (£25 - £17.87) / £25 × 100 = 28.52%

SELL = £30

Margin = (£30-£17.87) / £30 x 100 = 40.43%

You can clearly see the difference in the margin. Ignoring these fees makes a big difference to this calculation.

Again, when you become VAT registered you will need to account for this in your new calculations:

VAT Registered Example (20%)

SELL = £25 Inc VAT = £20.83 Ex. VAT

Margin = (£20.83 - £17.87) / £20.83 × 100 = 14.22%

You either have to increase your sell price or reduce the product costs & fees, to increase this margin. Although, as a VAT registered business in UK, there are some expenses you can claim the VAT back for. This all helps with margin when forecasting cashflow, calculating operational costs and P&L.

Hopefully, you're starting to see the importance of using the correct calculations when selecting a new product or if you're wondering why your margins just don't seem to add up at the end of the month.

Feel free to contact me, if you need some guidance.

Other Common Margin Mistakes UK Amazon Sellers Make

Ignoring or Incorrect FBA Costs

Many sellers underestimate FBA costs. Storage fees can increase during peak seasons, and long-term storage fees may apply if inventory sits too long. Always check Seller Central reports for up-to-date fees and re-calculate your product margins.

Overlooking Amazon PPC Costs

As you start selling a product, Amazon Sponsored Advertising is essential but often treated as an afterthought. PPC costs can quickly eat into profits if campaigns are not optimized or structured correctly. Track your ad spend per product and include it in margin calculations. Cut the wasted spend and set up a structured campaign for a chance of better results.

Update your initial estimate of cost per sale with the actual cost of getting each sale.

Forgetting Amazon Reimbursements

As mentioned in fees above, Amazon sometimes reimburses sellers for lost or damaged stock. Not factoring these reimbursements can understate your business profitability. Regularly review reimbursement reports in Seller Central.

Not Accounting for Inventory & Shipping Costs

Shipping inventory to Amazon warehouses, customs duties, and packaging add to costs. These often get ignored, especially by new sellers, leading to inflated margin estimates. Remember, each time you order a new batch from your supplier, costs may change and therefore it's important to keep track of these new costs. Input these, for accurate re-calculation of margins.

How to Improve Ecommerce Profitability on Amazon

Use Seller Central Reports Effectively

Seller Central provides detailed reports on fees, reimbursements, and inventory. Regularly download and analyse these to spot discrepancies and hidden costs. Amazon changes fees regularly so make sure you check news feeds on Seller Central.

Adjust Pricing Strategy Based on more Accurate Costs

Set prices that cover all costs and leave room for profit. Use margin calculators or spreadsheets that include every fee and cost element.

Monitor and Optimize Amazon PPC Campaigns

Track your advertising spend and sales conversion rates. Pause or adjust campaigns that don’t deliver positive returns. Cut the wasted spend on keywords that are not performing and set up structured campaigns for a chance of better results

Manage Inventory Efficiently

Avoid long-term storage fees by managing stock levels carefully. Use Amazon’s inventory health reports to identify slow-moving products. NEVER go out of stock. This can seriously harm your sales, reduce organic rank and cost you more in gaining the rank position back.

Final Thoughts on Amazon Accounting for Sellers

Luckily, I was from a sales background and had experience with calculating correct margin. However, I didn't know about every fee. This took a little research.

Accurate margin calculation is critical for sustainable growth on Amazon. Many sellers lose money because they overlook fees, PPC costs, or reimbursements. By including all relevant costs and regularly reviewing Seller Central data, UK Amazon sellers can build a clear picture of amazon profitability, help you forecast more accurately (Cashflow, adding new products, inventory, scaling, P&L etc)

Start by creating a detailed cost breakdown for each product. Definitely update it regularly to reflect changes in product costs, fees or advertising costs. This approach helps avoid surprises and supports smarter pricing and inventory decisions.

Remember, you're not alone in making these mistakes and it's all part of the process.

Feel free to make contact and let's discuss any questions.

Notes: Always do your own research. Check your own calculations, FBA fees, taxes etc. Always check with your accountant. If you notice any mistakes, please let me know. Thanks