Maximizing Amazon Profits: The Smart Way to Go Beyond Revenue Growth
Focus on COGS, advertising, warehousing, and Amazon fees to net profit instead of just top-line revenue.
What Does Profit Mean: The Amazon Seller Perspective?
The top-line number for sales makes most sellers on Amazon feel elated. However, spending on advertising, Cost of Goods Sold (COGS), Storage costs, Warehousing, and Amazon’s fees would often be overlooked by sellers hoping to simplify their majority of sales. Their situation is akin to spending and not accounting properly – assuming that spending more COGS, advertising, warehousing, etc. will lead to growth in profit, whereas it just leads to a shrinkage in their net profit.
In this article, we’ll comprehend the deeper aspects of revenue and how to effectively manage_TAB COGS, advertising expenses, storage and warehousing expenditures alongside Amazon fees so that you are able to preserve the most amount of profit possible and document growth in your net profit.
1. Differentiate Between Revenue and Profit.
Let’s clarify a common misunderstanding amongst business owners.
Revenue translates to the total cash inflow of the business arising_x from the sales of goods and services.
Profit is the figure left over after the business incurs expenses.
For instance; A seller is able to get amazons loan for paying off an advertising loan which enables them to advertise their new product set. Let’s assume for the ease of accounting they cover $23 on advertising, $15 on COGS, $5 in warehousing and Amazon charges $2, so the total expenditure will equal to $45. The product sold for $150 making a business out of every step in the process which culminated in $105 profit after selling the product.
Revenue: $50
Costs: $30 (COGS) + $10 (ads) + $5 (fees) = $45
Profit: $50 – $45 = $5
If you analyze just the revenue, you might think everything is going exceptionally well. However, unless you track all other expenses, you have no way of determining whether profit is actually being achieved.
2. Monitoring Your COGS (Cost of Goods Sold)
COGS encompasses the purchase or production processes of your item. This consists of:
Manufacturing or supplier costs
Packaging materials
Shipping from factory to your warehouse
Why it matters:
If you are paying a high COGS, your profit margin diminishes even with a high sale volume.
Tips to lower COGS:
Supplier discounts of 5% or greater can have big impacts.
Take advantage of bulk ordering.
Switch suppliers if needed. Remember, cheaper doesn’t always mean lower quality.
Check hidden costs like customs, duties, and international freight.
Example:
One seller reduced their product packaging cost by $0.30 per item. Over 10,000 units, that was $3,000 in savings—pure profit.
3. Keep an Eye on Your Advertising Spend
While Amazon PPC ads boost visibility, they can quickly become a drain on profits.
Key Metrics to Track:
ACoS (Advertising Cost of Sale): Ad spend divided by sales from ads.TACoS (Total Advertising Cost of Sale): Ad spend performed against total revenue derived.
Conversion Rate: Rate of clicks that result in purchases.
Click-Through Rate (CTR): The percentage of audience that engages with your advertisement.
Ad spend management techniques:
Bid on profitable keywords only after a test period evaluating keyword performance.
Add negative keywords to your campaign to improve your CTR.
Focus on keywords that have higher conversion rates as opposed to those that simply have a lot of traffic.
Improve conversion rates by enhancing image and title bullet points of your listing.
Example:
A seller on Amazon selling kitchen knives reduced their ACoS from 42% to 18% by turning off poor-performing campaigns and improving the images on the listing.
4. Track Relevant Amazon Fees
Due to the categorization of products, Amazon has different fees based on the size, weight, and method of shipping.
Types of Amazon Fees:
Referral Fees (generally 15% of the selling price)
FBA Fees (pick stream, pack stream, ship stream)
Storage Fees (by the month or long term)
Returns Processing Fees
High-Volume Listing Fees
Management Guidelines on Fees
Decide on a product after calculating all costs with the Amazon Fee Calculator.
Maintain the right size tier, small modifications to the packaging can save you money.
Avoid long-term storage by managing your inventory and keeping optimum stock levels.
Excessive returns could incur additional fees. Keep an eye on return rates.
Example:
A seller who transitioned from maintaining a standard-size tier package to small standard-size tier, realized a packaging cost reduction of $5,000 annually.
5. Control Warehousing and Inventory Storage
Pros and cons of a FBA are well-known, however, storage fees during peak seasons can greatly reduce profits.
Smart warehousing tips:
Store excess inventory at a 3PL (third-party logistics) center until needed. Only then ship to FBA.
Anticipate demand using Jungle Scout or Helium 10.
Avoid long-term storage fees by removing unsold stock before fees apply.
Faster sales can be achieved by bundling slow moving items and selling as a package.
Example:
One seller managed to avoid excessive Q4 storage fees by utilizing local warehouses to send only 20% of stock to FBA while storing 80% at the local warehouse. This strategy saved the seller thousands.
6. Use Profit-Focused Tools and Software
Tracking everything manually can be difficult; make use of specific tools that helps track expenses and monitor profits.
Suggested tools:
Analyzing profit in real-time with Sellerboard.
Helium 10 Profits for easy and effortless tracking.
Xero or QuickBooks for financial accounting.
Inventory Lab for integration of accounting and inventory management.
Example:
A beauty products seller discovered negative profit margins on what was believed to be a top selling item. Sellerboard helped identify losses post advertising and sales fees resulting in overall negative margins.
7. Use Net Profit Margin as Your North Star
Always measure success by net profit margin, not just sales.
Your net profit margin can be calculated as follows:
Net Profit Margin = (Net Profit ÷ Total Revenue) × 100
Try to achieve 15% or above margin on most categories.
Warning sign
If you are making millions in sales and have a mere 2% profit margin, your business is vulnerable to significant problems from a single quarter of poor performance or a spike in advertising costs.
8. Enhance Operations to Cut Expenses
Sometimes, profit isn’t about selling more. Profit margins can be enhanced by cutting down on unnecessary expenses.
Areas to improve:
Quick shipping can also lower returns.
Employ part-time VAs instead of full-time employees.
Delegate repetitive tasks such as feedback or customer emails to bots.
Outsource prep work for better time and cost efficiency.
9. Focus on customer retention instead of new customer acquisition
To gain a new customer takes 5x the amount of money as keeping a customer.
Retention strategies:
Request reviews through discount offers on product inserts.
Use Klaviyo to create and manage loyalty email programs.
If applicable, permit your customers to use subscribe and save features.
Deliver superior customer support.
For example, a skincare brand built a 10,000 customers email list and makes 25% of revenue from returning buyers with no extra spend on ads.
10. Avoid Price Wars—Focus on Building Value Instead
Stop competing on price or profit margins. Price slashing always leads to decreased profit margins.
Here is how you can maintain value while not cutting your price:
Focus on improving your brand image as well as your product’s packaging.
Add limited edition or bundle offers.
Use compelling and eye-catching features to capture attention in product listings.
Build trust reputation by showcasing 5-star reviews.
Use Amazon Brand Registry to gain access to A+ Content and other tools.
11. Advanced Strategy: Determine Profitability Per SKU
SKU profitability varies among different products. Some products might sell quickly, but bring lower profit margins.
Evaluate profit margins on item sales:
Evaluate income against: SKU costs, advertising expense, and returns.
Discontinue items that have negative or trivial profit margins.
Invest more in sku’s that have higher profit margins.
12. Set Up a Profitability Dashboard
Create a simple dashboard (Excel, Google Sheets, or software) that shows:
| Metric | Amount |
| Total Revenue | $50,000 |
| Total COGS | $20,000 |
| Ad Spend | $10,000 |
| Amazon Fees | $7,500 |
| Warehousing & Other | $2,500 |
| Net Profit | $10,000 |
Update this monthly to stay on track.
Profit and loss of certain activities can be evaluated monthly, so ensure it is updated monthly.
13. Brand Loyalty And Value Added Content
Products alone can serve as revenues, but companies that have more to offer their customers on top receive the long term benefits.
Methods to build loyalty:
Develop video tutorials
Provide guidance through social media channels
Utilize QR codes on packaging that link to relevant instructional materials
Express gratitude through emails and postcards
14. Focus on Contribution Margin, Not Just Revenue
Consider these KPIs:
Net profit
Profit per SKU
Ad ROI
Cost of Goods Sold (COGS) savings
Inventory turnover
Leverage Trello, Notion, or similar platforms to set milestones and track progress.
15. Learn From Others – Case Study
Seller Profile: Home décor brand
Monthly Revenue: $60,000
Initial Net Profit: $3,000 (5%)
What Was Done:
Negotiated 8% lower COGS with suppliers
Removed keywords that were not performing from the ad spend
Moved to smaller pack sizes for FBA
Used a 3PL for seasonal storage ‘during Q4’
Outcome:
Net Profit reached $10,500/month (17.5%) after 3 months.
Recap: What you keep is far more crucial than what you generate.
Top-line revenue feels great but bottom-line profit is what sustains and grows your business healthily.
On your operations side, start by reviewing COGS, trimming advertising waste, reducing fees from Amazon, and improving overall efficiency. Implementing these changes will improve operational metrics and the profit margin.
Frequently Asked Questions
1. What does going “beyond revenue growth” mean?
This means considering your profit after all costs, not just the revenue made through sales.
2. Why is tracking profit more critical than just looking at sales?
Your business profit is what determines your sustainable growth as a business, not just sales. There can be high sales while incurring huge losses due to high costs.
3. What is COGS, and why should I care?
COGS, or cost of goods sold, is a term used to calculate the total cost associated with producing or purchasing your goods. A reduction in COGS increases profit.
4. How can I lower my advertising cost on Amazon?
Make use of keyword targeting, set daily advertising budgets, pause poorly performing campaigns, and make use of negative keywords to prevent unwanted clicks.
5. What are some hidden costs that reduce my profit on Amazon?
Some hidden costs include long-term storage fees, return processing costs, long-term inventory charges, oversized package fees, and advertising waste.
6. What is a good net profit margin for Amazon sellers?
For most people, a healthy net profit margin is any number above 15%. This would mean that you’re keeping 15 cents out of every dollar earned after all expenses have been accounted for.
7. How can I track all my costs and profit easily?
For tracking and getting a true profit number, you can rely on Sellerboard, Helium 10, Inventory Lab and QuickBooks. All offer automation for tracking costs and profit providing reports on the bottom line.
8. Should I always lower my prices to beat the competition?
No. Lowering your price only reduces your profit margin. Instead, focus on building a stronger brand, improving and adding value to your product, and enhancing your listing to make it stand out.
9. What can I do to avoid high Amazon storage fees?
Keep extra stock in a 3PL warehouse and send smaller shipments to Amazon to reduce storage fees. Also, remove slow-moving inventory before incurring long-term storage fees.
10. How do I know which of my products are actually profitable?
You need to separate each SKU (product) and assess them individually. Assess the total sales, COGS, advertising, returns, and fees to determine profitability. Drop unprofitable items and focus on your best-performing items.
