Many brands on Amazon chase top-line sales, but few truly understand what drives bottom-line profit.
For eCommerce leaders managing $1Mโ$50M in revenue, focusing solely on growth without dissecting unit economics is risky.
This guide breaks down why selling economics matter more than revenue, how Amazonโs complex fee structure can quietly erode margins, and what actionable steps you can take to stay profitable.
Letโs dive in.
Why Selling Economics Matters More Than Revenue
For many eCommerce leaders, hitting $1Mโ$50M in annual revenue may seem like the benchmark of success.
But on Amazon, revenue alone doesnโt equal profitability. What truly matters is selling economicsโthe actual profit you make per unit sold.
Amazon is a high-volume, high-competition marketplace, and understanding the difference between top-line sales and bottom-line profit is critical to sustainable growth.
Letโs look at two scenarios. Brand A sells $2 million worth of a best-selling product but only operates at a 5% profit margin. Thatโs $100,000 in profit. Brand B, meanwhile, sells a niche product that generates $800,000 in revenue but maintains a 30% margin. Thatโs $240,000 in profitโover twice as much as Brand A despite having less than half the revenue.
This illustrates why high-revenue, low-margin strategies are dangerous.
Every unit sold with poor economics scales losses or barely breaks even.
Smart brands zero in on SKUs with higher profitability and optimize costs aggressively.
With Amazonโs increasing operational fees, even a profitable product today can become a drain tomorrow without tight control over margins.
Breaking Down Amazonโs Core Fees
Amazon's fee structure is complex and constantly evolving. As of 2025, sellers must navigate a mix of fulfillment, referral, storage, return, and advertising-related feesโeach impacting profit differently.
- Referral Fees: These are category-based and range from 8% to 15% of the productโs price.
- FBA Fees: Fulfillment by Amazon charges per unit based on weight and dimensions. In 2025, fees start at $3.22 for standard-sized items and can go up to $6.50 or more for larger or heavier products.
- Storage Fees: Amazon charges monthly storage fees based on volumeโ$0.87 per cubic foot from January to September and $2.40 per cubic foot during the peak Q4 season. Long-term storage incurs even higher penalties.
- Returns Processing Fees: Applied on returned items, this fee often equals the original FBA fulfillment fee. High return rates can quietly erode margins over time.
- Advertising Costs (Amazon Ads): For many brands, advertising costs now exceed 15% of total revenue. Without tight control over ACOS and TACOS, ads can drain profitsโeven when they drive traffic.
When brands scale up, even small changes in these fees can result in six-figure profit swings.
For example, a 1% increase in storage costs across 50,000 units could reduce annual profit by tens of thousands.
Thatโs why eCommerce brand owners need real-time visibility into Amazonโs fees and their impact.
Contribution Margin: Your True Profit Metric
To accurately measure financial performance on Amazon, the key metric isnโt gross revenueโitโs contribution margin.
This is the amount left over after subtracting all variable costs and Amazon-related fees from your selling price.
It shows how much each product actually contributes to your bottom line.
Formula:
Contribution Margin = Selling Price โ Cost of Goods โ Amazon Fees โ Ad Spend โ Variable Costs
Example:
- Selling Price: $35
- Cost of Goods: $10
- Referral Fee (15%): $5.25
- FBA Fee: $4.50
- Ad Spend: $4
- Contribution Margin = $35 โ $10 โ $5.25 โ $4.50 โ $4 = $11.25
That $11.25 is whatโs available to cover fixed costs, reinvest into growth, or drive profit. When brands donโt track contribution margin, they risk scaling unprofitable products and wasting ad dollars on items that donโt add long-term value.
By routinely calculating this metric, brands can identify winning SKUs, cut underperformers, and make better investment decisions. It also empowers your finance and operations teams to collaborate on cost-cutting strategies like optimizing packaging size or renegotiating supplier costsโtactics that can significantly improve margins over time.
Identify Hidden Costs in Your Amazon Business
Hidden costs often make the difference between scaling profitably and simply chasing revenue.
1. Stranded Inventory
One of the most underestimated issues is stranded inventoryโunits in Amazon warehouses that can't be sold due to listing errors or policy flags.
These still accrue storage costs, drag down your Inventory Performance Index (IPI), and in some cases, may lead to removal fees.
Amazon's Inventory Health and FBA Inventory Age reports help identify these at-risk items early.
SalesDuoโs tools further enhance this by combining SKU-level profitability insights with automated alerts for stranded or slow-moving inventory. Read our expert blog on Amazon Sales Data Analysis for deeper insights.
2. Excessive Returns
Another major leak is excessive returns. If youโre selling items like apparel or electronics, a return rate above 10% can quickly wipe out profitsโespecially with return processing fees that mirror your original FBA fulfillment fees. Unmanaged return rates lead to significant bottom-line erosion.
Thereโs also the often-ignored cost of labeling. If you rely on Amazonโs FBA labeling service, you pay roughly $0.55 per unit. Over 10,000 units, which adds up to $5,500 in labeling costs alone. Amazonโs FBA Small and Light Program offers relief here for products under $12 by reducing fulfillment and labeling fees.
3. Delayed Removals
Lastly, delayed removals can trigger long-term storage fees. After 365 days in storage, Amazon charges $6.90 per cubic foot or $0.15 per unitโwhichever is higher.
How to Improve Profitability Through Fee Optimization
1. Product Size Tiers
Fee optimization doesnโt require a complete overhaulโit starts with small, strategic changes. One of the most overlooked tactics is adjusting product size tiers. A box thatโs slightly oversized could be pushing your product into a higher FBA fee bracket. With Amazonโs revenue calculator, you can simulate cost changes for packaging adjustments and see real-time profit impact.
2. Bundling
Product Bundling is another proven tactic. By combining related SKUsโsuch as skincare kits or phone accessoriesโyou reduce per-unit fulfillment fees and increase average order value. Bundles can also improve Best Sellers Rank due to increased unit velocity.
3. FBA vs. FBM
For certain SKUs, FBM (Fulfilled by Merchant) may be more economical, especially for seasonal or oversized products. Amazonโs Fee Preview Report allows you to compare fulfillment costs for each SKU. To take this further, read our expert blog on how to enable side-by-side profitability modeling of FBA vs. FBM strategies across your catalog.
The Role of Pricing, Promotions, and Coupons in Unit Economics
Strategic pricing is one of the most powerful levers in your Amazon toolkitโbut it has to be used carefully. While price drops and coupons can increase conversions in the short term, they often reduce your contribution margin if you donโt track their downstream impact.
Read our blog on Amazon pricing strategy to know how poorly planned discounts can cut profits in half, even when sales increase.
That said, promotions can be profitable when used with intention. A 10% coupon on a high-margin item could boost conversion by 30%, making up for the reduced price.
However, testing is key. Use Amazonโs Manage Your Experiments to A/B test pricing and coupon levels. Then layer that data with SalesDuoโs promotion tracking Amazon BI dashboard to understand how each offer impacts actual profitโnot just revenue.
If youโre using coupons to drive traffic, combine them with cross-channel marketing strategies such as social ads or email campaigns. This helps amplify visibility and increases the ROI of each promotional dollar spent.
In the long run, pricing needs to be dynamic. Tools like Amazon's Automate Pricing can help, but we recommend evaluating repricing strategies that factor in both cost and performance data to ensure each price change protects your margins.
Sales Velocity vs. Profitability: Finding the Right Balance
Selling quickly on Amazon looks good on the surfaceโbut it doesnโt always translate to profitability.
Many brands push for top-line growth by increasing ad spend, offering discounts, or prioritizing fast movers.
But without margin analysis, you may be losing money with every sale. The key is understanding inventory turn rates in relation to per-unit profitability.
Letโs say Product A sells 5,000 units monthly but has a $1.50 contribution margin, while Product B sells only 2,000 units but nets $6 per unit. Despite higher sales, Product A delivers less profit overall. Thatโs where tools like margin heatmaps come in handy. These visuals categorize SKUs by turn rate and margin, helping you quickly spot which products are worth pushing.
SalesDuoโs platform combines SKU-level sales velocity with real-time margin metrics so you can easily see if high-volume SKUs are actually dragging down your bottom line. When velocity increases but profitability declines, itโs time to reevaluate pricing, fulfillment, or ad strategy.
Bonus read: How to Analyze Amazon Sales Data for Actionable Insights
Tools to Monitor Profitability in Real Time
Staying profitable on Amazon requires ongoing monitoring, not just monthly reports. The most effective brands use tools that track performance daily and alert them when margins drop.
One of the top solutions for this is Helium 10 Profits. It offers real-time insights into revenue, cost of goods sold, FBA fees, and net profit for each SKU, making it easy to see where adjustments are needed.
Amazon itself offers useful native tools. Business Reports in Seller Central provide breakdowns by ASIN, including units sold, conversion rates, and total revenue.
However, it doesnโt give direct visibility into profitability. Thatโs where third-party platforms like SalesDuo add valueโlayering in COGS, fees, advertising, and historical trends to surface actionable insights. Read our expert guide on the Amazon Revenue Calculator for step-by-step FBA profit analysis.
Itโs also important to set automated alerts for when your margins fall below a target threshold. Whether thatโs a 20% minimum margin floor or a $5 per-unit net, real-time alerts prevent prolonged losses and allow your team to course correct quickly.
Make Every Unit Count
Maximizing profits on Amazon isnโt just about selling moreโitโs about making every single unit count. This means optimizing what you sell, how you fulfill it, and how you price and promote it. Top brands perform routine profitability audits, reassess packaging and size tiers quarterly, and actively monitor aged inventory and return rates.
Start by calculating your true contribution margin using SalesDuoโs margin calculator and compare that against your top-selling SKUs. Focus on fee efficiency, bundle where it makes sense, and use pricing tools to maintain a profitable positionโeven when competitors lower prices.
As outlined in our guide on improving Best Seller Rank, profitably increasing sales velocity also requires understanding how volume affects search ranking and organic visibility. Use those metrics wisely, and donโt chase growth that comes at the expense of margins.
When done right, Amazon doesnโt just become a sales channelโit becomes a predictable, scalable, and profitable engine for growth. But that requires intentional management, detailed analytics, and the discipline to say no to unprofitable strategies.
Conclusion
Success on Amazon doesnโt come from chasing volumeโit comes from making every unit profitable. As fees rise and competition intensifies, knowing your contribution margin, monitoring hidden costs, and optimizing fulfillment strategies are no longer optional.
Brands that win on Amazon are those that treat it as a precision engine, not just a sales channel. By combining Amazonโs own tools with SalesDuoโs advanced analytics, eCommerce leaders can turn complexity into clarity and revenue into reliable profit. Start tracking what really matters.
Make smarter decisions. And transform every sale into a step toward long-term, profitable growth on Amazon.
Schedule your 1:1 growth call with our Amazon experts today!
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About the Author
Meet R.Dharun, an energetic Amazon account expert who focuses on making retail strategies sharper and scaling business processes at eCommerce platforms. With a strong knack for streamlining workflows and building growth-driven solutions, heโs all about making brands more efficient. When heโs off-duty, youโll find Dharun playing cricket or getting lost in thriller novels.
