Case Study: Calculating Profit Margin and ROI

Tips to Calculate Profit Margin and ROI to Kickstart Your Amazon Global Selling Journey

“One day, our daughter asked why dad is never home for dinner. That was a stab in the heart – I remember the feeling to this day. And so, I decided that I needed to find a way to have freedom and flexibility of time and finances. That eventually led to selling online.”
Jason Tay
7-Figure Amazon.com seller

A former secondary school teacher from Singapore becomes a 7-figure Amazon.com seller

Jason Tay started off as a secondary school teacher teaching English and History, before moving to the non-profit sector. It was always a “first in, last out” approach for him, and the key catalyst to starting his own business came when his daughter asked: “Why is daddy never home for dinner?”

After considering various business options and ecommerce stores, a major factor to helping him decide to sell on Amazon.com was the fact that he could sell in the US market by tapping on Fulfillment by Amazon (FBA) to manage a number of key logistical elements, freeing him to focus on other aspects of his business.
I discovered that if I sell on Amazon, I don’t have to register for an LLC or cooperation in the US, I don’t have to rent or buy warehousing space, I don’t have to hire employees to manage my fulfillment in the US – all that can be outsourced to Amazon through Fulfillment by Amazon (FBA).
Since Jason started selling on Amazon, he has grown from humble beginnings with a small 4-figure budget to a 7-figure seller who currently owns three brands.

The benefits of being a brand owner

Starting off as a reseller of over 800 different products, Jason found that there were more benefits to becoming a brand owner. For example, one benefit was that he could create his own unique listings and avoid competition with other sellers to be the featured listing in the Buy Box.

As a brand owner, he could also build a business and assets with long-term value, instead of being subject to brand owners who may choose to stop supplying goods to him at any time.

Looking to launch your own brand?

Enrolling in Brand Registry unlocks a suite of tools available to brand owners, and right now, eligible new sellers can take advantage of over US$50k in potential benefits. Learn more here.

Tips on setting a realistic selling price on Amazon

Prices can entice shoppers, give you a competitive edge, and guide your business's return on investment (ROI). The goal is to offer products where you can set the right price to achieve good sales with good profit margins.

For first-time sellers, here are Jason’s top tips to come up with a realistic selling price on Amazon.

Be price competitive

Make sure you are price competitive by doing market research for your product type or niche on Amazon e.g. specialty baby product vs mass-produced product.

Assess how the products you are selling compare to other similar products, and decide whether to decrease your selling price or add value to your product to justify the cost e.g. by adding unique color options, creating a bundle.

Tips for analyzing competitor prices


1. Carry out research on Amazon, simply by typing a product name into the search box located at the top of the Amazon.com homepage. Browse categories, compare prices, and focus on products that will be valuable to your business.

2. Use the Amazon Seller app to monitor competitor prices.

3. Use the Automate Pricing tool to set prices dynamically, based on market demand.

4. After you sign up for an Amazon Professional Selling account, you will have access to Product Opportunity Explorer, a tool that allows you to evaluate customer demand, find niche opportunities and assess competition by providing data on how many brands and products compete in the same space, average pricing, reviews and even out-of-stock rates.

Consider other costs

Consider the costs of selling products on Amazon, including upfront costs, costs per sale and other costs that are customized to your business and needs.

Approach “costs per sale” as being paid for by the customer, and include these in your selling price. The amount is incurred when a customer makes the payment, Amazon deducts the amount from the payment, and disburses the balance to you as a seller.

The table below illustrates a list of non-exhaustive examples of costs to consider*.

Upfront Costs

Costs Per Sale

Other Costs

• Monthly selling plan fee of
US$39.99
• Price paid for goods
• Inbound shipping for FBA
• FBA storage costs
• Amazon Referral Fee
• FBA fulfillment costs
• Agent fees
• Inspection fees
• Sample costs
• Trademark registration
• Corporate compliance
• Amazon ads
• Monthly selling plan fee of
US$39.99
• Software tools and service
providers
• Deals, Coupons, Discounts,
Promotions
*The cost to sell on Amazon depends on your selling plan, product category, fulfillment strategy and other variables. The options are flexible, and the table above illustrates costs that may not be applicable to all sellers.

Calculate your Gross Profit Margin

Gross Profit Margin indicates the profit you have made after factoring in your cost of doing business, as a percentage.

Jason’s Recommendation: Have a Gross Profit Margin % of ≥30% to account for advertising costs, discounts, returns, etc.

Tips for calculating Gross Profit Margin


1. Estimate the cost price of goods by searching online for a general estimate, or getting quotes from suppliers.

2. Estimate the cost for inbound shipping by getting quotes from shipping service providers, or searching online for an estimate.

3. Unsure if Fulfillment by Amazon (FBA) or Fulfillment by Merchant (FBM) is the better choice? Use the FBA revenue calculator to estimate your FBA fees.

Calculate your ROI

Return on Investment (ROI) indicates how well your investment has performed in terms of profit made versus its cost.

Jason’s Recommendation: Have an ROI of ≥100% to account for advertising costs, discounts, returns, etc.

Sharing his success

Today, Jason’s passion for selling has led to him helping other people with a passion for selling to get started on Amazon.com.
I think the biggest hindrance for most people is ‘paralysis by analysis’. My biggest advice for people looking to start an ecommerce business is to act. Don’t procrastinate – start today!
Note: The information contained in this article does not constitute financial advice. If you are in doubt as to the action you should take, please consult your financial or other professional adviser. In addition, the content in this article is for information only and must not be construed as a guarantee of future results. Many factors influence the demand for a seller’s products, including price fluctuations, consumer demand shifts, and sellers remain responsible for determining the products they sell and their prices.

Quick Survey

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FAQs

How much does it cost to start a store on Amazon?
Start by choosing a selling plan:
• Individual plan: US$0.99 per item sold + additional selling fees
• Professional plan: US$39.99/mo + additional fees

The Individual plan might be ideal if you want to list just a few products. With this option, you don’t incur any costs or fees until a product sells. Many sellers start with the Individual plan and then graduate to the Professional plan as they scale and move more inventory.

Some of the additional fees you might encounter can include category fees, fulfillment fees, and inventory fees. These depend on factors such as the types of products you want to sell, size and weight of products, and how much storage space you’ll require.

Learn more about the costs of selling on Amazon here.
Is it profitable to sell on Amazon?
Selling on Amazon can be very profitable. Data from Amazon’s Small Business Empowerment Report shows that more than 65,000 American sellers had over US$100,000 in sales in 2020. The number of American sellers that surpassed US$10 million in sales increased nearly 40% that same year.

If you’d like to be part of the growth ecommerce is experiencing, Amazon's selling plans give you the option to pay per sale (Individual selling plan) or a flat monthly fee (Professional selling plan). You can decide which option is best for you based on your business model.
How do I start selling on Amazon?
Here’s a checklist to help you get started:

• Sign up for an Amazon seller account
• Do research to find product ideas and source for inventory
• Use tools like Automate Pricing to make sure you can compete on price points without risking slim margins
• Build a virtual store and create product listings with accurate descriptions and imagery to attract customers
• Choose a fulfillment method
• Monitor sales performance and customer feedback
• Optimize product listings for better visibility in search results
• Use Amazon Advertising tools to increase sales volume

Check out our Beginner’s Guide to get started.
LOCATION
Singapore
INDUSTRY
Beauty
AMAZON LAUNCH
2013
Take your first selling steps
US$ 39.99 a month + selling fees
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