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6
MINUTE READ TIME
Published
November 2, 2022
|
David McDaniel
|
Getting Started

Revenue vs. Profit: What Making Money on Amazon Actually Means

Revenue vs. Profit: What Making Money on Amazon Actually Means

Table of Contents

Most Amazon sellers go into business with one central goal: to make money.

But while it seems like a simple objective, it’s easy to lose track of what “making money” even means — is it revenue? Profit? Gross income?

In fact, sellers often set profit goals but celebrate revenue increases without taking stock of their profit levels, and ultimately determine their business’ success based on conflated metrics.

Put simply, revenue bumps are great, but they don’t always equate to profit boosts.

Here’s a look at the differences between revenue vs. profit, and how understanding (and tracking) each can set you up for success.

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Understanding Revenue vs. Profit

Your Amazon payout is what you might consider your revenue. But let’s break that down.

  • Total revenue is everything that Amazon collects on your behalf. 
  • Your revenue is what Amazon gives you after they’ve taken their share.

That’s where you start.

And that’s where some sellers end. They know that Amazon takes some fees — even if they don’t know what those fees are — so they often mistake payout for profit.

As an Amazon seller, though, you not only need to take into account the typical expenses of running an online retail business, you also need to factor in Amazon’s slice of the pie. 

Amazon takes its cut off the top, which is usually 15%, depending on category, and they also charge multiple fees for doing business on the platform. These include:

  • Storage fees.
  • FBA fulfillment fees.
  • Long-term storage fees.
  • Inbound shipping fees.

Add in promo rebates and other adjustments, and by the time you get your payout, large chunks of your initial revenue have already been eaten away.

And that’s still not your profit.

So, What Exactly Is Profit?

When calculating profit, it’s important to take other costs into account, such as:

  • On- and off-Amazon advertising expenses, like Google.
  • Cost of goods (COGs). It’s best to use “landed cost” COGs, as these focus on what it costs to get your product to the warehouse for sale.
  • Overhead costs, like employees, warehouse fees, or VAs.

Basically, make a comprehensive list of all your additional operating expenses.

Then, use that info to calculate your accurate profit with this top-level equation:

Amazon payout - expenses = profit

That’s the money you get to keep.

Note that “Amazon payout” is variable, with its own set of calculations, and your expenses are likely variable and multiple as well — making the two components of this “simple” calculation somewhat involved.

Despite the complexity, it’s vital to know this equation and apply these numbers to get a real sense of how your business is doing.

Two people calculating revenue vs. profit
Two people working on laptops and calculators to determine revenue vs. profit

Factoring in Solvency and Expansion

Solvency is spending less than you make — and it’s a critical process for maintaining cash flow and staying debt-free.

Profit, therefore, is one of the best — if not the best — indicator of business health. Expansion becomes easier when you have a key performance indicator like profit to hang things on, as you can use solvency funds to reinvest and grow the business.

Once you know your profit, there are things you can do to both drive more profit and reduce profit loss. Maintaining a dynamic inventory, for example, can help you avoid long-term storage fees and overstocking. If you’re carrying excess inventory and need to remove it from FBA to avoid costly storage fees, you’re paying removal fees that have gotten significantly more expensive over the last few years.

That’s why monitoring your stock closely can help reduce profit loss.

In fact, there are about as many ways to reduce loss as you can think of, and each begins with profit awareness.

Having the right tools to oversee your Amazon business, to automate, to add functionality, to keep you informed of the things you need to know — like profit — in order to make smart decisions is a valuable component of any successful enterprise. SellerTools, for example, can help you optimize your product listings, while ZonTools can automate your PPC ads.

Tools like these can help you gain efficiency, increase speed, and boost your profits.

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Revenue vs. Profit: Focus on the Central Goal

The overall goal is to manage your business according to your actual profit, not your revenue.

With profit awareness, you’re able to see what to tweak to reduce loss, save on operating expenses, and  focus on the real key to expansion:

Figuring out ways to drive profit.

Fortunately, Carbon6 is building a community of the brightest minds and most innovative tools in the ecommerce space to help you amplify and simplify the success of your Amazon business.

Whether you’re just getting started or already well on your way, your ecommerce business can reach new heights — with the right focus and the right tools.

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