Should You Sell on Amazon? An Honest Look at the Numbers First

Almost every seller I have worked with in sixteen years arrived at the same place: revenue looked fine, the bank account did not. Amazon is not a bad channel. It is an expensive one, and the expenses are spread across enough line items that people do not add them up until the quarter is over.

So before the branding, the photography and the launch strategy, do the arithmetic.

The five costs that decide the outcome

1. Cost of goods. Landed, not quoted — unit price plus freight, duty, tariffs, inspection and the units you throw away.
2. The referral fee. Amazon’s cut of every sale, commonly 15% in most categories and lower in a few. It comes off the top, before anything else.
3. Fulfillment. FBA pick, pack and ship, priced by size tier and weight, plus monthly storage that rises sharply in Q4 and again if inventory ages.
4. Advertising. On a competitive listing this is not optional. Budget it as a percentage of revenue (TACOS), not as a fixed monthly number.
5. Returns and shrink. Customer returns, unsellable units, reimbursements you have to chase, and the ones you never notice.

Where the math usually breaks

Price is set by the market, not by your costs. Buyers compare identical products on one page. You cannot pass your costs through the way you can on your own site.

Cash sits in inventory. Money goes out for goods and freight months before Amazon disburses. Profitable businesses fail on timing, not on margin.

Ad costs rise before your prices do. A category that worked at a 12% ad cost of sales rarely stays there once three more sellers arrive.

Size and weight quietly own you. One extra inch that pushes a product into the next size tier can take more margin than a competitor’s price cut.

Who Amazon works well for

• Products with a real cost advantage — you manufacture, you own the brand, or you buy at a price other resellers cannot get.
• Small, light, non-fragile items in a size tier that stays cheap.
• Sellers with the working capital to fund inventory without borrowing at painful rates.
• Brands using Amazon as one channel of several, not the whole business.

Who it usually does not work for

• Retail arbitrage at scale, once fees and the time cost are counted honestly.
• Undifferentiated products in a category already owned on price.
• Anyone whose plan depends on Amazon’s fee schedule staying where it is.
• Anyone who cannot survive a 30-day account suspension.

Do this before you list

Build one spreadsheet per product: landed cost, referral fee, fulfillment, storage, advertising, returns, and the resulting contribution margin per unit. Then model it again at a 15% lower price and a 30% higher ad cost. If the product survives that, it is worth launching. If it does not, you found that out for free.

The full worksheet version of this — along with the sourcing, launch and account-health checklists — is in the Amazon Seller’s Pocket Guide. The longer argument about when the channel is the wrong home for a brand is in Why Not to Sell on Amazon.

Next: where your margin actually goes, and the seller terms glossary if any of the acronyms above were new.