If you’ve launched your brand on Amazon, you already have faith in your products’ quality and their ability to satisfy customer needs. However, the fierce competition of Amazon as a marketplace, and broader factors affecting buyer behaviour, can make maintaining a healthy profit margin challenging at the best of times.
As a specialist Amazon Vendor Central agency, we regularly help vendors who are struggling to unlock their potential to diagnose and repair issues limiting their profit. In this guide, we’ll explore the factors affecting Amazon profit, the kind of margins you should be aiming to achieve, and the most important best practices for Amazon profit optimisation in 2025.
When you’re selling through Amazon Vendor Central, there are a few factors that will have the most direct, significant impact on your Amazon profitability. These are the wholesale price Amazon pays for your stock, your active CoOp agreements, and any other deductions (such as chargebacks) that Amazon makes against your account.
Here’s a closer look at how each of these variables can affect your profit margin and how they factor into calculating your Amazon profitability.
The wholesale price to Amazon is the price point at which Amazon buys your product. This figure will give you a very basic idea of how profitable your Amazon operation is, as your product’s total manufacturing cost should be low enough that the wholesale price covers it comfortably.
If your wholesale price isn’t high enough to cover your manufacturing costs, both direct and indirect, this speaks to a fundamental issue with your vendor agreement that will severely limit your Amazon profitability.
Amazon CoOp agreements are another important factor when you’re working to build an accurate picture of your Amazon profit margin. These agreements cover deductions to Amazon’s payments for your products for things like Amazon’s marketing development fund, freight costs, and damage allowances.
CoOp agreements cover many different aspects of your working relationship with Amazon, with factors that can both help and hinder your Amazon profitability. When it comes to CoOp agreements deducted from your payments from Amazon, the majority of these are deducted as a percentage of your total revenue. It’s crucial to keep these set percentages in mind and factor them in when building accurate figures of your profit margin.
Chargebacks are deductions that Amazon can impose for violations of policies that apply to all vendors, such as shipments failing to arrive on time, late import documents, or cartons being overweight. Shortage claims are raised when Amazon believes they have been short delivered on stock. These deductions can be one of the most challenging kinds of Amazon selling fees to deal with as a vendor, due to the varied root causes they can have and the logistical optimisation work required to avoid them.
You can check on how much Amazon chargebacks are eating into your profit by navigating to “Operational Performance” and then “Reports” in Vendor Central, which will bring up a dashboard showing all of your chargebacks and the ASINs they’re being applied to.
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For brands selling through Amazon Seller Central, making concrete projections of your Amazon profit is easy thanks to the fixed, transparent structure of fees and deductions that apply to all sellers.
With Vendor central, however, the cost of doing business on Amazon is much more fluid, with each brand’s vendor agreements setting a unique set of costs and proportional deductions.
The fixed fees tied to Seller Central has allowed Amazon to maintain its own Amazon profit calculator, where brands can enter some core details about their product and shipping costs in an FBA (Fulfilment by Amazon) arrangement, then see projected profit figures.
With Vendor Central, you’re selling directly to Amazon under an agreement that’s more uniquely tailored to your business. This can come with a variety of benefits, such as exclusive access to marketing drives and being able to move larger volumes of product in a given period. Unfortunately though, there’s no way to accurately project your Amazon profit using a simple calculator tool like you can in a Seller Central context.
As a vendor, you’ll need to collate the different factors impacting your Amazon operation and make your own calculations to arrive at an accurate figure.
To give you a clearer idea of how Vendor Central profit calculations work, here’s a breakdown showing what goes into your final Amazon profit using hypothetical figures:
|
Item |
Amount |
|
Gross Revenue (Wholesale Price x Units Sold) |
£50,000 |
|
Less: Amazon's Coop Fees (Usually 10-15% of wholesale price) |
£10,000 |
|
Less: Cost of Goods Sold (COGS) |
£20,000 |
|
Less: Freight & Logistics Costs (Inbound shipping to Amazon) |
£500 |
|
Less: Chargebacks & Shortages (Compliance fees, incorrect labeling, etc.) |
£1,000 |
|
Less: Marketing & Advertising Costs (Amazon Marketing Services, CoOp Advertising) |
£1,000 |
|
Net Profit |
£17,500 |
Most Amazon experts agree that a healthy profit margin on Amazon falls somewhere between 15 and 20%, with anything higher than this showing a high degree of success and anything much lower being unsustainable in the long run.
This figure can be useful to benchmark how effective your operation is compared to the average brand’s experience on Amazon. However, there’s still a number of variables unique to your brand that it’s important to consider when you determine what a “good” Amazon profit looks like.
Here are some key examples of profit margin variables you’ll need to consider when reviewing your profitability as a Vendor.
Different product niches are affected by industry-wide nuances that can shift realistic profit margin brackets. An up-and-coming electronics brand, for example, will have to contend with higher manufacturing costs and competition than a premium beauty brand, forcing them to operate on a lower profit margin.
Your brand equity will also have a major impact on the kinds of profit margins you can realistically achieve, with smaller, lesser-known brands needing to spend a higher proportion of their earnings on marketing to achieve the same level of success.
A new and relatively unknown brand, for example, may need to spend 30% of their revenue on Amazon advertising and other marketing drives to maintain a healthy 15-20% Amazon profit margin, whereas more well-known brands that already enjoy strong organic rankings will be able to spend a smaller proportion of their funds to achieve the same results.
The operational costs tied to the kind of products you ship can also have a significant impact on your final profit margin, causing you to spend more or less on Amazon fulfilment, proper packaging, and compliance in order to fulfil your orders. When you’re selling furniture on Amazon, for example, you’ll always incur higher fulfilment costs compared to a product that enjoys lightweight packaging and lower shipping expenses, like a supplements business.
The usual order volume placed by Amazon based on the demand for your product can also affect your Amazon profit, with higher order volumes able to offset the pressure of lower per-product profit margins.
A beverage brand, for example, that sells their product at a low 10% margin but receives large POs from Amazon will still be able to generate reliably strong profit margins. A luxury watch brand, on the other hand, will probably operate on a lower PO volume, and will need to aim for a higher profit margin to stay sustainable.
Operational issues, such as labelling errors, product shortages, and other problems, can lead to an increase in chargebacks imposed on your account that eat into your Amazon profit. These expenses can seem relatively minor when looked at in isolation, but letting too many logistical issues go unchecked can cause deductions to build up and become a major burden on your profit optimisation drive.
To maximise the potential of Amazon as a channel, it’s crucial to take a proactive approach to chargebacks, and offset their impact by optimising your logistical processes, carefully monitoring PO discrepancies, and partnering with chargeback experts who can help create tailored solutions.
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While aspects like the competition in your product niche and the PO volume set by Amazon will have an unavoidable impact on your profit, there are still a number of active steps you can take to maximise your Amazon profit margins.
Here’s a look at four key best practices you can use to eliminate drains on your profit and achieve healthier margins for your brand.
Your annual Amazon Vendor Negotiations are your opportunity to create a more favourable working relationship between your business and Amazon, allowing you to optimise profits across variables like pricing, payment terms, and marketing investments.
By going into these negotiations with a robust strategy, you’ll give yourself a much better chance of seizing this opportunity and achieving a more profitable vendor agreement with Amazon.
Some key things to prioritise when it comes to your negotiation strategy include:
Chargebacks can become a serious drain on your profitability if they’re left unchecked, so it’s crucial to take a proactive approach to understanding their impact on your account, and remedying the underlying issues that cause them.
To do this, you should start by regularly analysing the ASINs that are causing chargebacks, and reviewing your internal processes for any shortcomings you can fix to avoid these products causing problems in the future.
Armed with a more detailed view of your data, you can also file chargeback disputes within 30 days of them being applied, giving detailed, relevant evidence to show why the charge is incorrect. Though disputing chargebacks can be challenging if you’re unfamiliar with the process, doing this wherever possible will help minimise their impact and support a healthier Amazon profit margin.
Amazon owes a lot of its success to its ability to offer products at highly competitive prices. However, this can lead to an erosion of your Amazon profit margin through Amazon making continually higher demands on your stock, while simultaneously pushing for lower and lower purchase prices.
While there’s nothing you can do as a vendor to make Amazon abandon its business philosophy, there are still actions you can take to mitigate the effects of price pressure and better maintain your margin, including:
In many cases, vendors can maintain and improve their Amazon profit margins through product-specific optimisations aimed at moving more volume at less cost.
Some key best practices to bear in mind in this area include:
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Though Amazon has near-limitless potential as an ecommerce channel, there’s still many challenges you’ll need to address and overcome to maximise your profit margin. We hope this guide has given you a new perspective on the factors influencing your Amazon profitability, the steps you can take to optimise it, and the optimal next move to achieve a better Amazon profit margin.
We’ll wrap up with some frequently asked questions about Amazon profit for quick reference while you develop your profit optimisation strategy.
Your Amazon profit is primarily affected by the wholesale price Amazon pays for your stock, your CoOp agreements, and any chargebacks Amazon applies to your account. Additional costs such as freight, advertising, and operational inefficiencies can also play a role in determining your final profit margin.
Unlike Seller Central, Vendor Central doesn’t provide a simple profit calculator. You’ll need to manually calculate your profit by factoring in wholesale revenue, Amazon fees, cost of goods sold (COGS), logistic expenses, chargebacks, marketing expenses and more. Creating a structured breakdown of these costs will help you assess your net profit.
A healthy Amazon profit margin typically falls between 15-20%. However, the ideal margin varies depending on variable factors like your product category, brand equity, operational costs, and Amazon’s purchase order (PO) volume.
To maximise profitability, you should focus on strategic Amazon Vendor Negotiations (AVN), proactively prevent chargebacks, monitor and counteract price pressure, and optimise your product offerings. Tactics like bundling products, refining promotional strategies, and improving product listings can all help boost your overall profitability.
Yes, improving logistics efficiency, reducing chargebacks, optimising advertising spend, and refining product listings can all enhance profitability while still maintaining a competitive price point. Additionally, shifting promotional efforts to high-margin products and leveraging product bundling can help increase revenue while keeping costs manageable.