Is Amazon FBA worth it? What to calculate before you buy

Short answer: yes, if enough money is left after all costs. That sounds obvious. But it is the most important point. Many sellers only calculate with the purchase price and the selling price. Then they wonder why so little is left in the bank at the end of the month.

In this article we go through the calculation step by step. The example is a matcha product. The numbers come from the Nordstern42 margin calculator. You can rebuild them for your own product.

Note: The example follows the rules of Amazon.de (Germany): German VAT and German Amazon fees. If you sell on another marketplace, the same logic applies, but the rates differ.

What does FBA actually mean?

FBA stands for "Fulfillment by Amazon". You send your goods to an Amazon warehouse. Amazon stores them, packs them and ships them to the customer. You pay fees for that. In return you get the Prime benefit and a lot of customer trust.

That sounds convenient. And it is. But convenient is not cheap.

The example: matcha

We calculate with a matcha that sells for €16.99 gross. The key figures:

• Purchase price per unit: €3.50
• Quality control: €200 for 1,000 units
• VAT: 7 percent (food)
• Size: 20 × 13 × 18 cm, 180 grams
• Estimated sales: 300 units per month

The 300 units per month are an estimate. Put in your own number here. It changes a lot.

Step 1: Net instead of gross

In Germany, the selling price includes VAT. For matcha that is 7 percent. So part of the €16.99 belongs to the state.

Net, without tax, that leaves €15.88. You continue the calculation with this amount.

Step 2: Purchasing

The purchase price is what you pay your supplier. For matcha that is €3.50 per unit.

Add the quality control. In the example it costs €200 for 1,000 units, so 20 cents per unit. Together that is €3.70.

Many sellers forget exactly this point. The price on the supplier invoice is not your real unit cost.

Step 3: Import and shipping to the warehouse

This is where it gets confusing quickly. The example has two items.

Import: The freight from the manufacturer to Germany costs €300. Add 3 percent customs duty on goods and freight, which is €114. Together that is €414. Spread over 1,000 units, that is €0.41 per unit.

Shipping to Amazon: The transport to the Amazon warehouse costs €150. Spread over 1,000 units, that is €0.15 per unit.

Together that is €0.56 per unit.

Step 4: Amazon fees

Most sellers are surprised here. Amazon takes several fees.

Referral fee: Amazon takes a share of the selling price. For food a tiered rate applies: up to €10 it is 5 percent, above that 15 percent. The matcha costs €16.99, so it is 15 percent. That is €2.55 per unit.

FBA fulfilment fee: Amazon packs the parcel and ships it to the customer. In the example that costs €2.57 per unit. Size and weight determine the price.

Storage fee: The goods sit in the warehouse, and that costs money. In the example it is about €0.17 per unit and month. With 300 units sold per month, that is roughly €50 of storage costs per month.

Together that is €5.29 per unit. Fees change from time to time. Check Amazon's current fee overview before you buy.

Step 5: Returns

Not every customer keeps the product. In the example we assume 8 percent returns. The calculator turns that into return shipping costs of €1.06 per unit sold.

Then there is disposal. In the example, 25 percent of the returns are disposed of. The goods are gone, and you lose their purchase price. That is €0.07 per unit.

Together that is €1.13 per unit. Many sellers forget this item because it only shows up later.

The calculation at a glance

The margin is €5.19 of €15.88, which is 32.7 percent. Small rounding differences are normal.

What does that mean per month?

At 300 units sold per month, about €1,558 is left before advertising. The margin calculator shows €1,557.85.

That sounds good. But that is before advertising, and the 300 units are an estimate. If you sell less, the amount falls. The storage costs stay as long as the goods are in the warehouse.

Advertising comes on top

Most sellers need Amazon advertising to get visible at all. These costs come on top. So the margin before advertising is not your profit. It is the amount you pay advertising from, and what is left at the end.

So plan your advertising budget per unit. Subtract it from the margin and see what remains. How much advertising is realistic depends on your product. You cannot say that in general.

Working backwards: what may the purchase cost?

More important than "What do I earn?" is this question: "What is the most I may pay?"

Say you want a 35 percent margin. That is 35 percent of €15.88, which is €5.56. Currently €5.19 is left. So you are €0.37 short.

To reach 35 percent, the purchase cost has to drop by €0.37. From €3.70 it becomes €3.33 on paper. That is the upper limit for purchase including quality control. Check this number in the Rate Card section of the calculator before you use it.

By the way: at 1,000 units, €0.37 is €370. Small unit prices have a big effect at large volumes.

Common mistakes

Mistake 1: calculating with the gross price. The VAT does not belong to you. So always calculate net.

Mistake 2: only taking the supplier price. Quality control, customs and freight belong in it.

Mistake 3: ignoring returns. Even if they do not come right away, they cost money.

Mistake 4: forgetting storage costs. Goods that sit for a long time get expensive.

Mistake 5: calculating with wishful numbers. A sales volume you hope for is not planning. Calculate carefully and see what happens if sales are lower.

Glossary in plain words

Margin

What is left per unit after all costs. Often stated as a percentage of the net price.

Net

The price without VAT.

Rate Card

A helper that shows the maximum your purchase may cost so that you reach your target margin.

Target margin

The percentage you want to earn at least.

Return rate

The share of orders that come back.

Quality control

An inspection of the goods before they go into the warehouse.

So is FBA worth it?

That does not depend on the model, but on your numbers. In the matcha example, 32.7 percent is left before advertising. That is a good starting point. With a heavier product, more returns or a lower selling price, it can look completely different.

The test is simple. Enter your numbers in the margin calculator. Look at what is left after all costs. Then check whether that is enough for your advertising. If yes, it pays off. If not, change the purchase cost or the price before you order.

Questions, or stuck somewhere? Write to me.

This is a calculation example, not financial advice. Your numbers may be different.