Name: GoMarginify
Rating: 4.7 (6 reviews)

E-commerce profit glossary

A

ACOS: Advertising Cost of Sale. The percentage that shows how much you spend on ads to generate $1 in revenue. Calculated as (total ad spend / total attributed sales) × 100. If you spent $1,500 on ads and made $10,000 in sales from those ads, your ACOS is 15%.; e.g. SKU B07X ran $2,200 in Amazon Sponsored Products last month and generated $14,300 in sales. ACOS = ($2,200 / $14,300) × 100 = 15.38%. That’s 3% higher than our target, so we paused the campaign until we can optimize bids.
Ad Spend: Total money spent on marketplace ads (Sponsored Products, Sponsored Brands, etc.) to drive traffic and sales. If you bid $1.50 on a keyword and sell 500 units at $20 each, your ad spend is $750 for those sales. Calculate ACOS (Advertising Cost of Sale) as (Ad Spend / Sales) x 100. Anything above 30% ACOS usually means your product isn’t converting profitably.; e.g. We ran $4,500 in ads last month for SKU X1Y2Z3A4B5. Sales from ads were $12,000. ACOS is 37.5%—too high. We paused the campaign, optimized keywords, and dropped ACOS to 22% in two weeks. Always set a daily budget and watch ACOS like a hawk; it’s easy to burn $10K in a week on bad targeting.

B

Break-even: The point where your total revenue exactly covers your total costs—no profit, no loss. Hit this, and every dollar above it is gravy. Miss it, and you’re funding Amazon’s next warehouse expansion. Calculate it before you run a promotion or list a new SKU.; e.g. SKU B07X costs $8.40 landed and sells for $11.99. After $2.15 referral fee and $0.45 FBA pick & pack, the break-even volume is 1,200 units. Sell 1,199 and you’re still underwater.

C

COGS (Cost of Goods Sold): The total direct cost to produce the items you sold. Includes purchase price, shipping to your warehouse or prep center, import duties, and any quality control failures that get scrapped. Not the same as your inventory value sitting in a box.; e.g. We ordered 500 units from China at $5.20 each, paid $1,200 in ocean freight, and lost $80 on 20 units that failed QC. COGS for those 480 sold units is ($5.20 * 480) + $1,200 + $80 = $3,776 total, or $7.87 per unit.
chargeback: A forced reversal of funds initiated by a customer’s bank or payment processor, usually due to fraud or disputes. Unlike refunds, chargebacks incur fees ($15–$100 per incident) and can trigger penalties if they exceed a platform’s threshold.; e.g. We got hit with 12 chargebacks on SKU F11A last month—all from the same customer claiming ‘item never received.’ Turns out they ordered twice and then disputed both. Amazon deducted $180 in fees and warned us about exceeding their 1% chargeback threshold. We had to dispute each one with tracking proof.
Contribution margin: What’s left from each sale after you pay variable costs—usually product cost, fees, and shipping. This tells you how much each unit contributes to fixed costs like rent or your Amazon seller subscription. If it’s negative, shut it down yesterday.; e.g. A $24.99 item has a $12.30 landed cost and $3.40 in platform fees. Contribution margin is $9.29, or 37.2%. Use that to pay for ads, storage, or your kid’s braces.
Cash flow: The movement of money in and out of your business over time. Positive cash flow means more money coming in than going out; negative cash flow means you’re spending more than you earn. Amazon payouts can lag by 14 days, so even profitable months can cause cash crunches if you’re reinvesting in inventory. We once had $80K revenue in June but only $12K cash in the bank by July 15 because we fronted $68K for Q3 stock.; e.g. In Q1 we had $150K revenue but $180K in inventory purchases and $25K in ads spend. Cash flow was negative $55K despite $30K net profit. That’s why we now keep a 30-day cash buffer and sync POs with Amazon payouts to avoid overdrafts.

F

FBA Fees: Amazon’s fulfillment, storage, and optional service charges for orders shipped through FBA. Includes pick & pack, weight-based shipping, monthly inventory storage (Jan–Sep vs. Oct–Dec), long-term storage, and removal or disposal fees. These eat into margins fast if your product is heavy or slow-moving.; e.g. SKU B08Y weighs 2.5 lbs and sells for $19.99. FBA fulfillment fee is $3.20 per unit. We stored 300 units in March at $0.69 per cubic foot, so $207 for the month. Total FBA cost for 150 units sold was ($3.20 * 150) + $207 = $687, or $4.58 per unit.
Fulfillment Fee: The cost charged by FBA (or 3PL) to pick, pack, and ship your order. For standard-size items under 1 lb, it’s $2.41 in the U.S. in 2024. If you sell a $15 item with a $2.41 fee, your gross is $12.59 before any other deductions. Heavy or oversize items jump to $8.13 or more—watch those SKUs like a hawk.; e.g. SKU B07X6K9Q1Z weighs 1.5 lbs and ships from Texas. Last month, FBA charged $3.10 per unit. With 1,200 units sold, that’s $3,720 gone to fulfillment alone. Add $1,800 in storage and you’re bleeding margin. We switched to a 3PL in March and cut fulfillment by 22%.

G

Gross Margin: Revenue minus the direct cost of the goods sold (COGS), expressed as a percentage. It doesn’t include fulfillment, ads, or other operating expenses—just the product itself versus what you paid for it.; e.g. We buy a widget for $8 and sell it on Amazon for $20. Gross margin is ($20 - $8) / $20 = 60%. But after FBA fees ($4.50) and referral fee ($1.20), the net drops to 36.5%.

I

Inventory turnover: How many times your entire inventory sells and gets replaced in a year. Calculated as COGS / Average inventory value. A turnover of 6 means your stock turns over every two months. Anything below 4 usually signals dead inventory or overstocking. We switched fulfillment in March and our turnover jumped from 3.8 to 7.2—saved us $12K in long-term storage fees.; e.g. SKU A9B4 had $45K COGS last year with $15K average inventory. Turnover = $45K / $15K = 3. That’s why we liquidated 40% of its stock in Q2 and switched to weekly replenishment for faster turnover.

L

Landed cost: The total cost to get a product to your customer’s door, including purchase price, shipping, duties, taxes, insurance, and any other fees that hit your bank account before the sale is final. If you ignore this number, you’ll swear your $12 item is profitable until you realize the $8.50 duty and $4.20 freight just ate your margin alive.; e.g. We ordered 500 units from China at $4.75 each, but after $2.10 freight, $1.80 customs, and $0.95 import duty, the landed cost jumped to $9.60. Sold it for $12.99 and still lost $0.30 per unit.

M

Multi-channel: Selling the same product across more than one platform—Amazon, Shopify, eBay, Walmart Marketplace, your own site. Sounds smart until you realize each channel has its own fee stack, return policy, and customer service nightmare. Track inventory like a hawk or you’ll oversell and refund yourself into oblivion.; e.g. We moved SKU A001 to Shopify in March and kept it on Amazon FBA. Amazon’s $3.20 referral fee plus $1.45 FBA fee ate 18% of revenue, while Shopify’s 2.9% + $0.30 per order left us with 24% margin. But Shopify’s shipping costs $6.50 vs Amazon’s $3.80, so the net difference was a wash.

N

Net Profit: The actual profit after every cost is deducted from revenue—including COGS, Amazon fees, shipping, ads, and your own overhead like storage or software. This is the number that tells you if the business is worth keeping open.; e.g. SKU B07X sold 200 units at $29.99 each last month. Revenue was $5,998. COGS ran $2,800, Amazon fees hit $1,120, and we spent $450 on PPC. Net profit landed at $1,628, or 27% of revenue.

O

Operating expense: All recurring costs tied to running your business, excluding COGS. Think Amazon seller fees, software subscriptions, warehouse storage, ads, salaries, and even your laptop. These eat into profit fast if you don’t track them monthly. We once cut $1,800/month by switching from Jungle Scout to Helium 10 and canceling two unused tools.; e.g. In March we moved to a 3PL and our monthly operating expense jumped from $2,100 to $3,400. That’s why we now review every tool’s ROI before renewing—last quarter we dropped $600 by cutting one PPC automation tool that wasn’t converting.

P

Payout: The actual cash hitting your bank account after all fees, refunds, and currency conversions. This is the number that pays your mortgage, not the gross sales figure you brag about in seller forums. If your payout is $1,200 but you spent $1,350 on ads and returns, you just donated $150 to customer happiness.; e.g. We sold $15,000 on Amazon last month, but after $4,200 in fees, $1,800 in refunds, and $900 in chargebacks, the payout was $8,100. That’s the number we use to calculate real profit—not the $15K fantasy.
Profit margin: The percentage difference between revenue and cost of goods sold (COGS), calculated as (Revenue - COGS) / Revenue. It tells you how much profit you keep from every dollar of sales after accounting for direct costs like manufacturing, shipping, and Amazon referral fees. Most sellers aim for at least 15% net margin to cover overhead and still pay themselves.; e.g. SKU B07X sells for $24.99 with $12.75 COGS and $3.20 Amazon referral fee. Profit margin = ($24.99 - $12.75 - $3.20) / $24.99 = 33.5%. Last month it lost 12% margin when Amazon raised FBA fees by 0.45 per unit.

R

Referral Fee: Amazon’s cut for sending you a customer—usually 15% for most categories, but can drop to 6% for media or jump to 45% for Amazon Device Accessories. This fee is taken off the total order value before any other costs, so it hits your margin first.; e.g. We sold a $129.99 headphone set in the Electronics category. Referral fee is 15%, so Amazon takes $19.49 off the top. If COGS is $45 and FBA fees are $7.50, we’re left with $57.90 gross profit on that sale—before ads, promotions, or our own time.
ROAS: Return on Ad Spend. Measures how many dollars you earn for every dollar spent on advertising. Calculated as (total attributed sales / total ad spend). If you spent $800 and made $4,000 in sales, your ROAS is 5:1.; e.g. Our Facebook ads for SKU C09Y had a ROAS of 3.2:1 last quarter. That means for every $1 we spent, we got $3.20 back. Not bad, but we know we can push it to 4:1 with better audience targeting.
refund rate: The percentage of orders that result in a refund. Calculated as (total refunds / total orders) × 100. A high refund rate usually means product quality issues, misleading listings, or poor customer expectations.; e.g. Our refund rate for SKU D08Z spiked to 8.2% last month. That’s double our target of 4%. We dug into the data and found 60% of refunds were for ‘item not as described’—turns out the color in the photos was off. Switched suppliers immediately.
Return Processing: The cost to handle customer returns, including refunds, repackaging, and restocking. Amazon charges $3.20 per return for most categories. If 8% of your orders are returned, that’s $3.20 x 80 orders = $256/month in processing fees alone. Factor in lost product value if the item can’t be resold—some categories (like apparel) have 25%+ return rates.; e.g. SKU C9D8E7F6G5 is a $40 wireless charger. Last quarter, 18% of buyers returned it due to defects. Amazon processed 90 returns at $3.20 each ($288), and we lost $1,200 on unsellable stock. Total hit: $1,488. We switched suppliers in June and cut returns by half.

S

SKU: Stock Keeping Unit. A unique alphanumeric code assigned to each product variant to track inventory, sales, and performance. SKUs are internal; they’re not the same as Amazon’s ASINs or eBay’s item numbers.; e.g. We have 12 SKUs under our ‘EcoClean’ brand, but only SKU E005-BLK-GR is profitable after accounting for storage fees. The others are either bleeding margin or sitting in FBA for 90+ days.
Settlement: The process where Amazon (or any marketplace) transfers your earnings from sales after deducting fees, refunds, chargebacks, and other adjustments. Settlement reports show the final payout per order, not just the gross sales. If your refund rate is 5% and you sold $10,000 last month, expect the settlement to be $9,500 minus fees before it hits your bank.; e.g. You shipped 200 orders in March. Amazon’s settlement report shows $18,200 deposited on April 10th. That’s after $1,800 in fees, $500 in refunds, and a $200 chargeback. Always reconcile the settlement report with your P&L before celebrating.
Storage Fee: Monthly charge for keeping inventory in Amazon’s warehouses. Standard-size items cost $0.69 per cubic foot in Q1 2024; oversize jumps to $0.48. Long-term storage kicks in after 365 days at $1.50 per cubic foot. If your 100-unit inventory takes 50 cubic feet, expect $34.50/month. Let it sit for a year, and it’s $75. That’s why dead stock is a silent profit killer.; e.g. We had 300 units of SKU A1B2C3D4E5 sitting in FBA for 14 months. Storage fees ate $2,100 last quarter. After liquidating 200 units at 50% off, we still lost $800 on storage alone. Lesson: run inventory reports every 30 days and adjust reorder points.

U

Unit economics: The profit or loss generated by a single unit after accounting for all direct and indirect costs tied to that unit. Includes COGS, Amazon fees, shipping, ads, and even your share of warehouse rent. If your unit economics are negative, you’re selling at a loss no matter how many units move. We found SKU C7R2 had negative $0.12 unit economics after including 15% Amazon ads spend—killed it immediately.; e.g. SKU X9P8 sells for $19.99 with $9.80 COGS, $2.10 Amazon fee, $1.30 shipping, and $0.95 ads cost. Unit economics = $19.99 - $9.80 - $2.10 - $1.30 - $0.95 = $5.84 profit per unit. Last quarter we raised price to $22.99 and unit economics jumped to $8.79.