How to Calculate Profit Margins: Amazon FBA vs Dropshipping

Margin is what's left after every cost is paid. New sellers usually trip on the same thing. They count the obvious costs, the product and the sale price, and forget the ones that quietly eat the gap between them: platform fees, fulfilment, ads, returns, and shipping. This guide lays out the full stack for both models, so the number you work out is close to the number you keep.

Net margin is just profit as a share of the sale price, so (sale price minus all costs) divided by sale price. The real work is in those two words, all costs, and the list looks very different on Amazon than in dropshipping.

On Amazon, the platform takes a defined and fairly predictable set of cuts. Subtract every one of these from your sale price.

• Cost of goods, landed. What you pay your supplier per unit, plus freight, duties, and prep to get it into an Amazon warehouse.
• Referral fee. Amazon's commission on the sale, most often 15% of the total sale price, though it runs lower or higher in some categories.
• Fulfilment fee. A per-unit charge for picking, packing, and shipping, set mainly by the product's size and weight. Amazon revises this schedule most years, so price the current fee for your specific unit rather than trusting an old number.
• Storage fees. Ongoing charges for warehouse space, higher for oversized stock and for units that sit too long.
• Returns and reimbursements. Refunds, return processing, and the odd lost or damaged unit all chip away at the margin you actually realise.
• Advertising. Most products need PPC to get seen, so fold a realistic ad cost into the true margin instead of counting only the sticker profit.

A lot of FBA sellers aim for a net margin somewhere around 25 to 35% after all of that, and a landed cost of roughly a third of the sale price or less. Treat those as starting points, not rules. A strong brand with repeat buyers can work on thinner margins, and a one-off impulse product usually can't.

Dropshipping flips the cost structure. Fulfilment fees mostly go away, but customer acquisition, the cost of the ad that produced the sale, usually becomes your biggest line and the one most likely to turn a 40% margin into a loss.

• Product cost. What the supplier on AliExpress or Temu charges per unit.
• Shipping. Often cheap but slow, and the slow part drives up refund risk, so account for both.
• Payment processing. Card and gateway fees, usually a little under 3% of the sale.
• Platform fees. Whatever your store platform charges per transaction or in subscription.
• Advertising. The big one. On paid-traffic dropshipping, ad spend often runs 20 to 35% of revenue or more, and it's the number that decides whether the business is real.
• Refunds and chargebacks. Higher than most new sellers expect, especially when shipping takes weeks.

Because ads dominate, the metric that really governs a dropshipping product is break-even ROAS, the return on ad spend where you stop losing money. If your margin before ads is 30%, you break even at a ROAS of about 3.3. Anything below that and every sale costs you money. Work that number out before you launch and treat it as the line your campaigns have to clear.

Whatever you sell, run the maths pessimistically. Assume some returns. Assume ads cost more than the demo made them look. Assume one fee you forgot. If the product still pays you a margin you'd accept under those assumptions, it's a real opportunity. If it only works in the best case, it doesn't work, and finding that out in a spreadsheet is far cheaper than finding it out with a warehouse full of stock or a spent ad budget.