AMALYZE
Glossary
Glossary

Gross Margin

Gross margin is the per-unit profit after COGS, Amazon fees, and fulfilment — the pool of money that PPC spend is drawn from. It is the upper bound on Target ACOS and the gating constraint on every bidding decision.

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Gross margin (also: contribution margin) is the per-unit profit remaining after the cost of producing and delivering one unit:

Gross Margin = ASP − COGS − Referral Fee − FBA Fee − Storage Allocation − Returns Reserve

It is not operating profit (which subtracts overhead, salaries, software) and not net margin (which subtracts everything including taxes). Gross margin is the specific pool that funds every variable cost — most importantly, advertising.

Why gross margin caps Target ACOS

The canonical relationship:

Maximum sustainable Target ACOS = Gross Margin % (before ad spend)

A SKU with 35% gross margin can sustain a 35% ACOS at break-even. Any ACOS below 35% produces operating profit on the marginal ad-driven sale; any ACOS above 35% loses money on that sale. The full theory is in the Target ACOS entry.

If you don't know your gross margin to within ±2 percentage points, you cannot set a defensible Target ACOS — and every bid in the account is effectively guessed.

Components, in priority order

  1. COGS (cost of goods sold) — typically the largest line, often 30–55% of ASP for sourced/manufactured product.
  2. Referral fee (Amazon's commission) — 15% in most categories.
  3. FBA fulfilment fee (FBA fee) — varies by size tier and weight.
  4. Storage fee allocation — monthly storage divided across units sold.
  5. Returns reserve — typically 2–5% of ASP, allocated even on units that didn't return.
  6. Inbound/placement fees — IPSF, prep, removal.

A typical mid-market SKU: ASP €25, COGS €9, referral €3.75, FBA €4.50, storage €0.30, returns reserve €0.75 → gross margin €6.70, or 26.8%. Target ACOS ceiling: 26.8%.

Common mistakes

  • Ignoring storage and returns. Easy to overlook, easy to be off by 3–5 percentage points.
  • Using ex-VAT vs. inc-VAT inconsistently. Especially painful in EU multi-marketplace accounts. Lock the convention before computing margin.
  • Calculating once at launch and never recalculating. Fees change. COGS changes. FX rates change. Recalculate quarterly minimum.
  • Confusing gross margin with markup. Markup = (ASP − COGS) / COGS. Margin = (ASP − COGS) / ASP. The two are not the same number.

Related terms

Cost of Goods Sold (COGS)
COGS is the all-in cost to land one unit at an Amazon fulfilment centre — manufacturing, packaging, freight, duties, and prep. It is the foundation of every margin and bid calculation; getting it wrong cascades into every other metric.
FBA Fee
The FBA fee is the per-unit pick-pack-ship charge Amazon levies for each FBA order. It is set by size tier and weight, and is the dominant line item in FBA unit economics after the referral fee.
Referral Fee
The referral fee is the percentage of the sale price Amazon takes on every order, regardless of fulfilment method. It is the marketplace commission, set per category — usually 8–15% — and is the single largest fee for most sellers.
Target ACOS
The maximum ACOS a campaign can run at while still hitting the product's profit goal — derived from gross margin minus desired contribution margin.
Net Margin
Net margin is the per-unit (or business-level) profit remaining after every cost is subtracted, including overhead, software, salaries, ad spend, and tax. It is the only metric that tells you whether the Amazon business is actually profitable.

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