Net Margin

Net margin is the bottom-line profit margin: the percentage of revenue that survives after every cost line — COGS, Amazon fees, fulfilment, advertising, software, salaries, overhead allocation, and tax.

Net Margin = (Revenue − All Costs) / Revenue

Where gross margin is the ceiling (the pool advertising is drawn from), net margin is the floor (what is actually left for the business). The distance between the two is where every operating decision lives.

Why advertisers must care about net, not just gross

A common failure pattern:

• Account hits 25% ACOS at 30% gross margin — looks profitable.
• But account-wide TACOS is 12%, software costs are 3% of revenue, agency fee is 5%, overhead allocation is 4%.
• Net margin: 30% − 12% − 3% − 5% − 4% = 6%, before tax.
• A 2-point ACOS drift kills half the net.

Bidding decisions made on gross margin alone routinely produce accounts that win at ACOS and lose at the bank account. The bid math sets Target ACOS based on gross margin; the business must monitor net margin to know whether the gross-margin ceiling was set correctly.

Reading net margin

Net margin is reported at three levels:

1. Per-unit. ASP minus every per-unit cost including allocated overhead. Useful for product portfolio decisions.
2. Per-SKU per-period. Includes period-specific costs (price drops, promotions, advertising).
3. Account-wide. P&L level. The number that matters for the business as a whole.

A healthy mid-market Amazon business runs at 10–18% net margin. Below 5% and any single bad month (Q1 storage fees, a returns spike, an ACOS drift) wipes it out.

Common mistakes

• Tracking ACOS without tracking net margin. ACOS can improve while net margin collapses if other costs grew.
• Allocating overhead to the wrong SKUs. A high-volume SKU absorbs more overhead in absolute terms but the rate is what matters.
• Treating net margin as a year-end number. Look at it monthly minimum, ideally per-SKU per-month.