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Profit margin vs. return on investment (ROI)
Profit margin vs. return on investment (ROI)

The difference between profit margin vs return on investment Written by James Callandriello
Updated over a week ago

When trying to determine how much profit you stand to make on the sale of a listing, there are two main methods for calculating profit: Profit Margin and Return on Investment (or ROI).

# Profit Margin

Profit margin is calculated as:
Profit / Revenue

Expenses include your item's purchase costs and any fees (including FBA fees) assessed by the marketplace the item is sold on.

If you bought an item for \$20, sold it for \$100, and Amazon took a cut of 15% (\$15), you would have a profit of \$65 and a profit margin of 65%:

Profit is your Revenue (\$100) - Cost (\$20) - Fees (\$15)

Profit Margin:
Profit
(\$65) / Revenue (\$100) = 65%

# ROI

ROI is calculated as:
Profit / Cost

Using the same example above of a \$20 item sold for \$100 with a 15% category fee, you would have profit of \$65 and a Return on Investment of 325%

Profit is your Revenue (\$100) - Cost (\$20) - Fees (\$15)

ROI:
Profit
(\$65) / Cost (\$20) = 325%

# Comparing the two

One of the major differences between profit margin and ROI is that profit margin can never exceed 100%, while ROI can. There are pluses and minuses to each way of calculating profit, but one is not inherently better than the other.