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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

James Callandriello avatar
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:
($65) / Revenue ($100) = 65%


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) 

($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. 

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