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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 assessing potential earnings from the sale of a listing, there are two primary methods to calculate profit: Profit Margin and Return on Investment (ROI).

Profit Margin

Profit margin is calculated as:
Profit / Revenue

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

For example, 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 = Revenue ($100) - Cost ($20) - Fees ($15) 

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


ROI is calculated as:
Profit / Cost 

Using the same example above, 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 = 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. 

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