How much should I charge to make 20 percent profit on Amazon?

Short answer: more than your costs plus 20%. On Amazon the referral fee is a percentage of the selling price, so it grows as you raise the price. To keep 20% of the price as profit, you have to solve for the price, not add 20% to your cost. Here is how, with a worked example.

Step 1: Add up the costs that do not depend on the price

For one unit sold through FBA, these are typically:

• what you pay your supplier for the product;
• freight, duties and prep to get the unit into an Amazon fulfillment center;
• the FBA fulfillment fee for your product's size tier;
• an allowance for monthly storage and any other per-unit fees you pay.

In our example these come to $12.40: an $8.00 product, $0.60 of inbound freight and a $3.80 fulfillment fee. (These are illustrative numbers; take your FBA fee from Amazon's current fee table.)

Step 2: Add up the charges that are a percentage of the price

The main one is the referral fee, 15% in most categories with a $0.30 minimum per item. If you advertise, your advertising cost as a share of sales belongs here too, as does a returns allowance. In our example only the 15% referral fee applies.

Step 3: Solve for the price

You want 20% of the price left as profit, and 15% goes to the referral fee, so 65% of the price must cover the $12.40 of fixed costs:

price = $12.40 ÷ (1 − 0.20 − 0.15) = $19.08

The calculator, which rounds to the cent and checks the result, arrives at $19.08:

What happens if you just add 20% to your costs?

$12.40 plus 20% is $14.88. At that price the referral fee is $2.23, and you keep $0.25, a margin of 1.67% instead of 20%. That is the gap between cost-plus pricing and pricing that accounts for fees, and it is why many sellers who believe they make 20% actually make close to nothing.

Do not forget the costs that are easy to miss

• Advertising. If your ad spend is 10% of sales, add it as a percentage: the price for 20% then rises substantially.
• Returns. Some returned units cannot be resold. A returns allowance of a few percent of revenue protects your margin.
• Storage. Slow-moving stock accrues monthly storage fees; add an estimate per unit to your inbound cost.

Run your own numbers in the Amazon FBA calculator: set the target margin to 20% and the result shows the exact price, plus your break-even price and a minimum price for promotions.