Gross Margin
Gross margin is the profit left after subtracting the direct cost of making and delivering a product — typically revenue minus COGS — expressed as a percentage of revenue. It answers: for every $100 a customer pays, how many dollars remain before overheads, advertising, and everything else?
What is Gross Margin?
Gross margin is the profit left after subtracting the direct cost of making and delivering a product — typically revenue minus COGS — expressed as a percentage of revenue. It answers: for every $100 a customer pays, how many dollars remain before overheads, advertising, and everything else?
It’s the foundational profitability number — and on Amazon specifically, a deliberately misleading one if you stop there. Marketplace referral fees, FBA fulfilment, storage, and advertising all live BELOW the gross-margin line, and for many products they collectively cost more than the item’s manufacturing. Gross margin is the entrance exam; contribution margin is the ongoing curriculum.
Why gross margin alone doesn’t survive Amazon
The fee structure was designed around it: Amazon charges the referral percentage on every sale, fulfilment by size and weight, storage by volume and time, and then the advertising budget sits on top. A product with a textbook 60% gross margin can easily clear 20–30 percentage points less by the time it’s actually sold on the platform — and sellers who set prices, run deals, and bid ads against gross-margin logic systematically overpay for every one of those decisions. The practical translation: gross margin is useful for comparing your sourcing options (can this product even be made profitably?) and useless for deciding deal depth, bid ceilings, or launch pricing without the full stack subtracted.
Making the number work for you
Three disciplines. Know both margins per SKU: gross (revenue minus landed COGS) and contribution (after every Amazon cost including ads) — the gap between them is your platform overhead, and it should be measured, not assumed. Category-rank your products by CONTRIBUTION margin (the number that funds the business) while keeping gross margin visible as the sourcing quality signal — a low-gross product rarely survives expensive channels, however efficient it looks at the contribution stage. And recalculate when inputs move: freight rates change gross margin, fee schedules change contribution; stale margin tables quietly mis-price everything built on them. The sellers who know both numbers on every SKU negotiate fees, ads, freight, and pricing from arithmetic — while their competitors argue from intuition.
In practice
A seller reviews their catalogue with both margins side by side: the top-gross-margin SKU (58%) carries a contribution margin of just 14% after referral fees, FBA, and advertising — while a lower-gross product (39%) contributes 21% because its size profile is efficient and its organic rank carries most of its traffic. Budget flows toward the second; the first gets a repricing and a fee-tier engineering project. Same catalogue, better allocation — the pair of numbers made visible what either number alone would have hidden.
How Harpy Media helps
Two-margin SKU models — gross for sourcing quality, contribution for every live decision — are the foundation of our account economics work.
Gross Margin FAQ
What is gross margin?
Revenue minus the direct cost of goods sold, as a percentage of revenue — profitability before overheads, fees, and advertising.
Why isn’t gross margin enough on Amazon?
Because referral fees, FBA costs, storage, and ad spend all sit below it — contribution margin is what the business actually keeps.
What’s a good gross margin for Amazon FBA?
Broadly, products under ~30% gross margin struggle once the full Amazon cost stack is subtracted — but the required number depends on your fee profile and ad load.
Related terms
COGS (Cost of Goods Sold)APR (Annual Percentage Rate)Co-Op AgreementACoS (Advertising Cost of Sales)Want these numbers watched for you, every week?
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