Understanding ROI (Return on Investment) is crucial for Amazon FBA sellers. It helps you determine if a product is worth your capital investment and time.

What is ROI?

ROI measures how much profit you make relative to your total investment. It's calculated as: (Profit / Total Investment) × 100%

For example, if you invest $1,000 and make $300 profit, your ROI is 30%.

ROI vs Profit Margin

Many sellers confuse ROI with profit margin. They're different:

• Profit Margin: Profit as percentage of revenue (operational efficiency)
• ROI: Profit as percentage of investment (capital efficiency)

A product can have high profit margin but low ROI if it requires large upfront investment.

What is a Good ROI?

For Amazon FBA, aim for:

• 20-30%: Decent ROI, acceptable for stable products
• 30-50%: Good ROI, strong investment opportunity
• 50%+: Excellent ROI, high priority products

However, ROI should be considered alongside other factors like risk, scalability, and time commitment.

How to Calculate ROI

Our ROI Calculator makes it easy:

1. Enter your initial investment (inventory cost, shipping, etc.)
2. Enter product details (cost, selling price, quantity)
3. Add all costs (Amazon fees, advertising, etc.)
4. Get instant ROI calculation

Real-World Example

Let's say you invest $5,000 in inventory:

• Product cost: $10/unit × 500 units = $5,000
• Selling price: $29.99
• Monthly sales: 100 units
• Net profit per unit: $8.50

Monthly profit: 100 × $8.50 = $850

ROI: ($850 / $5,000) × 100% = 17% per month

Annual ROI: 17% × 12 = 204%

This is an excellent ROI! You're making more than double your investment per year.

Payback Period

Payback period shows how long it takes to recover your investment:

Payback Period = Initial Investment / Monthly Profit

In the example above: $5,000 / $850 = 5.9 months

You'll recover your investment in about 6 months, then all profit is pure gain.

Best Practices

• Calculate ROI before investing in any product
• Aim for ROI of 20-50% or higher
• Consider both ROI and profit margin
• Account for all costs, including hidden fees
• Compare ROI across different products
• Re-calculate as costs and sales change