ROI (Return on Investment) and Profit Margin are two different metrics that measure profitability. Understanding both is crucial for making informed FBA decisions.

What is Profit Margin?

Profit margin is the percentage of profit relative to the selling price. It shows how much profit you make per sale.

Example: If you sell for $30 and profit $6, your margin is 20%.

What is ROI?

ROI (Return on Investment) is the percentage of profit relative to your total investment. It shows how efficiently you're using your capital.

Example: If you invest $20 (cost + fees) and profit $6, your ROI is 30%.

Key Differences

Example Comparison

Product B has a higher margin AND higher ROI, making it the better investment despite lower absolute profit.

When to Use Each

Use Profit Margin When:

• Setting prices
• Comparing products with similar costs
• Understanding per-sale profitability
• Negotiating with suppliers

Use ROI When:

• Comparing investment opportunities
• Deciding which products to launch
• Evaluating capital efficiency
• Planning inventory purchases

Which is More Important?

Both metrics are important, but ROI is often more useful for FBA sellers because:

• It accounts for all costs (not just product cost)
• It helps prioritize limited capital
• It shows true investment efficiency
• It's better for comparing different products