Definitions
Amazon profitability, defined.
Every term in an Amazon P&L, with its formula and where it sits in the waterfall from gross ordered revenue to net operating profit. The same definitions Clarisix uses in the product, and the ones our guide to calculating Amazon net margin links to.
Revenue
- Gross Ordered RevenueThe value of everything customers ordered in a period, at the price they ordered it, before cancellations, refunds or any cost.
Gross Ordered Revenue = sum over orders of Units ordered × Price paidSummed across every order placed in the period. - Gross Shipped RevenueGross ordered revenue minus orders cancelled before shipment: the value of what actually left the warehouse.
- Net Product RevenueGross shipped revenue minus refunds, A-to-Z claims and chargebacks: the product money you actually kept.
Margin checkpoints
- Net RevenueThe first checkpoint of the waterfall and the denominator for every margin percentage: net product revenue plus shipping and gift-wrap revenue, minus shipping refunds.
Net Revenue = Net Product Revenue + Shipping Revenue + Gift Wrap Revenue − Shipping RefundsThe denominator for every margin percentage that follows. - Product MarginNet revenue minus cost of goods sold: what the product earns before any selling cost.
- Channel MarginProduct margin minus Amazon fees: what the product earns after Amazon takes its share for the channel.
- Growth MarginChannel margin minus advertising, plus reimbursements: what the business earns after paying for the channel and paying for growth.
- Net Operating ProfitGrowth margin minus allocated overheads: the money the business actually made. Divided by net revenue, this is net margin.
Net Margin % = Net Operating Profit ÷ Net Revenue × 100This is the number the whole waterfall exists to produce.
Adjustments
- A-to-Z ClaimsAmazon's buyer-protection claims, granted to the customer and charged back to the seller. One of three ways revenue leaves after shipping, alongside refunds and chargebacks.
- ReimbursementsMoney Amazon pays back to the seller for inventory it lost, damaged or mishandled. A positive line in the P&L.
Advertising
- TACoSTotal Advertising Cost of Sales: ad spend divided by total net revenue, not just ad-attributed sales.
TACoS % = Ad Spend ÷ Net Revenue × 100Against all revenue, not only the sales the ads were credited with. - ACoSAdvertising Cost of Sales: ad spend divided by the sales Amazon attributes to those ads.
- Safe ACoSThe advertising cost a product can actually carry: the ACoS at which advertising consumes all of the product's margin after COGS, Amazon fees and returns.
Safe ACoS % = (Net Revenue − COGS − Amazon Fees − Returns) ÷ Net Revenue × 100Per product. Extended by expected customer value over 1, 3, 6 or 12 months.
See these numbers on your own catalogue.
Clarisix builds this waterfall every day, reconciled to the settlement, with every line traceable to its source.
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