The equation used to calculate ROI or Return on Investment is calculated as ROI = Net Profit / Investment. As an Amazon Seller, you must choose what goes into the investment part of the equation. Below are the choices that AZInsight gives you:
Method 1: You define Investment as Buy Cost
This option does not consider any Amazon fees or the Sell Price in the investment. The only number that is used with method 1 when calculating your ROI is the BuyCost.
And it will be like this, ROI = Net Profit / BuyCost.
Method 2: You define Investment as BuyCost + All your Custom Costs
This option does not consider any Amazon fees but, accounts for any customs costs that you may have, for example, prep fees, sourcing commissions, sales tax, etc. This method doesn't take into consideration the Sell Price. This method is also going to take as Custom Costs the Inbound Shipping rate and the Inventory Place cost.
Using this method the calculation will be like this, ROI = Net Profit / (BuyCost + Custom Costs)
Method 3: You define Investment as BuyCost + All your Custom Costs + Amazon Fees
This option includes the Amazon Fees in the calculation, this is for users who want to add in the fees after the sale as part of the investment.
Using this method the calculation will be like this, ROI = Net Profit / (BuyCost + Custom Costs + Amazon Fees)
Important things to keep in mind
- ROI does not take into account consideration the selling price. ROI only takes Amazon fees into account for Method 3
- The other calculations (profit and margin) are not part of the ROI calculation settings
- The only thing that you can change is the method that you use to calculate the ROI. Keeping it on Option 1 or Option 2 is how 98% of sellers will see the results they are used to seeing.