Currently for:
An Item Listing at £7.99
A Shipping Credit of £3.99
The Item Cost of £1.72
Packing of £0.97
Actual Shipping of £2.85
Referral Fee of 15% (on the List Price + Shipping Credit)
Closing Fee of £0.75
VAT of 20% (on the Referral Fee + Closing Fee)

I have:
Total Sale Price: 11.98
Amazon Fees: £3.06
Subtotal: £8.92
Revenue: £6.07 (Subtotal - Actual Shipping, bought through Amazon. This amount is paid to my bank)
Profit: £3.38 (I presume this is the “Gross Profit”)
Margin: 55.68% (Probably wrong as not including the shipping as already been deducted)
Markup: 125.65% (Probably wrong as not including the shipping as already been deducted)

Any help is very much appreciated. As I’ve not much experience yet this is hard to get my head around.

1. Revenue
Total amount paid by your customer

2. Actual Shipping Cost
Shipping cost is part of your expenses, but as they’re directly attributable to a sale they reduce your gross profit.

3. Profit Margin / Markup
I find it easier to work with profit margins (Percentage of gross profit from a sale). Think of it as a pie chart total amount paid by the customer is 100% then take off your direct expenses (cost of item, shipping, Amazon fees). The proportion you have left is your gross profit. This gross profit is then used to pay your overheads and hopefully leave you with a decent net profit.

I’d work with total amount paid by the customer as you’re be deducting the postage as a direct cost. If you use profit margins you can get a rough average for all your sales (e.g. 30%) then you can use your daily sales figures to work out an approximate gross profit.

4. Marketplace Fees
If you’re on an individual seller plan they’d all be direct costs that would reduce the gross profit. When you switch to a pro account your monthly subscription fee would be a fixed cost (overhead).

5. Gross Profit / Net Profit
Gross profit is income minus direct costs (products, packaging, shipping etc)
Net profit is gross profit minus overheads (fixed costs, and non-fixed if they can’t be directly attributed to a sale.)
Net profit is what you’re taxed on.

As an example I count boxes for individual products as a direct costs, but parcel tape and larger boxes to send inventory into Amazon’s warehouse as non-fixed overheads.

Your margin calculation appears to be wrong (I haven’t checked the others):
Gross profit: £3.38
Total sale price: £11.98
Profit margin: 28.2%

If you’d had £250 in sales in a day you could multiply this by 28.2% to get an approximate daily gross profit figure of £70.50

Also, if you’re buying things to sell you’re trading as a business so should be registered as such on Amazon, which includes registering with HMRC as self-employed or as a company if you haven’t already.

Thanks Barry. Interesting Revenue is the amount paid by customer. For some reason I totally thought it was the final value I received to my bank heh. I presume you use the terms Revenue and Income interchangeably? Am I right in thinking that “Revenue” would be more suited to the Monthly totals sheet, and use “Income” for the specific sale.

What would be the correct term for the amount I actually receive in my bank from Amazon?

Also even if I buy shipping through Amazon then it will be treated no differently, just included as part of the Gross Profit from Income calculation yes? I presume so as it seems I need to record these values individually and factor them into my own calculations, rather than going off what Amazon actually deposit to my bank and then subtracting the remaining costs from that, which is what I was doing before, which is why my Margin was off. Fixed that now, cheers.

I presume generally for calculating a specific sale, only calculating up to the Gross Profit is necessary, as non-fixed costs and overheads would be tough to work out, unless an average is used, and that won’t always be possible. I presume save the Net Profit calculations just for the monthly totals?

Also following the deduction of Taxes from the Net Profit, what’s the final value called? (Net Profit After Tax?)

And yeah I noted about the registering, fortunately I’m just selling a few items I have and experimenting at the moment so I’ll be making bugger all profit. I’ll also only be buying recurring stock and performing the full financial calculations if I feel business is for me (rather than standard employment). I just feel it’s a good idea to practice and also fully understand what I’ll be in for if I take things further.

Very enlightening though, I understand a lot better now and it makes a lot more sense. Thankyou.

Cheers Barry! That’s very enlightening. It’s the per item calculations I’m most interested in at the minute, but I’m going to log data for anything that sells and have a go at doing “Overall Books” too (even if I don’t need to submit anything). I’m wanting to get the general experience end-to-end to judge whether this is for me, or whether I should just stick with general employment, or try something else heh.

Your info has helped very much, I’ve sorted out my terminology now, and also corrected my Margin & Markup figures. Shame there’s so much contradictory info out there! Especially with the use of terms, which is where I was going wrong when trying to research.

For the Overall Books, I presume this is across ALL income / expenses to generate a total Net Profit overall? As I imagine that’s pretty tough to work out per sale due to several non-fixed costs.

I presume you don’t need to calculate tax yourself as HMRC do that for you, when you pass them the required information? (Income / Gross Profits / whatever). And then you use what you get back to get an idea of how much you’re in profit by overall? (Looking at Net Profit After Tax).

It’s the concepts you need to understand rather than the terminology. Some of the terminology is quite fixed in its meaning but can vary depending on the situation, and some terminology doesn’t really have a standard definition at all.

For your books you need to account for all income and all expenses, which will generate your Net Profit. You might want to have a quick look at the GNUcash help pages as they’ll give you a good insight into double entry bookkeeping (where each transaction is effectively listed in two places):

• Transfer between accounts: From and to accounts (e.g. Assets:Accounts:Amazon to Assets:Accounts:Bank Account)
• Expenditure: Classification of expenditure (e.g. Expense:Admin:Stationery) and funding source (e.g. Assets:Accounts:Bank Account)
• More expenditure: Classification of expenditure (e.g. Expense:Travel:Public Transport) and funding source (e.g. Liabilities:Credit:Tritivum Company Credit Card)
• Income: Classification of income (e.g. Income:Amazon:Sale) and destination (e.g. Assets:Accounts:Amazon)
• More income: Classification of income (e.g. Income:Compensation:Courier) and destination (e.g. Assets:Accounts:Bank Account)

You give HMRC your income and expenditure figures then they work out how much tax and NI you need to pay. There’s a longer version of the form where you can give them a breakdown of your expenditure but I’ve always just given them income and expenditure totals and kept records of how I arrived at those totals.

I wouldn’t worry about working out how much tax HMRC will take. If someone says they earn £35k in a job then that’s before tax. They don’t usually give a post-tax figure

If you’re wanting to really make a go of it I’d work through a few different product options (I’ve found AmazeOwl quite good for finding potential new products), stock up on them and send a smallish amount (e.g. 10 units of each) into an Amazon warehouse. If you’re buying products to sell under your own brand you’ll need to register with GS1 for some barcodes. Don’t buy barcodes on eBay because Amazon is starting to reject them.

Yeah a LOT to understand! It’s why I’m experimenting and trying to get an idea of what I’m in for, before jumping in with both feet and actually doing it heh. I’ve always just worked as an employee up to now.

I have single and double-entry bookeeping on my notes to research for later, I get the basic gist though cheers! Makes sense to ensure all accounts are balanced.

Yeah I heard you only need to give them a breakdown if you get audited. What sort of records do you keep? Just a list of transactions / dates / references etc, or do you keep physical or scanned copies of receipts for the whole year? This is another thing I have on my list to fully research.

That’s true, but it helps to have an idea in advance so you know if it’s enough to live on and pay all your bills! (Home ones), Though I presume you just go with a general idea, same as if I was looking at a pre-tax salary of a job I was applying for, yes.

Cheers for the AmazeOwl link, one of the irritating things about Amazon and others is you can generally only go off the feedback, so it’s hard to judge overall sales. The plan at the moment for me if this actually goes well is to purchase products from abroad (I have family ties in a country where stuff is cheap, and no import duties), and then yes look into building up a brand etc. For the moment though, just an idea of “can I actually sell anything, and how much work is involved in doing so, (including Admin)” is the thing I’m wanting an idea of.