Is Selling on Amazon Worth It? A CPG Operator's No-BS Guide

Yes, selling on Amazon is worth it—but only if you approach it with a disciplined, margin-first mindset. For most CPG brands, it’s a channel you can’t afford to ignore, but success isn’t about chasing top-line revenue. It's about building a profitable, scalable sales engine from day one.

The Bottom Line: Is Selling On Amazon Worth It?

For CPG founders and operators, the question "is selling on Amazon worth it?" is less about the potential for massive sales and more about the impact on your contribution margin. The platform offers unmatched scale and a built-in audience of millions, but that access comes with significant operational demands and fee structures that can quickly eat into your profits if you’re not careful.

Many brands are rightfully worried about the intense competition, the ever-rising fulfillment costs, and the resources needed to manage advertising. These aren't reasons to stay away; they're simply business variables that have to be baked into your channel P&L.

Treating Amazon like just another sales outlet is a common and costly mistake. It’s a self-contained ecosystem with its own rules for inventory, pricing, and getting your products seen. To figure out if it's a good move for your bottom line, you first need a solid grasp of how to calculate return on investment (ROI).

A Structured Approach Is Non-Negotiable

Winning on Amazon is about strategy, not luck. Before you even think about chasing sales, you have to build a solid operational and financial Foundation.

This means getting intimately familiar with your unit economics, setting up an efficient fulfillment process, and protecting your brand. Only then can you move to Optimization, where you start refining your listings and ad campaigns to boost conversions and profitability. The final stage is Amplification—scaling up what works. But here's the catch: you can't amplify a broken model.

This structured approach stops brands from making the most common error: pouring money into ads and growth tactics before their core operations can handle the volume. It forces a shift in thinking from, "How much can I sell?" to, "How much can I profitably sell?"

The central question isn't whether you can sell on Amazon, but whether your operations and margin structure are prepared for its demands. Profitability is a direct result of disciplined planning, not high sales volume.

Without this foundational work, brands often get trapped in a vicious cycle of cash flow pressure. Inventory costs and ad spend start outpacing net profit, and what looked like a high-potential channel quickly turns into a resource drain. The rest of this guide will walk you through building that foundation, step by step.

To help you get a quick read on where you stand, we put together a simple decision matrix.

Quick Decision Matrix for Amazon Channel Viability

This table is designed to help CPG founders quickly assess if the Amazon channel aligns with their business model and operational capabilities. It's a starting point to frame your thinking before diving deeper.

Your Business Stage	Is Amazon a Good Fit?	Key Considerations
Early-Stage DTC	Potentially, with caution.	Use it for brand discovery, but be wary of margin compression. Your operations must be dialed in.
Established CPG	Yes, it's essential.	Your biggest challenges will be channel conflict, brand control, and managing complex logistics at scale.
SMB/Side Hustle	Maybe, if the product is right.	Focus on niche products with healthy margins. FBA can simplify logistics, but watch fees closely.
High-Growth Brand	Absolutely.	Amazon is a primary growth engine, but you need a dedicated team or agency to manage PPC, inventory, and brand protection.

Ultimately, this matrix highlights a universal truth: no matter your size, success on Amazon requires a plan. It's not a "set it and forget it" channel. With the right preparation, it can become your most powerful sales engine. Without it, it can become a major headache.

Deconstructing the True Cost of Selling on Amazon

If you want to know if selling on Amazon is truly worth it, you have to look past the top-line revenue and build a real-world P&L for every single product. Chasing sales without a firm grip on your contribution margin is the quickest way to turn a promising new channel into a cash-flow nightmare. The platform’s fee structure is layered, and every last percentage point matters.

Let’s be blunt: Amazon’s fees aren’t just another line item. They are the central variable that will dictate your entire channel strategy. They’ll influence your pricing, your inventory planning, and even your product development. Ignoring them until after you launch is a rookie mistake you simply can’t afford to make.

Beyond the 15% Referral Fee

The most talked-about fee is the referral fee, which is typically 15% of the retail price for most CPG categories. But that's just the tip of the iceberg. A profitable operation accounts for every single cost associated with getting a product from your warehouse into a customer's hands.

This infographic gives you a bird's-eye view of the relationship between revenue, the hefty stack of fees, and what you’re actually left with as net profit.

As you can see, while the revenue potential is massive, the fee structure is just as substantial. A deep understanding of your costs is the only way to protect your net profit.

The true cost stack includes a range of variable and fixed expenses that can easily surprise sellers who haven't done their homework. These are the main costs you need to bake into your product-level P&L:

• FBA Fulfillment Fees: These are the per-unit charges for Amazon to pick, pack, and ship your product. They vary based on size and weight and are a major expense.
• Storage Fees: You pay a monthly fee per cubic foot to store inventory in Amazon's fulfillment centers. These rates shoot up dramatically from October to December.
• Long-Term Storage Fees: If your inventory sits for more than 180 days, you’ll get hit with additional surcharges, which severely punish slow-moving SKUs.
• Return & Disposal Fees: When a customer returns a product, you pay a fee. If you need to remove or dispose of unsellable inventory, there's a cost for that, too.

For a more detailed breakdown of these charges, you can learn more about how much Amazon charges to sell in our complete guide. Mastering these numbers is the first step toward building a solid financial foundation on the platform.

A Practical Margin Calculation

Let's walk through a realistic scenario for a CPG product. Say you sell a high-quality protein bar for $25.00 on Amazon, and your Cost of Goods Sold (COGS) is $7.00.

Building a profitable Amazon channel isn't about finding a magic bullet. It’s about meticulous, unemotional math. Your spreadsheet will tell you if this channel is viable long before your sales reports will.

Here’s a look at how that $25.00 retail price gets squeezed.

Sample CPG Product Contribution Margin Breakdown

The table below breaks down the costs for our hypothetical $25.00 protein bar. It’s a simple but powerful way to see where your money is actually going.

Line Item	Cost or Fee	Remaining Margin
Retail Price		$25.00
Referral Fee (15%)	-$3.75	$21.25
FBA Fulfillment Fee (Std Size)	-$4.00	$17.25
Monthly Storage (1 unit/mo)	-$0.25	$17.00
Gross Margin Before COGS		$17.00
Cost of Goods Sold (COGS)	-$7.00	$10.00
Contribution Margin Before Ads		$10.00 (40%)

A 40% contribution margin looks pretty healthy on the surface. But we haven't touched advertising yet, which is a non-negotiable investment on Amazon.

If you allocate 10% of your retail price ($2.50) to Amazon PPC, your net contribution margin drops to $7.50, or 30%.

Suddenly, your margin for error is much smaller. This doesn't even account for returns, removals, or other unexpected costs that will inevitably pop up. This is the level of detail you need for every single SKU before you invest heavily in inventory or advertising. This foundational work prevents you from pouring money into amplifying an unprofitable product.

Choosing Your Fulfillment Model FBA vs FBM

Once you’ve nailed down your product's profitability, your next big move is operational: how are you actually going to get your products into customers' hands? This isn’t just about boxes and tape. It’s a strategic fork in the road between Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM) that will define your margins, customer experience, and day-to-day headaches.

Your fulfillment method is a core piece of your Amazon Foundation. Get it wrong, and you’re looking at sluggish inventory, sky-high storage fees, and unhappy customers—sinking your ship before you can even think about scaling. This decision is all about who does the heavy lifting and how much control you want to keep.

FBA The Engine of Scale

With FBA, you ship your products in bulk to Amazon’s warehouses, and they take it from there. They store it, pick it, pack it, and ship it out. They even handle customer service and returns. The biggest carrot they dangle? Your products instantly qualify for the coveted Prime badge, which is a massive conversion driver.

But, of course, that convenience isn't free. You're effectively hiring Amazon as your logistics department, and you have to play by their rules and pay their fees.

• Storage Fees: You pay for every cubic foot your products take up in their warehouse, and those rates get a lot steeper in Q4.
• Inventory Performance Index (IPI): Amazon gives you a score from 0 to 1,000 based on how well you manage your inventory. If your score drops too low—usually from slow-selling products—they can limit your storage space and hit you with higher fees. It forces you to be sharp with your inventory management.
• Loss of Control: Your inventory is stuck in Amazon’s ecosystem. That makes it tough to use that stock for other sales channels, like your own DTC site or wholesale orders.

FBA is a ridiculously powerful tool for scaling your brand on Amazon, but it demands serious inventory planning.

FBM Retaining Control and Margin

Switching gears, the FBM model puts you in the driver's seat. You’re responsible for storing your own inventory and shipping orders directly to customers. That could mean packing boxes in your garage, a dedicated warehouse, or—more realistically for growing brands—partnering with a third-party logistics (3PL) company.

The main advantage here is control. You own your inventory and can use it to fulfill orders from anywhere. You also get to control the unboxing experience, from the custom packaging to the thank-you notes.

Choosing between FBA and FBM is a classic trade-off between control and convenience. FBA offers turnkey scale at the cost of margin and flexibility, while FBM provides margin control at the cost of increased operational responsibility.

The real challenge with FBM is living up to Amazon's tough-as-nails performance standards. You have to nail their targets for on-time shipping, valid tracking, and order defects. If you slip up, you risk losing your selling privileges altogether.

A Practical Scenario 500 Units Per Month

Let's put some real numbers to this. Imagine you're selling 500 units of a standard-sized product each month.

• With FBA: You might spend around $2,000 on fulfillment fees and another $125 on storage. But that Prime badge could easily lift your conversion rate by 20-30%.
• With FBM (via a 3PL): Your fulfillment cost could be a bit lower, maybe $1,800, and you wouldn't have any Amazon storage fees. The catch? Without the Prime badge, you’ll likely need to spend more on ads to hit the same sales volume, or just accept a slower sales pace.

This choice is foundational. The right model unlocks growth, and the proof is in the numbers. In 2024 alone, over 55,000 independent sellers blew past $1 million in annual sales, and nearly half of all U.S. sellers use FBA to power their business. Profitability at scale is absolutely achievable, but it starts with a solid operational framework. The real question is, which fulfillment strategy fits the economics of your business and gets you there?

The Reality of Advertising and Discoverability

Hoping for organic sales on Amazon today is like setting up a shop in a back alley and expecting a flood of customers. It just won't happen. The platform is now a pay-to-play arena, and a smart advertising plan isn't a "nice to have"—it's a fundamental cost of doing business. You need it to launch, to grow, and to defend your turf from competitors.

For CPG brands trying to figure out if Amazon is worth it, this is a make-or-break part of the math. Advertising isn't just a marketing expense; it's an operational cost that has to be factored into your margins from the very beginning. A good rule of thumb is to budget 10-15% of your total revenue for ads. That's the new normal.

Moving Beyond Simple ACOS

Most sellers have heard of ACOS (Advertising Cost of Sale). It’s a simple metric that tells you how much you spent on ads to get a certain amount of ad-driven sales (Ad Spend ÷ Ad Sales). It’s useful, but it’s only half the story. ACOS completely ignores the "halo effect" your ads have on your organic sales.

A far better metric for business owners is TACOS (Total Advertising Cost of Sale), which you find by dividing your ad spend by your total sales. TACOS gives you the real picture of how your ad dollars are impacting your entire Amazon business, not just the sales you can directly trace back to a click.

A low and falling TACOS is a great sign. It means your ad spend is boosting your organic rank, creating a flywheel where you become less and less dependent on paid clicks to make sales. This is how you shift from simply optimizing to truly amplifying your brand.

Calculating Your Break-Even ACOS

Before you spend a dime on ads, you need to know your limits. The most critical number to calculate is your break-even ACOS. This tells you the absolute maximum ACOS you can handle before you start losing money on every sale that comes from an ad.

The formula couldn't be simpler: it's your pre-ad contribution margin.

Break-Even ACOS = Pre-Ad Contribution Margin (%)

Let's go back to our $25 protein bar example. After the cost of goods and all the Amazon fees, we had a contribution margin of $10.00, or 40% of the retail price. That means your break-even ACOS is 40%. If your ACOS starts creeping above that number, you're paying Amazon for the privilege of losing money.

Knowing this number lets you set smart bids and budgets. When you’re launching a new product, you might be willing to run at or even slightly above your break-even ACOS to build momentum and get those first crucial reviews. But for a mature, profitable product, you’ll probably aim for a healthier ACOS of 25-30% to make sure every click is driving profit. Our complete guide to Amazon advertising management provides a deeper dive into setting these targets.

Structuring Your Ad Strategy

A solid Amazon ad strategy is like a classic marketing funnel—you need different plays for different goals. You have to be on both offense and defense to win.

Here’s how the main ad types fit in:

• Sponsored Products: These are your workhorses. They show up in search results and on product pages, and they're perfect for targeted keyword campaigns. Use them to go after non-branded terms to find new customers and to bid on your own branded terms to defend against competitors.

• Sponsored Brands: These are top-of-funnel ads, like the headline banners you see at the top of a search page. They’re all about building brand awareness and driving shoppers to your storefront or a curated product collection. They're essential for introducing your brand to new people and building equity on the platform.

• Sponsored Display: These ads are your re-engagement tool. They let you retarget shoppers who viewed your products but didn't buy, following them around both on and off Amazon. It's a powerful way to close sales that might have otherwise slipped away.

To get the most out of your paid ads, you need to back them up with great content. Building out a modern ecommerce content marketing strategy will help your products stand out and convert better.

At the end of the day, your ad strategy isn't just about getting clicks. It’s about profitably acquiring customers and carving out a defensible spot on the world’s most competitive search engine for products.

Risks Brands Underestimate on Amazon

Every sales channel comes with risks, but Amazon’s are a different breed—they’re operational, they hit fast, and they can shut down a profitable brand overnight. Answering "is selling on Amazon worth it" means taking a hard look at what can go wrong. Too many brands get laser-focused on sales growth and completely forget about the defensive strategy needed to protect their most valuable digital asset.

Success isn't just about selling more; it's about building an operation that can handle the platform's wild swings. This is a core part of building your brand's Foundation on Amazon. Without it, any growth you see is built on a house of cards.

The Erosion of Brand Control

One of the biggest shocks for brands new to the marketplace is how quickly they can lose control over their own listings and pricing. Amazon is an open marketplace, which means anyone who gets their hands on your inventory can sell it. This opens the door to a host of problems that hammer your bottom line.

• Unauthorized Third-Party Sellers: These sellers can grab your products from diverted wholesale shipments or retail arbitrage, then jump on your listings and start selling—often at a lower price. This sparks price wars that kill your margins and devalue your brand.
• MAP Policy Violations: If you have a Minimum Advertised Price (MAP) policy, trying to enforce it on Amazon feels like a never-ending battle. Unauthorized sellers couldn't care less about your rules, creating major channel conflict with your legitimate retail partners.
• Listing Hijackers: In a more sinister attack, bad actors can hijack your product detail page, changing images, titles, and descriptions. This can obliterate your brand's reputation and get your listing shut down.

Your best defense against these threats is Amazon Brand Registry. Getting enrolled gives you the tools to remove counterfeit products and lock down your listing content. For an even stronger shield, the Amazon Transparency program adds unique codes to every unit you make, letting Amazon verify its authenticity before it ever ships.

Your Amazon presence is an asset that must be actively defended. Brand Registry and proactive channel monitoring aren't optional—they are fundamental requirements for protecting your revenue stream and brand equity in an open marketplace.

The Unforgiving Nature of Account Health

Beyond threats from the outside, the biggest risk often comes from within your own operations. Amazon runs on a brutally strict set of performance metrics, and your Account Health dashboard is your report card. One mistake can have devastating consequences.

Amazon is obsessed with the customer experience, and it holds its sellers to an insanely high standard. The platform's algorithms track every single part of your performance, and there is almost zero room for error.

Key Metrics That Can Suspend Your Business

You have to stay on top of three core metrics to keep your account in good standing. Letting any of them slip can lead to a suppressed listing or a full account suspension, which can take weeks and thousands of dollars in lost sales to fix.

1. Order Defect Rate (ODR): This is the percentage of your orders that get negative feedback, an A-to-z Guarantee claim, or a credit card chargeback. Amazon demands you keep this below 1%. A sudden spike can trigger an immediate account review.
2. Late Shipment Rate (LSR): For FBM sellers, this is the percentage of orders shipped after the promised date. It must stay under 4%. Consistently missing this tells Amazon you can't be trusted to deliver on time.
3. Valid Tracking Rate (VTR): This metric tracks the percentage of your orders that have a valid tracking number. It needs to stay above 95%. It's a simple metric to nail, but overlooking it can be catastrophic.

These risks highlight just how massive and complex the third-party marketplace has become. With seller services projected to hit $172.2 billion in 2025, accounting for 61% of all units sold, the sheer scale of the operation requires Amazon to rely on strict automation and rule enforcement. You can discover more insights about Amazon's third-party seller growth to truly grasp the environment you're stepping into. Protecting your account isn’t just about following the rules; it's about building operational excellence directly into your business model.

The Final Verdict: A Framework for Your Decision

So, is selling on Amazon actually worth it? The honest answer isn't a simple "yes" or "no." It comes down to a frank assessment of your brand's unique position—a strategic calculation based on your product margins, operational readiness, and available capital, not just a blind chase for revenue.

The opportunity is massive, there's no denying it. Projections show third-party sellers are on track to generate over $363 billion in revenue for Amazon by 2030. That's a clear signal of the channel's long-term dominance. As Amazon leans more and more on its marketplace sellers, the platform becomes an even more critical, and competitive, arena. You can read more about these long-term marketplace forecasts to get a sense of the scale here. The real question is whether your business is built to capture a profitable slice of that growth.

Scenarios When Amazon Is a Green Light

For some brands, the decision is pretty clear-cut. If you fall into one of these categories, Amazon should be a primary focus in your channel strategy.

• High-Margin, Shelf-Stable Products: Your products have a contribution margin of 35% or more after COGS and all Amazon fees. This gives you the necessary buffer to absorb ad spend and unexpected costs while still turning a profit. It’s the wiggle room you need to invest in growth.
• Strong Operational Capacity: You’ve either got an efficient 3PL partner dialed in, the internal systems to manage FBM flawlessly, or you're ready to commit the inventory and cash to FBA. You get inventory velocity and know how to avoid costly stockouts or long-term storage fees.
• Sufficient Capital for Launch: You have cash earmarked—ideally $10,000 to $25,000 for a competitive CPG launch—to fund that initial inventory order and a sustained advertising push for the first 90 days. You aren't banking on immediate profits to fund your next PO.

When to Proceed with Caution

For other brands, a much more measured approach is critical. Rushing onto the platform without the right foundation is a fast-track to losing money.

• Low-Margin Products (Below 20%): If your margins are paper-thin, Amazon's fee structure will be punishing. Every percentage point of ad spend and every customer return will directly threaten your ability to make a profit. You’ll likely need to revisit your pricing or COGS before even thinking about committing.
• Limited Cash Flow: If you don't have the capital to invest in at least 60-90 days of inventory and a dedicated ad budget, you risk running out of stock just as you start gaining momentum. This will kill your sales velocity and destroy your organic rank.
• Complex or Heavy/Oversized Goods: FBA fees for non-standard items can be absolutely prohibitive. A deep dive into the landed costs of FBA vs. FBM is non-negotiable before you move forward.

At the end of the day, whether Amazon is "worth it" is a function of your strategy. It’s not an opportunity you simply seize; it's a sales channel you have to build, piece by piece. With the right financial and operational foundation, it can become the most powerful growth engine your brand has ever seen. Without it, it’s just a source of high revenue and disappointingly low profit.

Got Questions? We've Got Answers

Let's cut to the chase. Here are some of the most common, hard-hitting questions CPG brands ask when they're on the fence about Amazon. The answers are grounded in our direct experience with margins, operations, and what it really takes to grow profitably.

What’s a Realistic Profit Margin on Amazon After All the Fees?

For most CPG brands, a realistic net profit margin on Amazon lands somewhere between 10% and 25%. That's after you've paid for everything—Amazon's cut, storage, ads, and returns. Brands with higher price points (think $30+) and some real brand gravity tend to hit the higher end of that range.

If you find your margin dipping below 10%, it’s a red flag. At that point, you have almost no room for error or reinvestment. Any surprise fee increase or a spike in ad costs could wipe out your profits entirely. You’ll need to take a hard look at your COGS and pricing strategy, fast.

How Much Money Do I Actually Need to Start Selling on Amazon?

There’s no magic number, but a smart budget covers three core areas. While you could bootstrap a launch for under $10,000, a truly competitive start in a crowded CPG category usually demands $25,000 or more.

Here’s where that money goes:

• Initial Inventory: You need enough product to cover at least 60-90 days of your sales forecast. Stocking out early is a surefire way to kill your momentum.
• Advertising Launch Budget: Plan for a minimum of $3,000–$5,000 just to get the ball rolling. This cash fuels your initial discovery campaigns and helps you gain traction in a noisy marketplace.
• Brand Assets: Professional photography and well-designed A+ Content are non-negotiable. This is how you build trust and convince shoppers to click "Add to Cart."

Can I Succeed on Amazon Without Using FBA?

Yes, it's possible—but it requires an almost military-grade operational discipline. Thriving with Fulfillment by Merchant (FBM) comes down to one thing: your ability to meet Amazon's brutal shipping and delivery metrics without a single misstep. It’s a solid strategy for brands with a killer 3PL partner or for those selling huge, heavy items where FBA fees would be astronomical.

But make no mistake, you’ll be in a street fight. You're competing against sellers with the Prime badge, which is a massive, conversion-driving magnet for shoppers. This usually means you’ll have to compensate with sharper pricing or a bigger ad spend just to get the same level of attention.

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Deciding if Amazon is worth it for your brand means taking a clear-eyed look at your margins, operations, and long-term goals. If you're a CPG founder or operator ready to build a profitable Amazon channel on a solid financial footing, let's talk. Book a free 30-minute strategy call with the RedDog team, and we'll dive into your numbers and map out a practical path forward.

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