ROI
Also known as: Return on Investment
Profit divided by COGS — the right profitability metric for arbitrage and any business with rapid inventory turnover.
ROI (Return on Investment) is profit divided by the COGS that produced it, expressed as a percentage. The formula is ROI = Profit / COGS × 100. A SKU costing $10 that nets $5 profit has 50% ROI.
ROI vs Margin is one of the most common confusions in FBA. They measure different things. Margin tells you "how much of each dollar of revenue is profit" (Profit / Sale Price). ROI tells you "how much your invested cash multiplied by" (Profit / COGS). For arbitrage and any high-turnover business, ROI is the right metric because it accounts for how fast capital recycles.
Worked example: SKU A has 50% margin and 100% ROI. SKU B has 25% margin and 200% ROI. Which is better? Depends on turnover. If both turn 12x/year, SKU B doubles your money 12 times — far better than SKU A doubling once. Most arbitrage sourcing decisions should optimize for ROI, not margin. Most private label decisions should optimize for contribution margin, not ROI, because cash isn't the constraint.
You buy a SKU for $8, sell it for $25, pay $5 in Amazon fees, and net $12 profit per unit. Margin = 12 / 25 = 48%. ROI = 12 / 8 = 150%. Same SKU, very different stories.
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