I was scrolling X the other day when I saw a seller bragging about hitting 15% gross margins. He thought that was good. On the surface, it sounds decent. But here’s the hard truth: 15% is barely enough to survive. You might keep a side hustle afloat on margins like that. But if you want to build a real business with staff, systems, and growth — those margins get eaten alive.

Fees, software, labor, taxes, and returns carve them up like a Thanksgiving turkey.

And that’s why so many sellers fail. Not just a few. The numbers are brutal: 68% of Amazon sellers fail within their first year. By the end of 2025, there will be 500,000 fewer active sellers on the platform. That’s a steep 21% decline.

Meanwhile, the number of sellers making over $1 million in revenue is growing — up 37.5% since 2021. This means Amazon isn’t dying. It’s consolidating. The weak are being squeezed out, and only the disciplined survive.

Here is my question to you. Would you rather be in the small group of sellers who are generating over 1 million in revenue or would you like to operate like the 68% who are failing?

Ask a failing seller why things aren’t working, and they’ll say: “I picked the wrong product” or “I need better marketing.” But even the best-selling product in the world will destroy you if the math doesn’t work.

The mistake shows up at the very beginning — when sellers buy inventory. They fail to calculate the Landed Cost of Goods Sold (COGS). Heck, most of the people we talk to at first don’t even know what COGS means.

Landed COGS is the all-in cost of getting one unit ready to sell on Amazon. It’s not just the purchase price. It’s shipping to your warehouse, prep center, or home. If you’re a private label seller it’s duties and customs fees. It’s the prep center fees, labeling, inbound shipping into Amazon, and inbound placement fees.

In other words, it’s everything it takes to get the product into Amazon’s fulfillment centers so you can sell it.

Too many sellers guess this number. They think, “I paid $5 for the product, I’ll sell it for $20. Easy profit.” But once the true landed cost is factored in, that $5 product may really cost $8 or $9 before you ever ship it. If you price it wrong, you’re actually losing money with every sale. You just don’t know it yet.

It’s like running a restaurant where each burger costs you $7 to make, but you sell it for $6. The dining room might be packed, but the busier you get, the faster you go broke.

Let’s go back to that seller bragging about 15% margins. On the surface, that feels like a win. But here’s the reality of what eats those margins alive:

• Amazon referral fees and FBA fulfillment fees (already factored into that 15%).
• What isn’t factored into that 15% is everything else:
  • Inbound placement fees and inbound shipping into Amazon.
  • Packaging, labeling, and prep fees.
  • Storage fees and long-term storage fees.
  • Removal order fees.
  • Marketplace facilitator fees (Amazon collecting and remitting sales tax).
  • Advertising (PPC).
  • Returns and refunds.
  • Software subscriptions (inventory, analytics, repricing).
  • Virtual assistants, accountants, payroll.
  • Taxes.

That 15% disappears fast. And when it’s gone, there’s nothing left for you.

That’s why experienced operators aim for 30–40% gross margins on day one. They know those numbers will shrink as they scale. Thin margins don’t leave you any safety net.

Scaling a low-margin business is like trying to build a skyscraper on a foundation made of sand. The higher you go, the faster it crumbles.

Here’s where bookkeeping needs to come in. All of these fees, returns, storage charges, and hidden costs are invisible if you aren’t tracking them properly. This is why so many sellers think they’re doing fine — the Amazon payouts keep landing in their bank accounts — but in reality they’re bleeding cash. Without bookkeeping, you’ll never see where the money is going. It’s the single biggest reason so many sellers wake up one day to find their business isn’t profitable.

Amazon is not a simple “buy for $10, sell for $20” business. It’s more like running a leaky bucket. You pour in revenue at the top, but holes in the sides keep draining it out. If you don’t track the leaks, you never realize why the bucket never fills up.

Those leaks look like this:

• Amazon’s maze of fees (referral, fulfillment, storage, inbound placement, removal orders, reimbursement mistakes).
• Marketplace facilitator fees that change your tax picture.
• Returns and refunds. Amazon is customer-first, which often means you get stuck holding the bag.
• Advertising that eats your profits when costs climb.
• Operational overhead — prep centers, software, accountants, staff.

If you don’t track every one of these, you’ll swear your business is making money when really, Amazon deposits are just covering a growing hole.

Here’s a simple example. Let’s say you sell an item for $20. Amazon takes a referral fee of around $3. Fulfillment costs another $4. Inbound shipping and placement fees add $1. Storage fees tack on $0.25. Advertising eats $2.50. Returns spread across your sales add another $0.50 per unit. By the time you add software, payroll, and taxes, your profit on that $20 sale can vanish or even go negative. Without bookkeeping to show you this breakdown, you might think you’re making money when you’re really losing it every single day.

Now scale that problem up. Imagine you bring in $100,000 in revenue in a month. On paper, that looks incredible. But start subtracting the same categories: $15,000 in referral and fulfillment fees, $10,000 in advertising, $5,000 in storage and placement fees, $3,000 in returns and removals, $2,500 in software and payroll, plus taxes. Suddenly your $100,000 month nets you only a few thousand dollars — or worse, a loss. The bigger you grow, the faster those hidden costs compound. That’s why the illusion of profit is so dangerous.

Returns aren’t just an inconvenience. They’re a silent killer. Amazon’s customer-first policies mean that sellers often lose money on every return. Returned inventory may not be resellable. Sometimes, it’s destroyed. Other times, you pay for it to to be shipped back. And here’s the kicker: Amazon charges you removal fees just to send your own product back to you. It can cost a few dollars per unit, minimum. Even if you can eventually resell some of those units, you’re left with a pile of removals that quietly eat your profits if you’re not watching closely.

Imagine running a clothing store where customers could wear the jeans for a month and then get a full refund — no questions asked. On top of that, you’d have to pay the customer to ship the jeans back to your store. That’s what selling on Amazon feels like. If you don’t plan for it in your margins, returns will take you down.

Margins don’t just depend on math — they depend on the business model you choose. If you’re running an online arbitrage business, you often start with poor gross margins to begin with. Add heavy competition on top, and it becomes nearly impossible to win long term.

This is what sellers mean by the “race to the bottom.” Imagine finding a great product that looks like a grand slam. But then 20 other sellers find it at the same time. One seller drops the price a little to win the Buy Box, then another drops it again, and before long everyone is selling for less and less. Margins vanish quickly. If you decide to sit it out and wait for everyone else to sell through, you end up paying storage fees while your inventory collects dust.

Without real supplier relationships that limit who else can sell the same product, your chances of protecting margins are slim.

Wholesale can be better. It often gives you stronger margins and steadier supply. But if your suppliers are the same ones feeding dozens of other sellers, you face the same problem: crowded competition and a fight for the Buy Box. Even larger wholesale operations with warehouses and staff sometimes collapse because they can’t maintain enough margin to cover overhead while competing with dozens of sellers at once.

On the surface, wholesale sounds like a safer play, but without unique supplier relationships or exclusivity, you still risk being forced to lower your prices in a market where margins are already thin.

A well-known example is Amazon Lit. They were the Champions of Amazon seller gurus. Their operation shut down not because they couldn’t sell, but because they were suspended by Amazon. They built up an operation generating millions in revenues every month, but it evaporated almost immediately.

Suspension instantly stopped their revenue, yet the warehouse rent still came due and employees still needed to be paid. Cash drained out quickly. All the thin profits they had worked so hard to maintain vanished in a matter of days. On top of that, they had thousands of units sitting in Amazon’s warehouses accruing storage fees. They had loans and credit cards coming due. And they had money tied up in Amazon’s disbursement cycle that wasn’t being released.

That suspension highlighted the fragility of a wholesale model with heavy overhead. Even when sales are strong, one disruption can topple the entire business. They realized they couldn’t win at scale with that structure, so they decided to hedge their risk and exit while they could.

So can wholesale work? Yes, it can. But you should avoid getting a warehouse at all costs. Instead, use prep centers located close to your suppliers. This reduces your inbound shipping costs and keeps your operation flexible. Most importantly, if your Amazon account ever gets suspended for a day, a week, or a month, you won’t be saddled with warehouse rent and payroll obligations while your revenue dries up.

Picture two sellers running wholesale businesses. Seller A signs a lease on a big warehouse and hires a team. For a while, things run smoothly — until one day their account is suspended. Now they have no sales coming in, but the warehouse rent and staff salaries don’t stop. Cash drains quickly and the business is on life support. Seller B, on the other hand, runs lean. They use prep centers near their suppliers. When suspension hits, their overhead is minimal, so they can wait it out and survive. One business collapses under the weight of fixed costs, the other keeps breathing because it stayed nimble.

Another hidden risk sellers don’t account for is product gating or sudden restrictions. One day you’re selling a product with healthy margins, and the next Amazon restricts the category or brand. Sellers have had tens of thousands of dollars tied up in inventory like LEGO sets that suddenly became unsellable overnight.

Now, that inventory sits in Amazon warehouses racking up storage fees. The seller still owes credit card payments for the inventory purchase. Removal orders cost even more money. And to make matters worse, they now have to figure out how to liquidate or resell the products somewhere else, often at a steep discount.

When this happens, it doesn’t just dent profits. It can completely wipe out a business.

So what’s the solution to all of this? The sellers who last don’t rely on chance, arbitrage, or hoping restrictions don’t come. They build direct relationships with brands. They buy straight from the source, with permission, and often with some form of exclusivity. This reduces selling competition because fewer people have access to the same inventory.

But relationships are a two-way street. Brands don’t need more resellers. In fact, many don’t like resellers at all. What they want are partners who bring them value — companies that can help them sell more units, open up new sales channels, and expand outside of Amazon. If you can’t offer that, you’re stuck running in quicksand.

This is why so many casual sellers — nearly 500,000 this year — are leaving the platform. And it’s why the sellers who are winning aren’t simply reselling. They’re partnering, adding value, and building businesses that Amazon alone can’t wipe out overnight.

Here’s the truth: if you don’t know your numbers, you will fail. It’s not a matter of if — it’s only a matter of when. The only question is how long it will take before you throw in the towel, and how much time and money you’ll waste along the way. Too many sellers wake up one day staring at credit card bills they can’t pay because they ignored the rules of margins and costs.

At the very least, you need to get your bookkeeping caught up. Without that, you might as well be donating your time and energy. Proper bookkeeping is the foundation of survival — and without it, you’re blindfolded in one of the most competitive marketplaces on earth.

Amazon isn’t easy. It’s not passive income. And it’s definitely not “buy for $5, sell for $20, pocket the rest.”

The truth is simple: most Amazon sellers fail because they don’t understand money. They guess instead of measure. They confuse deposits with profit. They chase revenue instead of building sustainable margins.

Competition doesn’t kill them. Fees don’t kill them. Returns don’t kill them. All of those things are just the final blow. The real cause of death is financial blindness.

Amazon isn’t dying — it’s consolidating. The amateurs are getting washed out. The pros, the ones who treat this like a real business with real financial discipline, are thriving.