Whether you’re just starting to sell on Amazon or you’ve been at it for years, one of the most critical steps to optimizing your listings is product pricing.
Even before internet retailing became popular, customers consistently chose products based on prices. Today, pricing is one of the major pillars that hold up the holy grail of success on Amazon: the buy box. Another pillar is exceptional customer feedback, which you can learn more about here.
As a leader in third-party logistics and ecommerce marketing, Whitebox has extensive experience in helping brands set the right prices to move their products on Amazon and other marketplaces. In this blog post, we’ll focus on how to price a product on Amazon to maximize sales and profit.
So how do you set the price for products you plan to sell on an ecommerce marketplace like Amazon?
Pricing is, like many things, a balance of instinct and rules. Imagine it this way: you’re an event photographer. As a photographer, you rely both on technical knowledge and an artistic eye to make beautiful photographs.
Pricing is the same. As you set prices, you will use a mixture of rules and gut instinct. Just like a photographer, you’ll want to get comfortable with the rules before you start letting your gut lead your pricing decisions. Here are six techniques to help you get started:
Knowing how to calculate the selling price of a product comes down to two factors: your costs and the profit margin you hope to earn.
Your desired margins will likely be pretty straightforward. But before you can even think about a product’s final price, you’ve got to count all the costs along the way. From manufacturing to inventory to marketing to shipping, online retail has a huge number of expenses to take into account when setting that final price.
And of course, once you step into the realm of Amazon, there are the dreaded marketplace fees. These can vary greatly from product to product (ranging anywhere from 8% on electronics to 20% on jewelry), so do your research before listing your product.
Calculating the costs to you isn’t a one-time job. Variable expenses like packaging and shipping can change over time, so you’ll have to adjust accordingly. And don’t forget about the fixed costs of running your business, like office space, utilities, and payroll. It may sound basic, but tallying up all these costs and double-checking you’ll be pulling a decent profit are some things every online retailer should do before adding new products to ecommerce platforms.
You’ll want to think about branding before you sell your products.
The general rules you’ll follow will depend on if you are selling as a low-cost leader or as a premium brand.
Low-cost leader products are generally straightforward, relying more on changeable pricing and knowledge of other products. And of course, you should think about following the good old 99-cent rule. Ending prices in .99 instead of rounding up to the next dollar helps make products look as low cost as possible.
Remember: underpricing your products can be as detrimental as overpricing them, depending on the type of goods. If consumers think your product is priced too low, they may worry that it’s cheaply made and instead choose the product at the next highest price point.
With premium products, you’ll want to convey a sense of quality, which may mean shooting for more consistent, slightly higher prices. You may want to set up a minimum advertised price policy to maintain a certain pricing threshold and protect your brand image. And rather than setting a price like $49.99, which indicates a low-cost product, set your price at a whole number, such as $50.00.
These kinds of pricing considerations require you to have a thorough understanding of your brand and your customer. Without knowing how consumers perceive your brand, whether your target customers are price sensitive, and how your products compare to other low-cost or premium goods, it’s hard to make brand-based pricing decisions. Ultimately, the most important factor is whether customers consider your pricing fair, and finding this out may take some trial and error.
As nice as it would be to say you’re done after you’ve set that initial price, it may not be realistic for many sellers.
Flexibility is important because the market is always changing.
Remember: unless you are selling premium products, don’t advertise a set price, since in all likelihood, this will change often.
That said, constantly adjusting prices can be a big job. To make it easier, some sellers on Amazon opt for auto pricing. Auto pricing is simple: it allows for changes in price in response to other sellers’ changes. This can be a great option for ecommerce brands that sell products with a lot of competition. Ensuring your goods are priced similarly to other products on the marketplace is especially important for holding onto that sneaky buy box. Otherwise, you might miss out on sales.
Your ultimate goal should be to encourage your customers to buy from your own site.
Without those big fees from third-party marketplaces—and without the additional work that goes into ecommerce marketplace management—you’ll be able to offer lower prices and turn a larger profit. The simplest way to drive customers to your site is to set your Amazon prices at least a little higher than your website’s prices. Of course, this may not be the right route to take if you have many competitors selling similar products at lower price points on Amazon.
One strategy you can try is to build a relationship with the customer independently of Amazon. For example, you could email the customer to thank them for their purchase—a chance to include a link to your website and maybe even a promotion or incentive to buy directly from you.
Adding an insert to the prepackaging is another way to encourage customers to visit your site. Again, this is a chance to offer a promotion or coupon. And finally, you can experiment with selling select products on Amazon, but make accessories or variations available only on your site.
In other words, use Amazon as a showcase for your brand, but let customers know the listings aren’t exhaustive.
As an added bonus, this tactic reduces the number of individual SKUs the Amazon warehouse needs to store on your behalf, lowering your costs if you use Fulfillment by Amazon (FBA).
When using FBA and selling on Amazon, $10 is the magic number. When your products fall above or below this number, the rules often change.
For products less than $10, turning a profit and keeping your products affordable can be tricky because of Amazon’s minimum fulfillment fees. This means lower-priced items are generally going to have less margin because of these fixed fees. For example, a product that sells for $5 on your own website may have to jump to $11 in order to turn a profit. Items above $10, so long as they have a decent profit percentage, have more ability to absorb the fixed fulfillment fees.
If you’ve got a lower-priced item, don’t despair. There are innovative ways to make it work. Strategies like multipacks can help you move into the more profitable $10-plus territory. Additionally, FBA Small and Light offers reduced fulfillment costs on qualifying small items. If your low-priced products happen to be within these limits—in the United States, under ten ounces and 16 x 9 x 4 inches or less—you could see significant savings. And if you have strong profit margins for your product, then you’re golden.
Even if you follow all of these rules for pricing, remember that you won’t get anywhere on Amazon without excellent product and seller ratings.
Just think about how you make choices when buying products on Amazon. Do you pay as much attention to price when the product has only two stars? Do you buy from a seller who has feedback of less than 90% positive? Most likely not. If you want that buy box, you had better have great seller feedback in addition to competitive pricing.
Pricing is only one piece of the puzzle, and optimizing your listings on Amazon only works for the long term if you can deliver on customer expectations. In short, if you really want to succeed on Amazon, you need good reviews.
This means you’ll need to deliver not just a great product at the right price point, but a positive customer experience across the board. One important step is to do a better job of managing your distribution channels. This means taking control of all parts of the process—from manufacturing to shipping to customer service—to ensure your customers receive the best service and products possible.
Of course, this is easier said than done, and you might be afraid it’s impossible to oversee all of these processes on your own. Fortunately, ecommerce automation can help streamline marketplace management and fulfillment for your brand. At Whitebox, we work with our clients to automate as many processes as possible, and we help with pricing, distribution, and almost everything in between. Learn how our ecommerce software can make selling on the Amazon Marketplace so much easier and more profitable.