Determining the right price for your products on Amazon can be very tricky however, if you get it right, it will open the door to success. In the opposite scenario instead you will either don’t sell anything on Amazon or lose money. If there is one thing to check when determining if you are using the right pricing strategy, is whether your products are being listed in page one of results for your most important search terms. With 70% of all sales going to sellers listed in results page one, it is needless to explain why the above mentioned check should be a rule of thumb. Let’s jump to the core of the question and see how to set the right prices.
Rule 1: Never go below your profitable price.
As for any business and sales channel, it goes without saying that one should never set a price that is not sustainable over time and that has no margins. For this reason, the first thing one should figure out when determining the right price is the lowest price at which the business would not incur into losses. In order to find this out one has to list down all of the costs incurred when selling a product on Amazon. Here is a list of the most typical elements to consider:
- Amazon commission (selling plans and referral fees)
- Amazon FBA fees (if applicable)
- Shipping costs
- Transaction costs (e.g. wire transfer)
- Return fees (both Amazon fees and yours)
- Custom fees (if applicable)
- Overhead expenses
The cost components may vary slightly for each Amazon category so always check if there is any particular fee you should keep in mind in your categories.
Rule 2: Maximize profits.
Another thing that stands for any type of business independently of the sales channel, is to aim for the highest possible margin in order to maximize profits. For this to happen, one has to determine the highest feasible price in his/her relevant Amazon categories. Remember however the check rule that we mentioned at the beginning of this article: given that most sales happen in the first page of results, your ultimate goal should be to set the highest possible price that makes you stay in the top positions of the first page of results. This part is not as straightforward as the previous one given that you need to remain competitive with respect to all of the other sellers and there are more and less profitable ways to do it. For instance, if one was to maintain his/her position on the first page of results thanks to a series of promotional activities (e.g. discounts, coupons, advertisement), it is clear that the strategy would not be sustainable over time. If, instead, your products are listed in the first page of results exclusively because of the right pricing, then you can be sure that your business on Amazon will be profitable and sustainable. Now, what’s the secret to determine how high a price can be? As surprising as it might be, it is mainly a matter of looking at competitors prices. Your prices should fluctuate around the prices of products listed on the first page of results when one looks for your Amazon’s top search terms.
Rule 3: Be consistent over time.
Although prices can fluctuate through time because of multiple reasons, it is important to be consistent and stable. This is necessary to build a solid, loyal and long-lasting customer base. As always, exceptions to the rule exist and these are generally useful to positively impact one’s business on Amazon.
The most common scenarios in which prices fluctuate are:
- Shopping holidays: no seller can expect to achieve high sales without offering discounts and other promotions on special occasions like Black Friday or Back to School.
- Improve a product’s Amazon sales rank: sales ranks are rankings of best-seller products. One of the most effective ways to boost sales is by decreasing prices so, if a seller offers discounts on products, the Amazon sales ranks of the latter will most certainly improve.
- Make customers discover new product launches: when consumers are used to a specific product, they will hardly opt for another one unless something attractive like a first time purchase discount catches their attention.
- Cross selling: by offering a discount whenever a customer purchases a bundle. Despite the lower margin one can make on a single product due to the discount, Amazon sales ranks of all products included in the bundle are generally positively impacted.
All in all, determining the right prices for your products on Amazon may require some work but it is crucial to get it right from the beginning to ensure business sustainability and a good brand perception. Amazon’s goal is to maximize sales and, as a consequence, it will favor those sellers and products that bring the most money. Always keep an eye on whether your products are still showing on the first results page. At Gradient we have developed a set of tools that helps sellers track their and competitors prices in order to optimize the pricing strategy through time. Create a free Gradient account today to learn more about it and make the most of your business on Amazon.