Amazon Product Price Breakdown: How to Create an Effective Pricing Strategy
Keren Dinkin, Copywriter
6 min read -
Updated:Did you know that Amazon changes the price of a single product 2.5 million times every day? That’s a price change every 10 minutes! The dynamic pricing, coupled with stiff competition and an unpredictable algorithm necessitates a failsafe Amazon product price strategy that can help you make profits.
Hiking up the prices of your products or charging an excessive shipping fee are not Amazon-approved tactics. You have to play by the rules of the Amazon Marketplace Fair Pricing Policy.
So, how should you ascertain the Amazon product price? Start by calculating your breakeven.
Understanding the Costs of Selling on Amazon
To know your breakeven, you need to account for:
1. Landed Cost: This refers to the cost of procuring the product to fulfillment centers for shipping to customers. Landed cost is calculated by this simple formula: unit price + transportation expenses + taxes + duties + insurance premiums + administrative charges. The exact elements of landed cost can vary depending on production charges, shipping, tariffs, etc.
2. Amazon Fees: This includes a referral fee (up to 15%) and additional Fulfilled By Amazon (FBA) fees. FBA fee is charged based on dimensions, weight, category, price, and shipping charges. You can use the Revenue Calculator in Seller Central to ascertain these fees.
- Storage Fees: This is a recurring monthly fee that you pay for storing your inventory. There’s a fixed base fee and a variable component called a storage utilization surcharge. However, the surcharge is only applicable to eligible sellers.
- Marketing Costs: This includes the money you spend on advertising your products. Pay-Per-Click (PPC) ad spend, keyword bids, influencer marketing costs, promo deals, etc. contribute to this cost. It’s a variable cost.
- Third-party Software: This comprises the subscription charges you pay for third-party software solutions, like Sellerise. While Amazon has a comprehensive set of features and tools for its sellers, third-party software can give you a competitive advantage, so you must factor in the cost.
- Returns & Losses: This refers to the potential losses you can make from returns, cancellations, etc. You must factor in the return rate to be able to calculate your breakeven price.
Knowing your breakeven helps you determine a ballpark Amazon product price that should be your threshold.
Amazon Product Price Strategy Best Practices to Consider
When making a pricing strategy for your products, adhere to the following tried and tested methods:
1. Set a Minimum Acceptable Price
Once you have calculated your breakeven cost, fix a minimum acceptable price for selling the product. It is ideally the lowest price at which you can sell the product without making losses due to Amazon’s dynamic pricing. You should never go below this price.
The minimum acceptable pricing limit is key to taking strategic decisions.
From ascertaining your PPC bidding budgets to setting your maximum pricing target, it gives you a reference figure to base all your decisions. Once you know the maximum you can spend on bidding for a particular product, you can easily get a good ROI.
While you can use Amazon’s Pricing Calculator for this, it’s advisable to use a more comprehensive tool that factors in all variables.
The Sellerise SQP Insights tool helps you track your competitors and spot trends in pricing that you can leverage to determine your average acceptable pricing.
2. Go High, Then Low
Calculate your maximum acceptable pricing for a product and then offer discount coupons and limited time deals to sell at a lower price. Slashed price stickers drive more click-throughs because customers are eager to check out the best deals for themselves.
Never sell a new product at the minimum acceptable price because it can lead to the perception that what you are selling is cheap. Slightly higher prices, coupled with discount coupons give the illusion that the product is premium but affordable. That drives more sales.
Additionally, whenever you decide to increase the price, do not increase more than 10-15% at a time. Calculate the discounts accordingly to get more sales.
3. Price for Psychological Impact
In e-commerce, there’s something called a “charm pricing” technique that exploits the “left digit bias” in customers to drive sales. While browsing products, customers tend to focus on the first digit of the price when making purchasing decisions. So, setting the product price just below a round number that ends in 0.95 or 0.99 drives more sales.
For example, if your maximum acceptable unit price is $20, use $19.95 or $19.99 in your listing.
All major online and offline businesses use this technique to sell their products. So should you.
4. Monitor Competitor Pricing Daily
Amazon is a competitive marketplace where many sellers sell similar products at different price points. So, it’s imperative to closely study your top competitors and understand their pricing strategy. You can identify the strategy that they are using, especially if they are selling more units per day compared to you.
Competitor pricing analysis is also helpful in adjusting your pricing strategy. As long as you don’t go below the minimum acceptable price per unit, be adaptable and adjust the pricing to suit various customers.
Some customers meticulously plan their buys and therefore can be impressed with deals and discounts. On the contrary, spontaneous shoppers don’t mind paying more. So, optimized listings with high-quality images and good shipping fare better with them.
Be as adaptable with your pricing as you can be to make more sales.
5. Incorporate PPC ROI into Pricing
Always invest in marketing your profitable products with Amazon PPC so that you get consistent sales. The key to PPC bidding that yields good ROI is factoring in the Advertising Cost of Sales (ACoS), especially if it touches 30% or more. Your goal should be to maintain profitability even with ad spend.
Use Sellerise’s array of keyword tools to fine-tune your keywords and PPC bidding budget to stay on top of your bidding game.
6. Bundle to Increase AOV (Average Order Value)
Bundling complementary products is a tried and tested marketing strategy to drive more sales while increasing AOV. You can use the same tactic for your products on Amazon.
If you sell just one type of product, consider multi-packs to increase AOV and lower FBA as well as unit shipping costs.
Amazon recommends studying your sales data to successfully identify products that can be bundled and sold at slight discounted rates.
7. Adjust Price Based on Inventory Levels
You can only sell well when your inventory is fully stocked. However, if you are unable to refill your inventory and your stock is running low, increase the price of your products to slow down sales. Slowing down sales may sound counterintuitive, but it will help you manage low inventory levels.
On the corollary, you can experiment with discounted prices when your inventory is fully stocked or the products are selling at a slow pace. Deals and discounts, coupled with optimized listings and PPC strategy can help you sell more.
The idea here is simple — adjust pricing as the inventory stock level demands.
Follow these tips when creating your Amazon product price strategy and you will be successful. To find out more about how Sellerise can empower you to sell better, get in touch with us.
