One of the most important considerations of selling a product on Amazon is choosing what price your product will sell at. There are several major factors that affect how a product should be priced:
- Your cost of buying the product
- The fulfillment (FBA) fees charged to sell the product on Amazon
- The current selling price on Amazon
- How many other people sell the same item
- How many units you have to sell
- Special considerations
Product Cost
The product’s cost is the most important factor in setting your product’s sale price on Amazon. If you bought 20 units of a widget for $5 each, you obviously need to sell it for more than $5 to make a profit. It’s also important to include shipping costs to Amazon’s fulfillment center in the product cost as well. For example, if these same 20 units of the widget cost $10 to ship to the fulfillment center, that adds $0.50 per unit you need to include in determining your sale price.
FBA Fulfillment Fees
Every product you sell on Amazon has a fee charged to you by Amazon for fulfilling a customer order for that product. The fee varies by product type, physical size, weight, and several other factors determined by Amazon. In setting your product’s sale price, you need to make sure you charge customers a high enough price to cover this fee. See below for a screen capture showing a fee breakdown for a product priced at $39.99.
Also see this post for a deeper discussion of Amazon’s fees.
Current Price on Amazon
Your product may already be selling on Amazon at a price set by other sellers. In order to be competitive, think of the prices set by other sellers as a starting point. For instance, if your product is sold by 4 other FBA sellers, and they have all set the price at $29.99, you should set your price near or at this same price to be competitive.
In the “Special Considerations” section below, I’ll address the “Race to the Bottom” phenomenon that can result from setting your price below other FBA sellers’ prices. In short: to preserve your profit margin, you should avoid a race to the bottom at all costs!
Number of Competing Sellers
Amazon can be a very competitive marketplace. There are often other sellers selling the same product you have. Therefore, the number of sellers you’re competing against may also determine the price you set for your product.
For example, let’s say there are 20 other FBA sellers of your product. In general, you’ll need to set your price at the low end of the prices set by the 20 sellers to see immediate sales of your units.
Let’s say, however, that there are only 2 other FBA sellers of your product. You can set your price at or slightly above the prices set by the 2 other sellers and still see sales of your product units right away.
Number of Product Units You Have
The number of units of a product you have on-hand may determine how you price your product. In general, the more units you have, the more aggressively (meaning lower) you need to set your price. Why? You can’t get the money back you spent on the product until it sells, and if you have a lot of units, that means a lot of your money is tied up in those units.
Selling the units more quickly may also help avoid long-term storage fees from Amazon. Long-term storage fees are fees on units of your product that have been at Amazon’s fulfillment centers for longer than 365 days.
Currently, inventory that has been in a fulfillment center for more than 365 days will be charged a monthly long-term storage fee (LTSF) of $6.90 per cubic foot, or $0.15 per unit, whichever is greater. Long-term storage fees are assessed on the 15th of each month.
You definitely want to price your product competitively enough to sell all your units before you’re charged long-term storage fees!
Special Consideration #1
One of the most important things to consider when pricing your product is the price set by other FBA sellers. If you decide to set your price below all other FBA seller prices, you risk starting a phenomenon known as the “Race to the Bottom”. I’ll explain this idea below.
When you set your price below other sellers, the other sellers, in order to stay competitive, may then match the price you just set. If each seller feels they need the lowest price, this forces every other seller to lower their price as well. If left unchecked, the race to the bottom can lead to a selling price where no one is making any profit at all!
Initiating a “Race to the Bottom” is a sign of someone who doesn’t understand the dynamics of selling in a competitive marketplace like Amazon. It hurts you, and all other sellers, so please don’t do it!
Special Consideration #2
A product’s sales rank, also known as the “Best Sellers Rank”, is also a pricing factor. Let me give a brief explanation of sales rank and why I don’t consider it a major factor in determining a product’s sales price.
The sales rank gives you a rough idea of a product’s demand, or how often the product sells relative to other products in the same category. The lower the sales rank number is, the more units the product sells in a given time period. A lower number implies more sales per unit of time, so a sales rank of 1 is the best rank a product can have.
In general, product sales, and the resulting sales rank, are only somewhat price sensitive. Said another way, if you’re selling a product with a high (bad) sales rank, lowering your price substantially won’t suddenly make the demand for your product zoom upwards. This works in the opposite direction as well: if your product has a low (good) sales rank, raising the price won’t slow sales all that much.
Like any general guideline, there are exceptions, but I’ve found that raising and lowering price doesn’t greatly affect sales or the sales rank of a product.
For a complete overview of Best Sellers Rank, see this post.
Pricing Summary
To recap, the major pricing factors for setting a product price on Amazon FBA are:
- Product Cost: sell your product for more than what you paid for it
- FBA Fulfillment Fees: factor these fees in when setting your sale price
- Current Price on Amazon: set your price close to the current Amazon price
- Number of Competing Sellers: you won’t be competitive with other sellers if your price is way above their prices
- Number of Product Units You Have: set your prices to sell your product quickly enough to get your money back quickly
There are other pricing factors I didn’t cover, such as the “Buy Box”, seasonality, automated re-pricing, etc. that don’t factor in as much as the points I’ve discussed. However, if you take the above major factors into consideration, you’re well on your way to mastering the fine art of pricing your products on Amazon!
If you want to read about the most common repricing scenarios, check out this post.
Want to know how you should prepare for the busy holiday 4th quarter? Read about it here.
If you want to optimize your product pricing for profitability, turnover, or both, you need read about how I use Keepa in my Amazon business.