Why Finding The Right Price Point Is Essential For Amazon Sellers

March 27, 2019 by Price-Fuel

amazon dynamic pricing/price point

Amazon boasts more than 300 million active user accounts. Are you tapping into this massive customer base?

If you’re a seller within the Amazon marketplace, you know how steep the competition is. By 2020, experts predict that the marketplace will contribute almost $260 billion in sales. Every day, the platform’s millions of sellers are adding inventory and closing deals.

Have you noticed steady growth in your Amazon sales? If not, it might not be attributed to your product description, your photographs or even your niche. Rather, it’s likely due to your price point.

To stand out among a sea of like-minded peers, you need to strategize your pricing approach. Today, we’re sharing how to find the right price point, reaching that sweet spot where you’re low enough to be attractive but high enough to turn a sizeable profit.

Ready to learn more? Let’s get started.

Why Price Point Matters

If your business is making money on Amazon, why should you concern yourself with things like price points? After all, a sale is a sale, right?

In reality, to be a successful and sustainable seller, you’ll need to do more than earn a buck or two every time a customer hits “Add to Cart.”

Setting your correct price point as early as possible can help you dominate your sphere and improve your store’s reputation. This equals return customers, word-of-mouth referrals, a higher ranking on search inquiries, and five-star customer feedback. Here are two more reasons why this step can’t be missed.

Profit Margin

Anyone who’s ever sold an item for a song then ended up upside down on the deal can attest to the fact that profit margin matters.

When calculating your selling price, you’ll need to pay attention to a few important costs. In addition to what you paid for the item, also factor in Amazon marketplace fees.

These can vary from product to product, ranging from 8% on electronics to 20% on jewelry. There are also subscription fees based on your account type.

Those under the Professional Selling Plan will pay a monthly $39.99 subscription fee, in addition to their per-item selling fees. Those under the Individual Plan, who sell fewer than 40 items per month, will not pay a subscription fee. Instead, they’ll pay $0.99 for every item sold, as well as per-item selling fees.

Knowing these costs is an ideal place to start and is especially helpful for novice sellers. Yet, as your business sophisticates and diversifies, so too should your pricing strategy.

Sales Volume

Still sitting on that large pile of inventory you purchased back last summer? Take a look at how you’ve priced the items. If you overshot the mark, you could be hanging onto those products for a little longer.

Instead, your prospective buyers are turning to your competitors, who are offering the same or similar products for less. What happens when you fail to see inventory turnover and your items are sitting in the Amazon fulfillment center? You pay higher Amazon storage fees.

Amazon bills you these fees on a monthly basis. It also invoices you a long-term storage fee twice a year. The fee is based on how much square footage your shop takes up in the fulfillment center.

Shops with higher turnover rates and less stored inventory not only enjoy more sales. They can also lower their space requirements and, in turn, their storage fee payments.

Setting Your Shipping

Before you can accurately set your Amazon pricing strategy, you’ll need to take shipping into account. Let’s review Amazon’s policy.

If you’re a Fulfillment By Amazon (FBA) seller, Amazon will charge you shipping fees for every item it ships from its fulfillment center. This is inevitable for you, but something your target audience might not be used to.

Remember, Amazon Prime members get free, two-day shipping on all Prime-eligible items. To date, there are more than 100 million people in this program.

In addition, even non-Prime members receive free shipping on all Prime-eligible items if they spend $25 or more. Keeping that in mind, it can be helpful to look for items that you can price at $25 or more, though this isn’t a requirement.

How could this help? Non-Prime shoppers are more likely to pay $27 for an item if they feel they’re receiving free shipping, rather than paying $22 for the same item and a flat shipping fee of $5 to get it to their doorstep.

To more accurately strategize your shipping, look at your shopper analytics. Are a majority of your customers Prime members?

If so, you might be able to lower your pricing to less than $25 and still drive enough traffic to stay afloat. Yet, if more than 85% of them aren’t Prime participants, see if you can logically set your price point to at least $25 if possible.

Setting Minimum and Maximum Sell Points

Do you know your break-even point? In other words, do you know how low you can price your items without losing money? Conversely, how much is someone willing to pay for your product?

The former is your break-even price and the latter is your maximum reasonable price. Here are two important reasons to set these parameters today.

Setting Lightning Deals

Want to ramp up attention for your shop and encourage on-the-fence buyers to take the plunge?

Amazon allows you to set discounts, offer promotional codes and hold lightning deals, wherein buyers are looking for a savings of around 40% or more. If you don’t know your minimum and maximum sell points, you won’t know how to price your discounts, either. But when you do have this data, you can make your sales as appealing as possible.

For example, if your nominal product price is $20, your break-even price might be $8 and your maximum reasonable price may be $35. You can either set a lower discount on your nominal price (40% off of $20) or a higher discount off your maximum reasonable price (65% off of $35).

In both cases, the product sells for around $12, but the 65% off is psychologically more attractive.

The Power of List Price

Another reason to understand your break-even and maximum reasonable price points is that you can use them to make your current listing appear discounted.

For instance, you can use your maximum reasonable price as your product’s “list price.” Then, your nominal price will be lower than that, giving the impression that you’re giving a discount.

In this way, your maximum reasonable price becomes a permanent part of your listing. Amazon lets you enter this figure, then mark it out to reveal a savings percentage.

A Note on the Buy Box

The Buy Box is a coveted position reserved for Amazon’s most reputable and well-reviewed sellers. It also goes to those who price their products the lowest.

It’s important to understand that private label sellers own the Buy Box of their listings.

If your product is unique and popular enough, it’s only a matter of time before copycat sellers may try to follow suit. If there is a listing hijack, it is best to take legal steps against those who violate your trademark rights, not to lower your price.

Succeeding and Earning on Amazon

As an Amazon seller, you’re self-motivated, determined and tech-savvy. You’re also incredibly busy and might not have the time to strategize your pricing approach.

That’s where we come in.

We’ll take a deep dive into your Amazon store to help you set your price point and discover new pricing opportunities. Our platform also makes it easy to automate your repricing efforts so you never miss a chance to turn a profit.

When you’re ready, take a look at our plan options and get started with a free trial. Amazon might feel like a wild frontier, but we’re used to exploring it. Let us show you how today.

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