How to Price Your Products on Amazon for Max Profit
There’s so much that goes through a consumer’s head when deciding whether or not to buy a product. But there’s one thing they think about first: the price.
Pricing your products isn’t easy. Sell something for too much and sales are going to be scarce. Sell it for too little and you might lose out on profit and your business will flop.
Throw in other factors like competition, revenue goals, production costs, and your target market—things get complicated.
It’s all about striking the perfect balance. Your price needs to be competitive yet profitable. Eye-catching yet not suspiciously high or low. You need to make as much money as possible in order to keep growing your online Amazon business.
If you’re wondering how to price your products on Amazon, then we’ve got you covered. We’re going to go over 6 tips to help you price your products on Amazon for max profit.
1. Determine Your Price Floor & Price Ceiling
A price floor is the absolute minimum price you should be selling your product for to at least break even. You’re never going to actually sell it at this price, but it’s a good number to know for reference.
To find your price floor, add up some important costs and expenses. Some costs to consider:
- Manufacturer costs. How much does it cost to actually make the product? Try to get this number as low as possible without sacrificing quality!
- Amazon FBA fees. There are a ton of fees that come with participating in Amazon’s FBA program. Make sure you add up all these fees before trying to determine your price floor.
- Shipping fees.
- Return costs.
A price ceiling is the maximum price you should be selling your product for. This number is a lot trickier to figure out. A price floor is definitive because you have concrete numbers to add up. Finding your product’s price ceiling isn’t as simple as that.
There are two ways to go about finding your price ceiling.
First, you can safely go 20% above the highest-priced competitor’s product. When finding this product, only look on the first page of Amazon’s search results when your product’s keywords are typed in.
The other way you can find your price ceiling is by taking the sum of all your costs and multiplying that by 5 or 6.
2. Do Your Research
There’s a lot of research that goes into finding the optimal price for your products.
Gauge your competition
Look up your product’s keywords and try to find the average price. Once you find the average price, you can have a better idea of what you should price your product at.
You’ll notice that there are likely some outliers. There’ll be some products that cost a lot more than the competition and some that cost a lot less.
The more luxurious products cost more for a reason—try to determine what that reason is. How are the reviews? Is the product made from a higher-quality material? What makes this product stand out from the rest?
The cheaper products are able to cut costs somehow, but why? Keep in mind that the cheaper products could be sacrificing long-term profitability for a quick buck. You should not do this. These products are likely made from cheaper materials and have poor reviews.
Products that are of decent quality and cheaper than the competition might start a price war. A price war starts when a brand sells its product cheaper than the competition. This triggers all the competition to start lowering their prices just to be able to compete. This is not good for anyone.
Look at your target market
You should have an “avatar” of your targetted buyer. Who is your product made for? How old are they, how wealthy are they, and how much are they willing to spend on your product?
It’s important to know this information in order to accurately price your product. You can get a rough answer to these questions by looking at the reviews of your competitors. Read what consumers have to say about their products.
3. Set Prices Above the Free Shipping Minimum
Amazon Prime subscribers get 2-day delivery on a lot of products. But what about those consumers that rarely shop on the platform?
Consumers not subscribed to Prime can still qualify for free 2-day shipping if their order is above $25. Shipping usually costs 5-10 dollars but this additional cost isn’t reflected on the price listing.
For example, if your product was $30 and a competitor’s product is $24, then it might be assumed that all consumers will go with the cheaper option. However, if shipping on the $24 product costs $10, then most consumers will look for a product that qualifies for the free shipping.
Try to set your prices above the free shipping minimum when it’s reasonable to do so.
4. Get Good Reviews
Good reviews can sway hesitant customers’ opinions.
To get authentic reviews, you can politely email customers and direct them to the review page. Responding to every review will also give you a good look.
Never ask a customer to leave a review in exchange for a free product or participate in review clubs.
Before you get a good amount of reviews on your product, try to sell for a bit less than the average.
Pricing is a tricky science to master. It’s important to regularly test new offers and experiment.
Very rarely are you going to want to lower your prices. It’s only smart to do so when you want to snag a bigger market share with an incoming flood of interest in your niche. Or when your competition is lowering prices, but even then it might be unwise to follow suit. If you’re overstocked then it might be smarter to just run a promotion or offer coupons instead of lowering the price entirely.
You can also run A/B tests to see which price is optimal. A/B tests are when you only change one variable in a selling strategy to see if it’ll impact sales or not. For example, if you sell your product for $25.99 you can try selling it for $27.95 for two weeks. Measure how many units you sold in the 2-week period compared to how much you usually sell.
Charm pricing is the practice of putting “.99” at the end of a product instead of “.00” in order to make it seem cheaper. You can run A/B tests and test out “.99” versus “.95” and “.00”.
6. Provide Discounts with Coupons
Coupons could be a great way to encourage customers to go with your product. A good strategy could be to price your product slightly higher than the competition but offer a coupon that’ll bring it to or under the price of your competitors. Try doing this in an A/B test!
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Pricing your products is an essential part of maximizing profitability on Amazon. It involves a lot of data research and commitment.
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