Amazon started as online book store and has grown to be the worlds largest online retailer.
How to create successful pricing strategies to maximise profit on Amazon
This post on successful pricing strategies was penned by Iulia Olteanu, an Amazon Repricing Expert for SellerEngine algorithmic Amazon repricing software.
Iulia has been working for SellerEngine for over 5 years in the company’s Amazon Software department before taking over a new position in the Marketing department. In her role as Amazon Repricing Expert, she has interacted with thousands of Amazon sellers and has acquired a broad understanding of the roadblocks and challenges both experienced and beginner sellers face when building pricing strategies on Amazon.
How to create successful pricing strategies on Amazon
Whether you’re a seasoned Amazon seller or you have recently started your Amazon business, mastering your pricing strategies is key to having a profitable ecommerce business.
There are several variables you need to watch for when running your ecommerce business, like account health, advertising, fulfillment channels etc. but pricing strategies should be on top of every seller’s list when aiming for success.
Here at SellerEngine, we are interacting with thousands of sellers, from beginners with fixed budgets to highly advanced ones with large profits. Therefore, we’ve built the following list of steps and recommendations to guide building up successful pricing strategies for Amazon.
1) Know your costs
Do you know how many sellers underestimate their costs?
There are more facets when talking about costs when selling on Amazon: the Amazon selling fees, storage costs, customer service, advertising, to name a few.
You can try and take the following exercise by answering the next questions:
- How much did you pay for each item in your inventory?
- How much it does it cost to fulfill an order?
- How much does Amazon charge?
By finding out the answers to these three questions you already start to get a better picture of how much you are making. Knowing your costs is important in making informed pricing decisions.
Don’t lose sight of changing costs: Amazon fees aren’t static, shipping costs can happen as well as international mail rates changes.
Therefore, a best practice is to keep track of your costs at all times, via an accounting system or even a spreadsheet. As you identify costs that are changing, you can immediately take action by raising your prices, finding alternatives to cut costs or even liquidate inventory to diminish the loss.
2) Know your inventory
Do you know how many sellers go by the saying: “Set it and forget it”?
One thing we’ve learned throughout the years of developing highly advanced repricing software, is that one repricing strategy will not serve your entire inventory. With so many variables around the Amazon platform, it’s impossible to use one strategy for your entire inventory. Think about the Amazon Buy Box algorithm, the changing competitive landscape, and different product categories, to name just a few.
Try a simple exercise and think about:
a. High and slow movers in your inventory
Check out your sales volume to identify high movers and slow movers in your inventory. For slow movers, a strategy could be to test discounts that lead to increased sales.
For high movers, you might want to consider adding extra margin to increase the profits.
b. Items that have a good Sales Rank
You can use Sales Rank to quickly identify popular items vs items that might stay a while in your inventory before selling.
However, keep in mind that the current sales rank won’t be able to tell you if an item will sell well or not. That is why it is important to pay attention to how sales rank has trended over time.
c. FBA inventory age
If you are doing FBA, then the inventory age is surely something you are monitoring or should be, as it can have a high impact on your overall costs.
You can check out the inventory age in your Seller Central dashboard or export the data via the Fulfillment Reports section.
Best practices when doing FBA if you want to avoid high FBA long term storage fees is to either test your products before sending them to FBA or apply discounts as your products approach the storage term limit.
Speaking about FBA inventory, have you heard about the Inventory Performance Index Score? It has been introduced in July 2018.It’s intended to help sellers monitor how efficiently they are balancing sales with inventory levels, fixing listing problems, and restocking popular items in the past three months. You can check out all there is to know about this helpful metric in a SellerEngine blog post.
3) Know your Minimum price
A secret in avoiding pricing mistakes is having set up a clever minimum price. A common mistake we’ve seen with numerous sellers is that they confuse minimum price with what they have paid for the item or even with the break even price.Your minimum price should cover outbound shipping costs, Amazon fees and commissions, the cost of the item itself and a minimum acceptable profit.
Also, pay attention that the minimum price is different from the floor price. Floor price has a static value whereas minimum price is a dynamic number encompassing variables that change depending on size, weight, Amazon fees, and commissions, etc.
With this in mind, you can look for tools that can help you get a minimum price for all your items with as little effort as only putting in your COGS (cost of goods sold).
With a solid minimum price in place it’s unlikely that you will ever sell on a loss.
4) Win the Amazon Buy Box
Did you know that 80% of Amazon sales come through the Amazon Buy Box? It’s a pretty impressive number to overlook.
At SellerEngine, we’re constantly in touch with sellers and selling scenarios that aim at this: winning the Amazon Buy Box. That is why our research over the years has resulted in some facts worth knowing. When building successful Amazon repricing strategies, it is best to guide your actions over facts rather than over intuition. So, we’d like to share some of our insights to help you build better Amazon repricing strategies when aiming to win the Amazon Buy Box.
With Amazon being a customer centric company, it is no secret that the first thing you need to have in mind is performance metrics. Next comes pricing.
There are a lot of articles, blogs, books, etc. on how to master your Amazon account performance metrics so we’re not going into detail about that. Since repricing and pricing strategies are our domain of expertise, here are some facts to consider:
- You can lose the Buy Box if you price too high, even if you are the only seller – knowing this, you can build a pricing strategy to gradually increase your prices as long as you own the Buy Box. Thus, you will get in higher profits. As soon as you lose the Buy Box, make sure you revert to lower prices.
- The Buy Box rotates when competitors change prices, including you – competition is not always bad, especially when it pulls the market price up. In a scenario with two or more competitors, it’s important to keep the pace with price changes, particularly when there are several price changes per hour.
- The Buy Box rotates regardless of price as well – if you are selling in a category where item’s prices are limited by MAP, our research has proved that Amazon shares the Buy Box between the competitors. The key element here to get into the rotation more often, is related to your performance metrics.
- Buy Box Rotation is not always “fair” – our experience with sellers over the years has shown us that Amazon tends to favour one price point against others. With this in mind, it’s important to keep your prices as high as possible but make sure you are not favoring the competitors in getting the Buy Box from you.
- Sellers with different price points can still be in the rotation – as mentioned above, sometimes there is a favorite that owns the Buy Box for longer periods of time, even if the other sellers get their share as well. In such circumstances, instead of focusing on the whole competition, focus on the “favorite” and try strategies of matching or slightly overcutting.
5) High Selling Seasons Strategies
High selling seasons include Prime Day, Back to School, Black Friday and Cyber Monday and of course, the winter holiday season. There are specific pricing strategies to have in mind when approaching each of these periods. Here’s our advice on how to create successful pricing strategies for your Amazon sales for each of them:
Back to School
When it comes to selling textbooks via Amazon or other platforms, you’ll discover that textbooks are quite unique. Unlike the holiday season, when you only get one chance per year to drive in those sales and profits, if you’re in the textbook business, you get 2 big sales rush periods: January and August.
Throughout the years, we’ve seen successful Amazon pricing strategies bring together a combination between averaging the lowest FBA offers and placing yours somewhere in the middle.
Why would you do that? If you are looking for profits aside of sales, then you should know that lowest offers will sell out and then your offer will come in place next. So sales will happen but it’s important to make sure you drive in profits as well.
Next thing you would want to look for is to have the option to isolate your textbooks from the rest of your inventory. Since this part of business has a high seasonality, you most probably sell in several categories. That is why it’s important to be able to reprice your textbooks differently from the rest of your inventory during sales rush times.
A trick here is to name your skus in a very simple and straightforward way so be able to isolate them quickly and reprice them in a different way.(eg: include “textbook” in the name of the sku or any other differentiator that helps you quickly group your textbooks into a single inventory section).
Next, it is important to check out Amazon Best Sellers Rank for every item that you are selling.
Amazon Best Sellers Rank is an Amazon metric that represents the item’s sales popularity. Lower sales rank indicate a more popular and better selling item. For instance an item with a sales rank of 50 will sell much more frequently than an item with a sales rank of 150.000.
This metric is updated hourly to reflect recent and historical sales of every item sold on Amazon.com.
However, sales rank is volatile and can suffer great changes in short period of times. It’s very easy to be fooled by an item with a Sales Rank that is artificially low due to a recent sale. We’ve seen cases when an item (a book) with a sales rank of 9 million sold and at the next update its rank dropped to under 500.000.
To make accurate guesses about how fast an item is selling, you need to look at multiple data points and see how an item’s sales rank trends over time.
However in the absence of a sales rank history, making sure you at least have sales rank data is a great point to start. The higher the demand, the lower the sales rank, the more courageous your prices can be.
Another detail that is really worth paying attention to is your competition and to be more precise, who is your competition.
If you have a listing on which Amazon is your direct competitor then you need to make sure you take Amazon’s offer into account when repricing. That is, don’t reprice over Amazon’s price.
Over the years we’ve learned that it is much more difficult to win a sale against Amazon then against any other competitor. Profit is important but trying to make profit at any cost might not get you far.
Black Friday and Cyber Monday
Black Friday and Cyber Monday are two dates to mark down in your calendar.
Cutting prices won’t do you any good if you can’t tweak them in real time to avoid losing money or underselling. For such periods of the year, it’s best to take advantage of an algorithmic Amazon repricing software.
Winter Holiday Season
Avoid Overly Aggressive Pricing: Sales come naturally during the holiday season. Because of this, being aggressive in your repricing strategies may not get you the profits that you’re hoping for. A successful repricing strategy makes use of floor and ceiling prices and staying in a general “sweet spot,” instead of following your competitor’s prices and letting their strategies dictate yours.
Don’t Get Caught Up in Price Wars: Undercutting your competition over and over again will only lead to getting you out of the market really quickly.
The one exception is if you have time-sensitive items (expiring grocery items, seasonal goods that you don’t want to hold on to) or items that are going to be hit with long-term FBA storage fees. If any of your items fit these criteria, the holiday season is a great time to be aggressive with pricing and really push for sales.
These are our recommendations on how to create successful pricing strategies when selling on Amazon. Pay attention to costs, stay on top of your inventory by organizing and managing it in a smart way, think ahead of your competitors by making use of smart Amazon software, master the Amazon Buy Box ins and outs and take full advantage of those high selling seasons with successful selling strategies and repricing techniques.
To stay on top of your Amazon business and accomplish all the recommendations we’ve outlined above, try our powerful Amazon repricing software, Sellery. It’s easy to use and allows you to materialize all our guidelines or your personal Amazon business strategies. Use the link below and take advantage of our Tamebay special offer of 3 weeks of free trial.
Sell by performance and not by price is my motto.
This is why repricing software is not the best solution for sellers because you end up chasing the downward spiral of cutting margin to the point of fighting over pence/cents.
I look at the sales performance over a range of 8 weeks and price once every fortnight based on that performance against my stock holding.