How to choose an Amazon pricing formula, and three sample pricing templates to achieve either maximum profits, maximum sales – or a balance of both.
Amazon pricing strategies to copy if you’re a super-beginner
Warning: These formulas are for super-beginners who have no idea where to start with Amazon pricing strategy.
As quickly as possible, I’m going to recommend you stop using these pricing formulas. At least not exactly as I outline them. Here’s why:
For small sellers, any simplistic pricing formula is a bad pricing formula. And what I’m about to outline is very, criminally simplistic. They are better than nothing to get started, but still formulated to be hyper-simple over being optimally effective.
It doesn’t mean pricing (or repricing) on Amazon needs to be hard to understand, or require any advanced knowledge. But it does need to take in numerous factors, and not be reduced to a “one size fits all” strategy. That’s a complicated way of saying: Your pricing strategy should be too complicated to fit into one sentence, but not so complicated that it won’t fit onto one sheet of paper.
What follows are some basic formulas that you can use as a starting point. You can plug these into your chosen automated repricer, or apply to manual repricing. My hope is you will very quickly build on these formulas, iterate, and make them your own.
You only have to set a pricing strategy once
A motivating note to remember: You only have to nail down your Amazon pricing formula once. You put the work in to your strategy upfront, and it can keep paying dividends for your entire Amazon career.
While I don’t recommend creating a pricing formula and then never updating it again, in theory, you could do exactly that. (Personally, I’m still tweaking my formula constantly, sometimes based on nothing more than my mood).
Just a reminder that good Amazon pricing strategy does not require constant, never-ending work.
No such thing as the “perfect pricing formula”
Let’s get this out of the way: It’s impossible to do pricing strategy 100% wrong, because its impossible to do it 100% right.
You can never predict what the “best” price for an item is. So all you can do is hope that the price you set gets you the maximum amount you can for your item, while still selling it before the world ends.
So it should give you a little more confidence to know there is no “right price” or “right pricing strategy.”
That said, there are prices that are much better than others, and formulas that produce higher profits than others. So lets give you some general repricing guidelines and formulas…
Step One: Know your pricing goals
We can’t just dive into the pricing formula templates without getting clear on your intended outcome. This isn’t hard, and I’m going to make it even easier by giving you three options:
- Are you a margin seller?
- Are you a volume seller?
- Are you both?
What is a margin seller?
Margin sellers emphasize maximizing their profit per item sold, and de-emphasize getting items sold as quickly as possible. Another way to look at this: Margin sellers optimize for getting a sale at the highest possible price – even if it means waiting longer. Most smaller Amazon sellers are margin sellers.
What is a volume seller?
Volume sellers emphasize maximizing their inventory turnover, and de-emphasize getting the highest possible price per sale. Usually this means selling as items as cheaply as possible by chasing the price downwards until an item sells. Another way to look at this: volume selling is optimizing for being the very next sale, vs getting a sale at the highest possible price. Most Amazon megasellers are volume sellers.
What if you want both?
Warning: Don’t be too quick to declare you’re “both.” That usually means you haven’t thought about this too hard, and want to quickly grab an easy answer. You should have a strong bias for one or the other.
A simple formula to choose your pricing goal
If you’re still not certain, a quick way to decide is to answer this question:
Do you run out of inventory to source before you run out of money, or do you run out of money before you run out of inventory?
If you have more access to inventory than you do money, being a volume seller is best. You should be focusing on turnover, so you can buy more inventory, feed it into Amazon, and repeat the cycle.
If you have access to more money than you do inventory, being a margin seller is best. Your focus in getting the most possible profit from your Amazon inventory, even if it means waiting longer.
For the purpose of the pricing formulas that follow, I’m going to refer to these as:
- Maximum Profits: A more complex, multi-tiered pricing formula that takes into item demand, and maximizes your profits (while still being simplistic).
- Maximum Sales: An extremely simplistic formula optimized for getting you maximum turnover.
- Maximum Sanity: Simple enough that that it won’t give you headaches, and you won’t be worried about giving up a ton of profits.
Step Two: Are an FBA seller or an FBM seller?
This one is easy to answer.
It’s important as we go forward, because I’m going to provide different sample pricing formulas for each fulfillment method.Some sellers do both.
Final warning before we get to the sample pricing formulas: I can’t stress enough how overly simplistic these are, and I don’t recommend blindly following these. They can be fine for awhile if you’re a newer seller, but as you get more knowledgeable, you’ll want to refine these formulas.
Miscenlaneous pricing notes
While I generally discourage underpricing other sellers, this only applies when you’re underpricing the lowest price seller. I don’t discourage underpricing another seller if they are not the lowest-priced seller. This doesn’t drag the price down for everyone, and is simply a neutral act.
Lastly (and this is very important), it should go without saying that anytime I recommend pricing against the 2nd or 3rd lowest price, the price difference has to be significant enough that it’s worth pricing higher for. Example, a book with a lowest price of $20, 2nd lowet of $22, and 3rd lowest of $24. It would make sense to price a book like that as $21.95 (depending on the Amazon Sales Rank). But if the 2nd lowest was $20.25, then it doesn’t make sense to price that at $20.20, since the price difference is only 20 cents.
Merchant Fulfilled Pricing Formula #1: Maximum Sales
The simplest repricing formula: Always be the lowest price for your fulfillment channel and get the quickest sales.
With this approach, you’ll always get the maximum sales, but you’re sacrificing some profits along with it by always being the lowest priced offer.
Here is a simplistic formula if you’re a FBM seller, and a volume seller:
- Always match the lowest overall price. That’s it.
Other optional variables:
- Have a “pricing floor” you’ll never drop your price below, to insure you don’t lose money on an item.
- Compare “New/New & Used/Used” only (I wouldn’t consider this “optional” and it’s just being smart, but I suppose a true volume seller would match the cheapest overall price even if it mean selling a new book at a used price. Not recommended.
- Never match Amazon’s price – always price at least 50 cents below.
- Instead of matching, underprice the lowest seller. Strongly recommend against underpricing. Mentioning here in the interest of giving all your options.
Merchant Fulfilled Pricing Formula #2: Maximum Sanity
- Always match lowest overall price for low-demand inventory
- Price 5 cents (or any small amount) below the 2nd lowest for inventory with mid-range demand.
- Price 5 cents (or any small amount) below the 3rd lowest for inventory in high-demand.
Other optional variables:
- Have a “pricing floor” you’ll never drop your price below, to insure you don’t lose money on an item.
- Compare “New/New & Used/Used” only (I wouldn’t consider this “optional” and it’s just being smart, but I suppose a true volume seller would match the cheapest overall price even if it mean selling a new book at a used price. Not recommended.
- Never match Amazon’s price – always price at least 50 cents below.
Merchant Fulfilled Pricing Formula #3: Maximum Profits
As a FBM seller aiming for maximum profits, here’s a simplistic beginner formula:
- Price just below the 4th lowest overall price for very high demand items (selling 5+ units a day)
- Price just below the 3rd lowest overall price for medium-high demand items
- Price just below the 2nd lowest overall price for medium-demand items
- Match the lowest overall price for all slow-selling items
Other optional variables:
- Have a “pricing floor” you’ll never drop your price below, to insure you don’t lose money on an item.
- Compare “New/New & Used/Used” only (I wouldn’t consider this “optional” and it’s just being smart, but I suppose a true volume seller would match the cheapest overall price even if it mean selling a new book at a used price. Not recommended).
- Never match Amazon’s price – always price at least 50 cents below.
FBA Pricing Formula #1: Maximum Sales
As a FBA seller aiming for maximum sales, here’s a simplistic beginner formula:
- Always match the lowest overall price for low-demand items.
- Always match the lowest FBA price for medium to high demand items.
Other optional variables:
- Have a “pricing floor” you’ll never drop your price below, to insure you don’t lose money on an item.
- Compare “New/New & Used/Used” only (I wouldn’t consider this “optional” and it’s just being smart, but I suppose a true volume seller would match the cheapest overall price even if it mean selling a new book at a used price. Not recommended.
- Never match Amazon’s price – always price at least 50 cents below.
- Instead of matching, underprice the lowest seller. Strongly recommend against underpricing. Mentioning here in the interest of giving all your options.
Alternate FBA Pricing Formula #1.5: Maximum Sales
Here’s an alternate pricing formula if you’re an FBA seller aiming for max sales:
- Always match the Buy Box price.
FBA Pricing Formula #2: Maximum Sanity
- Match lowest FBA for low-demand inventory.
- Match (or price below) 2nd lowest FBA for mid-range demand inventory.
- Match (or price below) 3rd lowest FBA for high-demand inventory
Other optional variables:
- Have a “pricing floor” you’ll never drop your price below, to insure you don’t lose money on an item.
- Compare “New/New & Used/Used” only (I wouldn’t consider this “optional” and it’s just being smart, but I suppose a true volume seller would match the cheapest overall price even if it mean selling a new book at a used price. Not recommended.
- Never match Amazon’s price – always price at least 50 cents below.
- Instead of matching, underprice the lowest seller. Strongly recommend against underpricing. Mentioning here in the interest of giving all your options.
FBA Pricing Formula #3: Maximum Profits
- Match (or price below) the 4th lowest FBA offer for very high demand inventory (selling 5+ units a day).
- Match (or price below) 3rd lowest FBA for high demand inventory.
- Match (or price below) 2nd lowest FBA for medium-high demand inventory.
- Match lowest FBA for medium demand inventory.
- Match lowest overall price for low-demand inventory.
Other optional variables:
- Have a “pricing floor” you’ll never drop your price below, to insure you don’t lose money on an item.
- Compare “New/New & Used/Used” only (I wouldn’t consider this “optional” and it’s just being smart, but I suppose a true volume seller would match the cheapest overall price even if it mean selling a new book at a used price. Not recommended.
- Never match Amazon’s price – always price at least 50 cents below.
- Instead of matching, underprice the lowest seller. Strongly recommend against underpricing. Mentioning here in the interest of giving all your options.
Using repricing software? A sample template
At NeuroPrice, I fiercely resisted adding pre-set pricing rules for new sign ups. I consider pricing very personal, and didn’t want to impose any specific pricing formula on anyone. But we got so many requests, I eventually gave in. I’m going to share that pricing template with you now.
The disclaimer is that it pain me to think of anyone copying this exactly. I don’t know your situation. I don’t know how quickly you need inventory to turn over. I don’t know anything about you. So (again), I implore you to take this as a starting point and tweak it to your own needs.
Take note of the global settings at the top also: How to price when there are no other sellers, etc.
You’re now equipped for pricing battle
These formulas are very basic, but they will get you momentum if you’re new to Amazon pricing strategy. Apply these to repricing software, or to manual repricing.
As quickly as possible, begin to iterate on these formulas and refine them to your own personal pricing perfection.
-Peter
No mention of any pricing based on your condition. Are you pricing your like new items the same as acceptable? Also, only pricing against 1st, 2nd, 3rd lowest, also with on consideration of competition conditions? Though it’s quite intuitive when repricing manually, individually, taking into account conditions exponentially increases the difficulty when using a repricer of any kind. Do you have any advice for pricing taking into account condition when repricing manually or in bulk?
Pricing based on condition is a losing pricing strategy in my opinion. Talked about that in my Pricing Mistakes article. The possible exception is when competing with Acceptable.