A specific “if-this-then-that” pricing formula for selling books on Amazon.
Video: Your 8 choices when setting a price
Making your Amazon pricing infinitely simpler
Setting a price for your books can feel overwhelming. But by the end of this article, this process will become much simpler and more streamlined.
The options for setting a price for a book (or anything) may seem limitless. But I have some good news: You only have eight options.
I’m going to explain what each of those eight options are, and exactly when to apply each.
Warning: pricing is subjective
The disclaimer I must offer is that all of this is very subjective. I will give the best advice I can based on my years of Amazon selling experience, but ultimately there is never a “right” answer. There is never a “perfect” price for any scenario. So it’s important to understand the higher level concepts of pricing, and not get hung up on the exact circumstances or exact Sales Rank stratas to apply these pricing options. You just need to be directionally correct, and accept that there’s no precise measure of the “perfect” price.
When I say “if this, then that,” what I mean is: Taking the high level concepts and reducing them to a series of steps. I call this the “pricing chessboard.” Pricing is like a chessboard in that you review your competitor(s), you analyze the situation, and you make a decision based on the information in front of you.
Good news is that while a chessboard has a very large number of options, with pricing there are only eight. You only have to choose one of eight options (and a few of them are uncommon to apply). So this isn’t prohibitively complicated to grasp in just a few minutes of reading.
Here we go…
Pricing Option #1: Matching the lowest price (by fulfillment channel)
This will be the most common pricing move you will make. It is also, unfortunately, what most sellers do for most of their listings. In fact, it is vastly overused, much to the detriment of all Amazon sellers, as it drags prices down for all of us.
What this means is: If you’re a FBM seller, match the lowest FBM price (landed price, aka price + shipping). And if you’re an FBA seller, match the lowest FBA price.
A message for FBA sellers: If you took nothing else from this book, and if you just put this one strategy into practice, you would do better than 90% of FBA sellers. The fact is that most FBA sellers psych themselves out of simply matching the lowest FBA price. They think they are competing with FBM competitors more than they are. Or they think they need to underprice eBay competitors. Or any number of other strange logical justifications for not simply matching the lowest FBA price.
If you learn to be disciplined and apply this, you’re ahead of 90% of FBA sellers.
When to apply
Apply to most inventory that has medium-demand and is selling steadily but not multiple times a day.
We’re not going to apply this to very high-demand inventory, but (at least if you’re an FBA seller) we’re not not going to apply this to very low demand inventory either.
To be specific, let’s assume you’re selling books. For me, I match the lowest FBA price for all Sales Ranks up to 1.5 million. Beyond that, I’m matching the lowest FBM price. This is a largely arbitrary number, and there’s no reason to follow it exactly. If you’re more conservative (and want faster sales), you might start matching the lowest FBM price above 1 million. It’s the broad strokes that matter, not the specifics. And again, there’s no “right” answer.
What’s important is to have a number and stick to it, to avoid the friction of making a new decision for every product you list.
The logic behind choosing a Sales Rank beyond which you ignore competing FBA offers is this: Let’s say a book is ranked 4 million. You might only have a buyer coming around once every two months. If only one out of three of those skips cheaper options and buys the FBA offer. Your book just went from selling once every two months to once in six months. And there’s nothing wrong with pricing a book to only sell twice a year. But the loss in sales is significant. And if you miss that “once every six months” sale, then you may be sitting on that book for a year or more.
Exceptions
If matching the lowest price does not allow you to hit your minimum profit or profit margin standards, you may choose to take your chances and price higher.
For example, if you (like me) have a minimum payout standard of $3. And let’s say matching the lowest price will only get you a $2 payout. You have two options here:
- Violate your standards and list the item at the lowest price.
- Don’t list that item at all.
- List at a higher price than you otherwise would, in order to maintain your profit standards.
Generally I would not recommend compromising your profit standards, and would advise option #2 or #3.
Pricing Option #2: Pricing in relation to the 2nd lowest offer
This is for higher-demand inventory, where we are going to ignore the lowest priced offer, and price in relation to the 2nd lowest. This is a simple and effective way to extract more profit from inventory that is higher-selling, and requires no extra work.
When I say “in relation” to the 2nd lowest price, you have some latitude here. You could choose to match the 2nd lowest price. Alternately, you could price just below (for example, 5 cents). Whatever you choose, for this move we are ignoring the lowest price and selecting a price in relation to the 2nd lowest.
The logic is simple: Higher-selling items have higher volatility and experience greater price fluctuations. So the lowest price is less relevant, since what price is “lowest” changes so rapidly.
When to apply
Most inventory that has medium–to-strong demand (i.e. selling 1 to 0.5 sales a day).
Exceptions
When the gap between the lowest and second lowest price is insignificant, then don’t apply this. It doesn’t make sense to expose yourself to additional risk just to get an extra 10 cents.
By “risk,” I mean delaying a sale long enough that bad things can start to happen. The price can start to plummet into unprofitability, etc. You don’t want to be delaying a sale for a few pennies.
The gap that makes it “worth it” to you is your decision to make. Some may rejoice at an extra 50 cents per sale. Some may need to see $1 or more before they’re willing to ignore the lowest price offer. Up to you.
So you apply this to any time you have confidence that the lowest FBA offers are going to sell out quickly.
Pricing Option #3: Pricing against the 3rd lowest price (or beyond)
Now we’re addressing the question of: “How do you set a price for very high demand items?”
We’re going to ignore the lowest two offers (and possibly even three or more) when an item is selling multiple copies a day. This is for inventory that is selling so rapidly, and the prices are fluctuating so often, that the lowest price can jump up and down by several dollars (or more) in a day.
When this is the case, you can safely ignore the lowest two or three or more offers, since the item will probably sell no matter what the price. The volatility is so high, you can get away with (almost) anything.
When to apply
This is for inventory that is selling multiple units a day.
In the Books category, I will apply this when the Sales Rank is (roughly) 30,000 or better.
Exceptions
As with Pricing Option #2, it never makes sense to ignore lower priced offers just to extract a few pennies of extra profit. Examine the prices of your competitors and make a decision.
We’re not playing the “chasing nickels” game, we’re playing the “chasing dollars” game.
Pricing Option #4: Setting your own price (below the competition)
This is where we go rogue, and decide to ignore all competitors and set our own price – below the lowest priced offer.
This is somewhat of a “chaotic” pricing move that you will apply very sparingly, in rare situations. But sometimes, for one reason or another, the current lowest priced offer is “unreasonably high,” and we have to break all the rules and price below it.
The reason I recommend applying this very rarely (besides the obvious reason that you’ll make less money at a lower price point) is that this is an overall negative for the Amazon selling community. Sellers underpricing each other triggers that deadly “race to the bottom” that we would all like to avoid. So in most applications it is an affront to your Amazon selling “neighbor,” but sometimes it must be done.
You’ll see this most often for products where there are a very small number of sellers. This lack of competition can create some wildly high prices, particularly when repricing software gets involved. Maybe there’s three sellers, and one prices their offer at $500, which triggers the repricing software of the other two sellers to follow that crazy price up. This happens often.
When to apply
Anytime you have very low confidence that an item will sell at its current lowest price, you have the right to underprice that seller.
This calculation is arbitrary, and I would caution you to apply it extremely conservatively. Most prices sellers deem too high, actually aren’t.
But when I see a generic travel book priced at $300 (due to a repricer gone wild, or some other reason), I’m comfortable setting a more “reasonable” price.
Specifically, I’ll apply this when an item has low demand, has a generic mass-appeal subject matter, and has a very high listing price (over $100.
Exceptions
Do not underprice the lowest offer if you’re a newer seller. You’re going to get it wrong more than you’ll get it right, and this will cost you money.
It’s always better to price too high and be wrong and have to lower your price later than to price too low and get a quick sale and have lost out on potential profits. Remember:
You can always lower your price later, but you can never go back and get the money that you could’ve gotten from a buyer after a sale.
If you don’t have a lot of Amazon experience, you are likely to over-apply this, so once again: Apply sparingly. Sellers without experience generally lack the ability to tell when a price is too high, and underprice more often than they should.
Do not underprice if the Keepa charts indicate an item is getting sales at the current (high) price. You can overlap the pricing data and the Sales Rank data in one Keepa chart, and confirm how an item was priced when it sold. If it’s actually sold for amounts near its current high price, then don’t underprice.
Pricing Option #5: Setting your own price (when no competing offers)
This is not terribly common, but finding an item for which you are the only seller is one of the most exciting scenarios to encounter as a seller.
In this instance, since you have no one to compete against, you get to “make up” your own price. This is a great thing, but proceed with caution: Most sellers get this part wrong.
The most common error sellers make here is pricing based on historical pricing data. They look at the Keepa charts, and decide to set a price based on its “average” price. Huge mistake, because you are not working with an average scenario. Being the only seller is extremely abnormal, which means you can price “abnormally” (aka high).
Look at it this way: As the only seller, you own the listing. If anyone in the world wants that product, they have to buy it from you. This means it’s a sellers market and you can charge an exorbitant amount.
The competitive landscape may change soon, and you may not be the only seller for long. But while you are the only seller, you have the ability to price for maximum profits.
What does that mean specifically? Here’s how I do it with books:
For most books where i am the only seller, I price them at $99.
For books that are on a subject matter so narrow that there are likely to be no other books in the world on that subject, or I consider the audience of a book to be “irrationally passionate,” I price at $499.
For books I deem to not be niche enough to command a $99 price, I will price at $25.
None of these calculations are extremely scientific, and intuition plays a large role. But always err on the side of pricing too high.
Pricing Option #6: Pricing in relation to Amazon only
You are choosing this option when you deem all other competitors to be irrelevant, and you are competing with Amazon only. Amazon is not your usual competitor, so they must be handled differently.
Always remember that you cannot price higher than Amazon. It’s not against the rules, but you are not likely to get a sale. All Amazon customers would prefer to purchase from Amazon over you, the random third party seller. You will always lose a sale to Amazon if Amazon is priced lower. So you must underprice them, always.
The question is, how much? This is another scenario where there is no “right” answer, but plan on underpricing Amazon by at least 50 cents. And I think underpricing by more than $1 is excessive in most instances.
When to apply
You’re competing against Amazon only in a few instances:
- Amazon is literally the only seller.
- You’re an FBA seller, and there are no other Prime-eligible listings.
- You’re an FBA seller, there are only a couple/few FBA offers, and the demand is high enough that you can safely ignore them.
- You’re an FBM seller, there are only a couple/few competing offers, and the demand is high enough that you can safely ignore them.
Pricing Option #7: Matching the lowest overall price (as an FBA seller)
This is the option for FBA sellers only, where you ignore higher priced FBA offers and compete with lower FBM prices only.
Generally as an FBA seller, you’re competing with other FBA sellers only. But as covered earlier, this is only the case for items with a certain level of demand. When the demand for an item is low, you must optimize your price to get that next sale. And that means capturing customers who won’t pay more for FBA offers. And you do that by simply matching the lowest Merchant Fulfilled price.
When to apply
As covered under Pricing Option #1, you want to consider matching the lowest MF price when an item is selling less than every one to two weeks. This is subjective, but it’s the formula I apply to pricing by used book inventory.
Many sellers have a more liberal formula, and don’t ignore other FBA offers unless an item is selling less than once a month. And still others will never apply this option, and only compete with other FBA offers no matter what.
My opinion? For books specifically, I match the lowest overall price when the Best Seller Rank is worse than 1.5 million. You might choose 1 million. You might choose 2 million. Or you might never apply this option at all. There truly is no “right” answer.
Pricing Option #8: Matching the Buy Box price
I’m in the minority, but I do not advocate a Buy Box-based pricing strategy. But many (if not most) sellers disagree with me and practice some variation of this, so I have to cover it.
This is a simplistic “formula” (if you can call it that) where the only price that matters is the Buy Box price. If the Buy Box price is $20, you price at $20 If it’s $500, then that’s the price you choose. And when the Buy Box price drops, you drop your price with it.
There’s not much to say about this, because it is self explanatory. And for the sellers who practice it, there are no conditions or exceptions.
If the Buy Box is your God, then choose this option.
Good news: We just covered every pricing option
You will have achieved true “pricing mastery” if you understand each of these eight options, and know reflexively when to apply each of them (and when not to).
And the stakes are high. One error in your pricing formula will result in losses that compound over time. Month after month and year after year, you’ll be losing money to these pricing errors. So it pays to do the work upfront, understand each of these eight options, dial in your standards and know exactly when to apply each.
Having done that, you can essentially go on “pricing autopilot” and reap the rewards for the duration of your Amazon selling career.
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