When you sell more on Amazon, you make more profit, right?
If you can only sell more by cutting prices, your profit on every item you sell is less.
How do you find the perfect price to maximize profits?
There is always a trade-off between higher prices/higher profits against a smaller number of sales you make. The sweet spot is constantly changing because your competitors’ prices and stock levels affect how many sales you make. Finding the sweet spot is like trying to dribble a rugby ball across a gym floor in an earthquake – It takes a massive effort and even then, the results are less than impressive.
Raise Your Prices
Upside – Higher prices mean more profit per sale. Downside – It also means fewer sales.
Unless you are a monopoly supplier, you need to be cautious about gouging your buyers with ever-rising prices, and even then your customers won’t love you enough to choose you when a competitor does show up.
Cut Your Prices
Upside – When you reduce your what you charge you make more sales. Downside – It also means you make less profit on each item you sell.
If your prices are lower, you need to sell more items to make the same amount of profit. And the number of extra items you need to sell is much higher than you think. When you reduce prices by 10%, you could need to make 25% more sales. If you reduce your prices by 30%, using the figures in this table, you would need to sell 2.5 times as many products just to make the same amount of profit. The exact numbers depend on your original markup.
The ‘Amazon’s Choice’ Flag
There are very few ways to stand out from the crowd on Amazon. Sometimes there is a ‘Bestseller’ flag or an ‘Amazon’s Choice’ flag which will help your sales if you get them.
You will be awarded the ‘Amazon’s choice’ flag if your offering represents significantly better value than your competitors’ similar products. The algorithm for calculating when this flag is awarded includes many factors, including price, stock levels, sales/returns ratio, shipping costs, how long you have been an Amazon seller and the number and quality of the reviews your customers leave.
You can increase the chance of getting the ‘Amazon’s Choice’ flag by doing everything right, but you don’t need to have the lowest price if your product is the best value.
Amazon is constantly testing, and the ‘Amazon’s Choice’ flag has recently replaced the Amazon Buy Box that used to be the target sellers aimed at.
If your stock levels are very low, you risk annoying buyers who go all the way through to Checkout and then find your stock has all gone. As a minimum, you need to keep stock levels high enough to cover two days of orders to avoid ranking penalties.
Yes, it costs money to carry stock, but it’s something you need to do to compete successfully on Amazon. Stock levels are part of Amazon’s ‘relevance’ ranking formula and if you run out of an item that will encourage competing sellers to raise their prices.
Do you increase your prices when your competitors increase theirs? What about when competing vendors’ stocks are low? Both scenarios give you a valid reason to raise your prices. However watching every product you sell, 24/7/365, is impossible unless you have a full-time squad of employees dedicated to just that.
This is where automatic repricing software comes in.
Automated decision making is the best way to be awarded the Amazon Buy Box or Amazon’s Choice flag. A tool such as Feedvisor uses machine learning and constantly reprices your goods for maximum profits. It raises prices when doing so will increase your profit and cuts them when that will increase your bottom line, too.
Automation removes any human bias and saves the payroll bill of the employees you would have to dedicate to manual repricing that is always inefficient.
Amazon – The Perfect Market Economy
No Amazon seller has a monopoly in any one item. Customers always get a great deal and can base that on any factors they choose. The way the market reacts to a glut or shortage of any one item is classic economic theory. You need to respond quickly, or your sales and profits will plummet. Some of your competitors will be using automatic repricing, so you need to do so as well.
Amazon has spent millions on technology and marketing; why not piggy-back your business on Amazon’s and build your success on theirs?