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Strategic Pricing for Amazon Marketplace Sellers

By James Thomson

How sellers can use strategic pricing to improve their profit margins, covering customer metrics, overheads, SKU profitability, and repricing software.

Strategic Pricing for Amazon Marketplace Sellers

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Really good article. The other area to watch out for is when you expand internationally, exchange rates shipping and duties are issues I am grappling with, as well as sales tax in europe

James Thomson

Replying to dave

Yes, I agree completely with your comments, Dave. To the extent that I would create an “international” version of this paper, I would include such fees, in addition to wiring/banking fees to pay manufacturers as well as to repatriotize funds back to the US.
thank you.


The other thing I take from this an Amazon product life cycle starts as value priced, at higher margins,but over time becomes competitor/price driven, at much lower margins .The knack is keep bringing on a flow of new products and make sure you are nimble enough to move away from some of your long standing products if they are no longer profitable.

Jack Phillips

Very nice article and very detailed. Lack of pricing strategy is a common theme I see on marketplaces. While I generally like strategic pricing, based on individual SKUs, you really cannot fully utilize this. Most of us sell on multiple marketplaces, as well as our websites. All of these moving units create complications and make it difficult to stay competitive. What I like to do is take a hybrid approach – a cost driven approach modified by your monitoring of contribution margin for each product. As you have pointed out, this only works if you have a good handle on cost. Generally, I divide my costs into direct and indirect costs (overhead).

Direct costs are things you only fully incur if you actually have sales, although you could argue that you incur inventory cost immediately – depending on how your accounting works. They really vary depending on your sales volume. Direct costs would include:

1. Cost of product
2. Cost of shipping product (including shipping materials)
3. Marketplace fees (including any extraneous fees)

Indirect Costs would be basically everything else. I tend to think of these overhead costs and you have these regardless of how much you sell. If you sell $30k in a month or $50k in a month, these costs do not vary much. Indirect costs would include:

1. Salaries and Benefits
2. Building/Storage expense
3. Interest expense (this can vary somewhat but I find it stays in a range)
4. Advertising (again, can very but tends to stay in a range and cannot usually be tied to a specific product).
5. Office supplies, non-variable software expense, telephone and other utilities, etc.

Once you have a good handle on these expenses, you can set up forecast models to help estimate your cash flow and price variability – and there is a lot of potential changes. An example, we will assume that we have a $10k revenue overhead. Looking at 2 scenarios, you have vary different profit:

Example 1 Example 2
Revenue $40,000 $50,000
Direct $20,000 $25,000
Overhead $10,000 $10,000
Profit $10,000 $15,000

An increase of 25% change in revenue results in a 50% increase in profit. If you are keeping your overhead low, and watch your numbers, you can use this profit increase to your advantage by lowering your prices. The key is to cover your direct costs and watch your overhead. I’m very diligent about keeping my overhead costs low for this reason.

Henry Boyce

Excellent analysis. Thank you.

One factor not covered and perhaps more urban legend than fact, might be the location of your FBA item vis a vis sales.

I believe that with the expansion of Fulfillment Centers and the stocking of products in the far flung corners of this universe, that my item may receive beneficial exposure to the buy box given that all things are relatively equal in terms of pricing.

I have had sales where I was priced higher than others including Amazon, but still sold reasonably well. I have to assume the my product was the closest to the customer and that falls in line with one of the marketplaces key tenets, Fast or faster delivery.

Can you confirm or am I just lucky?

James Thomson

Thanks for your comment. Yes, the specific location of an FBA item is completely urban legend — FBA items don’t get any preference in terms of where a specific unit is in reference to the customer. Amazon works hard to minimize its own trans-shipping costs, sending items from one FBA facility to another, but the FBA seller is not penalized in terms of likelihood of winning the buybox based on the relative location of the FBA unit.

Brian Freifelder

James, you mentioned in the article that Amazon is more than likely to keep lowering its price to win the buybox. My question is why is Amazon willing to price to the point that they lose money? Why not just set minimum profit standards like 3P sellers? Other than keeping “hot” items in stock I just don’t see why they’d want to compete on those high rank items where they’re bound to either have to drop prices or risk sitting on a lot of inventory.

“If Amazon’s own retail business carries a specific product, it’s more than likely that it will keep lowering its price to whatever level needed to win the Buy Box over a third-party seller’s offer, even if it means that Amazon Retail loses money on that transaction. This point is very important to know, as it’s extremely difficult to compete directly with Amazon Retail.”

Read more:


Replying to Brian Freifelder

Amazon will keep lowering its price because it can. Bezos is on record saying that he will sell many things at a loss in order to put his competitors out of business. See his interview with Charlie Rose.

Burc Tanir

Thanks a lot for putting together a great piece James.
Competitive part of the equation is one of the hottest areas in these days as e-commerce markets worldwide are getting more and more price competitive.
That’s what we see from our company, the competitor price tracker for all sizes of companies from all around the world. Obviously Amazon market is not an exception to this price competition.


my experience on ebay, and from what i am hearing for other seller on Amazon, that not much option left on the table you can not compete with Amazon or big retailer on marketplace,….option:

1.Big revenue very small profit margin or lost.
2.OK profit margin ,small revenue.
3.Good profit margin NO revenue.
4.Good profit margin good revenue

Option 1 : Big revenue very small profit margin or lost.
it require hard work , most of the money going to fee, bottom line Amazon or ebay make to most money…and if you try to adjust option 1 to get more profit, then you find yourself in option 2.

Option 2: OK profit margin ,small revenue.
not much sells revenue coming in…less fee , OK profit margin.

Option 3: Good profit margin NO revenue.
Action: set items PRICE for good profit. Results: hardly get any sells.

Option 4: Good profit margin good revenue
items need to be unique and have a great demand

my 2 cents

Tony Loft

What happened with SKUProfit? The website is not valid? Did it already go belly up?

Christina Coleman

Great Article, am learning more about business through selling with Amazon than in my college business courses.

Do you perhaps provide any coaching or training? Would love to use the funds for Amazon to pay for my final year in school and be able to hire and teach other students the same fundamentals of managing a successful Amazon business.

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