Amazon Pricing and Repricing: Set a Floor, Then Decide When to Move

Price is the one lever that changes margin, conversion, ad efficiency and the Featured Offer at once, so a careless price change can do damage in four places. Many sellers set prices by looking at the competition and then reacting to every move. That puts the competitor in charge of your margin. A calmer approach has two steps. First, work out the lowest price at which a sale still meets your profit target, which becomes a floor no rule can break. Second, decide in advance when you will follow a rival's price and when you will hold your own.

Start with a floor, not with the competitor

The floor is the price at which an ordinary sale still gives you the minimum profit you have chosen. Some costs stay the same whatever you charge: landed cost, the fulfillment fee and an allowance for returns and storage. Others move with the price: the referral fee is a percentage, and your ad cost is a share of each sale. Put those together and the floor is the fixed costs divided by the share of each sale dollar that is left after the percentage costs and your profit target.

Take a hypothetical product with $18 of costs that do not change with price. Assume a referral fee of 15% of the price, ad spend of 10% of the price, and a minimum profit of 5% of the price. That takes 30% of each sale dollar, which leaves 70%. The floor is $18 divided by 0.70, or about $25.71. Set the profit target to zero and the floor drops to $18 divided by 0.75, which is $24.00. That is the walk-away price, below which every sale loses money.

Two cautions apply. First, check whether any fee steps with price, as some fulfillment fees do, and recalculate after you round. Second, ad cost does not fall when you cut price, because a click costs the same either way. If the ad cost per sale stays at $3.00 in dollars, the zero-profit point in this example rises to about $24.71, not $24.00. Use the floor as a hard limit in every pricing rule you write.

What a price cut really costs

Because the percentage costs shrink as the price falls, each $1 you cut costs you 75 cents of profit in the same example: 15% and 10% of that dollar would have gone to Amazon and to ads anyway. That sounds mild, but profit per unit is a small number, so each cut takes a large share of it. The arithmetic is easy to check. At $30 the example earns $4.50 a unit. At $28 it earns $3.00, at $26 it earns $1.50 and at $24 it earns nothing.

Now ask how many extra sales the lower price must bring to break even on total profit. Cutting from $30 to $28 is a drop of about 7% in price, yet profit per unit falls by a third, so you need 50% more units just to earn the same total ($4.50 divided by $3.00). At $26 you need three times the units. A price cut only pays when you are confident demand will respond by at least that much, and a rival's price cut rarely gives you that confidence.

The same logic works in reverse. Raising the price from $30 to $31 lifts profit per unit from $4.50 to $5.25, so you break even on total profit even if units fall by about 14%. Small rises are cheaper to test than most sellers assume.

What repricers do, and where they go wrong

A repricer changes your price automatically according to rules you set. Seller Central has built-in automated pricing options, and third-party tools exist too. They work in similar ways. Some rules track a competitor, such as matching the lowest offer or staying a small amount below it. Some track the Featured Offer price. Others move price with inventory, raising it as stock runs low, or with sales speed, lowering it when sales slow.

Rules fail in predictable ways. A rule that matches the lowest price will chase a seller who is not really competing, such as one with a handful of units, a slow shipping promise or a weak seller rating. Two repricers that each beat the other can push a price down in small steps until nothing is left. A wrong minimum or a missing maximum can turn a typing error into a loss on every unit. A repricer without a floor is a machine for losing money faster.

Decide, too, which competitors the rule should follow. Many rules let you ignore sellers who do not hold the Featured Offer or who fulfill orders slowly. Following only those who truly compete for the same shopper stops a stray low offer from dragging your price down.

Reference price and the Featured Offer

Amazon compares your price with a reference price, which it builds from recent prices for the item on Amazon and, according to its policies, elsewhere. If your price is well above that reference, your offer may lose the Featured Offer or be shown with a pricing warning. Seller Central has views that show which offers are affected. Check them after any large price change.

This has three practical consequences. If you plan a large increase, move in several smaller steps and look at the eligibility view after each. A very low promotional price can lower the reference Amazon sees, so your normal price may look high once the promotion ends, and you may need to step back up gradually. And keep prices consistent across the channels where you sell: Amazon's policies discourage a higher price on Amazon than on other sellers' channels for the same item.

When to hold your price

Holding is a decision, not inaction. Two questions settle most cases: is your volume holding up, and how much room do you have above the floor? The grid below shows how the answers combine.

Hold, too, when your stock is thin. Low inventory is a reason to raise price a little, not to discount, since selling out early at a lower price wastes units you cannot replace quickly. Hold when the item is hard to compare, such as a branded or differentiated product. And hold when a rival's low price comes from a short-lived offer, which may disappear on its own.

Where to start

• Calculate a price floor for each product from true margin, including fees, returns and a planned ad cost.
• Put that floor into every repricing rule as a hard minimum, with a ceiling and a daily limit.
• Before you match a price cut, work out how many extra units it would need to pay for itself.
• Choose which competitors a rule follows, and exclude sellers who do not really compete for the Featured Offer.
• Check the pricing warnings in Seller Central after any large price move.
• Review your rules weekly and write down your holding criteria in advance.