If you price your product at a point that is too high, you’ll be left with inventory that sits around in Amazon’s fulfillment centers. But price your product too low and your entire stock might come flying off the shelves at an unsustainable margin.

Remember, the key to having a successful product listing is to position your product on ground where you charge a reasonable price, generate a decent profit while still retaining a good customer base. Having the wiggle room to offer promotions from time to time is necessary as well.

Here are our 5 guidelines for setting the price for your product:

1. Price Your Product at Least 50% Above Your COGS (Before Marketing and Giveaways)
2. Don’t Start a Race to The Bottom
3. Use Your FBA Competitors’ Price as Benchmark
4. Consider Supply and Demand
5. FBA Add-On Items: Don’t Set Your Price too Low

Make sure that your product is priced at least 50% above your Cost of Goods Sold (COGS) excluding your upfront expenses. As we mentioned before, if your margin is below 50%, you probably don’t have enough wiggle room for the marketing and giveaway expenses you need to compete.

If you intend on selling a quality product, like we’ve recommended, competing as the lowest cost alternative in the marketplace is not a long-term strategy. Although it will attract many people to your page, they’ll be buying your product for the wrong reasons.

If you employ this strategy too often, buyers will begin to associate your products with a cheap price instead of it being competitively affordable, and it will quickly become a race to the bottom. Don’t get caught up in a race to the bottom. Your product might be a cheaper alternative to the master brand but it shouldn’t be the cheapest product in your category.

As a private label seller, you most likely don’t have the lowest cost structure to sustainably hold the lowest industry market prices. So focus on building your brand equity by delivering on your product’s incremental benefits and differentiating features that solve an outstanding problem in the marketplace and you’ll be able to earn a premium for your efforts.

Instead of simply pursuing the lowest cost alternative, turn to your FBA competitors and see what prices they’re using. Matching the lowest FBA competition will result in an increase in sales but reduce your profit margin. This more aggressive pricing strategy may be useful to help make a quick sale or shift some stock which has been hanging around for a while in Amazon’s fulfillment centers costing you long term storage fees, but it is not a profitable long-term strategy.

See the price of the top ranked positions and assess at what price point they can offer their product without seeming to impact their sales volume. Sales volume can be seen in Unicorn Smasher, so go back to your dashboard and check the saved searches you did. Refresh them now to see updated data. Often customers associate a higher price with higher quality, so this should work in your favor. But don’t price yourself out of the market either.

Buyers are trained by Amazon to look for FBA sellers so that they can cash in on their Prime membership. They love to know their purchase will get 2 day shipping so FMB sellers are not really in the race. However it is something to also look at, just factor in the cost of shipping on top of the product price.

In the end, pricing is based on a simple principle of supply and demand. If there are more items than buyers, then shoppers will be more selective about prices and hold out until it lowers to their satisfaction. Make sure that you aren’t selling a commodity but are selling a differentiated product instead, so that you can have greater control over your pricing strategies. Remember what problem your product is solving and over time you’ll figure out how much these extra features are worth to them.

If you price your product too low (according to Amazon), it will become an ‘Add-On’ item for Prime members, rather than a straight Prime eligible item. What this means is that Amazon has decided that there isn’t enough profit there for them to ship this item individually and that it must be added to the cart with more items to reach a minimum purchase value. Buyers don’t want to worry about buying more items in order to get yours with their Prime membership and may pass over your product if it’s an Add-On.

The price cutoff for Add-On items seems to differ between categories, so you might find that it takes some trial and error here. If you followed our recommendation, then you’ll have chosen a product over $20 and therefore you should have no issues with this. Add-ons seem to be around $12 for most categories or $7 for others. Either way, you should be well clear of this, it’s just a point to note.

Pro Tip: Also it’s important to consider that $49 is the threshold for free shipping for Non-Prime buyers. Therefore $48.99 is actually a worse price than $49.01 for the buyer.

Now that you know these basic pricing strategies, you can set your price. How? That’s what we will cover next.