To Undercut or Not To Undercut – That is the (FBA) Question

fba undercutSuccessful selling on Amazon is based heavily on one thing:  Getting the Buy Box.  What gets the buy box in most cases?  Lowest price.  No, this is not always the case but lets just stay basic and assume that at some point the lowest priced item will be in the Buy Box.  I think we all get that idea.  Lets add on and talk about pricing + net profits.

When we’re doing our sourcing (hopefully using Profit Bandit or another FBA scanning app) many of us simply match the lowest FBA price (assuming Amazon is not in on the item) to determine potential profit on that buy.  For FBA beginners this is a good way to get started in your sourcing strategies without much stress.  If the item has a good ranking and the profit you’re looking for at that lowest current FBA price is within your goal then its an easy buy.  You will also want to check Camelcamelcamel to make sure the current prices are not a mirage and have been consistent in that range.  Easy peezy.

You may ask:  Well, should I price it at that lowest price or take a chance and price it higher in hopes that those lower priced sellers run out of stock?  Or more likely, what if that item’s sales ranking is a bit higher than you’d like but the profit would be tremendous and you’re considering undercutting the lowest priced seller because you believe their price is too high?  I regularly do both and I’ll tell you how I figure out each situation.

When to Price Higher

one barcode fbaIf you take a poll of veteran FBA sellers, most of them price their well ranked items significantly higher than the lowest current FBA offer.  Why?  Because they bought that item (probably 20+ of them) knowing that they would be able to sell it at a nice profit and did not need to panic and match the lowest price.  How much higher?  That’s where it really varies between sellers however most like to stay within the top 10 lowest so that they don’t get in line with 50 other sellers especially around Q4.  If you have a single item that you want to turn a quick flip profit on, pricing higher doesn’t make much sense but then again its all in what you’re looking for.

Have 3 of an item that is well ranked in its category?  You might want to price it a bit higher and make some extra $$.  Sure, you may only get $15 extra by pricing them $5 higher than the lowest current FBA seller but $15 is $15.   Take that extra money and reinvest into more inventory.   I think this is where newer FBA sellers make a big mistake is leaving potential money on the table.  If you get the stage where you have over 1,000 items in FBA inventory and are simply matching the lowest price or even worse undercutting that low price, you’re easily leaving thousands of dollars on the table when all is said and done.

 

When to Price Lower

The easy answer to this is when you are competing with Amazon directly.  If you are doing thrifting and finding single items with huge margin potential that Amazon is also in on, do yourself a favor and price anywhere from $.05 to $1.00 below Amazon’s price.   I do this a ton and if the ranking is good the item will sell.

Another reason to price lower is if you have a lot of an item that has a very good ranking and you’d like to flip relatively quickly for a nice overall profit.  Usually sellers do this in Q4 especially early on when the competition is not very high.  There’s a healthy debate on this subject as many pro sellers will do the opposite way and price higher when they feel confident the items will sell no matter what the price points are.  Its all in your goals and comfort level.

Lets Talk Undercutting

There’s one thing sure to rile up the Facebook Groups and that’s the topic of undercutting.  What do I mean exactly?  Product A is selling well at a set price point by Seller A.  Seller B comes in and prices the same item $3 lower and gains the buy box.  Of course sellers are free to price in any manner they so choose and discussing setting prices for competition purposes is illegal.  But the smart seller would realize that if the item has a good ranking and there’s little competition, the item is probably at a fair price point already so why rock the boat and create an unnecessary pricing war?  In addition, for items with a ton of competition you will be competing against autopricers.  Undercut the lowest price and the ‘race to the bottom’ will begin where the autopricers will automatically match your price and force you to once again lower yours.  Guess what happens next?  🙂

Want a scenario where undercutting the current low price makes sense?  I’ll give you one that I often encounter and you will too:

  • Items where the ranking appears abnormally high for the popularity of the item.  If its a Fisher Price toy that should be ranked 10,000 or less (based on common sense) and its ranked 200,000, my first thought would be the current price is way too high.   If you can safely lower that price to a fair value and still make a nice net profit I’d give it a go and see if the sales start coming.

Because this is a part time FBA blog, I will circle back to the mindset of the part timer doing online sales.  Many part timers don’t dream of the big bucks and would rather get that sure sale vs sweating out the sale for a higher $$ gain.  If so, price things for that purpose and highly consider going low and matching the low current prices.  Is this the best long term strategy?  Personally I don’t think it is but you need to do what’s best for your comfort level and financial goals.  We have routinely priced things aggressively (meaning higher) and have done well using this mindset.  Don’t forget:  Amazon is 24/7.  Have an evergreen product with good ranking that sells throughout the year and won’t go bad?  No need to panic and make the most of it.

Merry XMas to all and go make some money.