Is Your Algorithmic Repricer Doing More Harm Than Good?
Competition on Amazon is fierce. Lowering and raising prices is essential. Some sellers use algorithmic repricers. But what if this type of repricing tool is doing more harm than good? What if your algorithmic repricer is causing you to lose the Bux Box or sell for less profit or a loss? Would you keep using it? Probably not. This article reveals the key feature your algorithmic repricer is missing and why you shouldn’t reprice on Amazon without it.
For most sellers repricing means ‘reacting to competitors’ price changes.’ But that’s only half the equation. The other half sellers overlook is reacting to cost changes. After all, what good is it if you outprice your competitors and win the sale but don’t make a profit? Amazon sellers that use algorithmic repricers often overestimate how far they can lower prices and still be profitable – because their algorithmic repricer doesn’t have total cost visibility.
Not knowing all your costs – and repricing when any of them change – is the biggest functionality gap of algorithmic repricers. Your gross profit margin and Buy Box ownership must be protected. So your repricer must track and count the following costs when adjusting your floor and ceiling prices.
The 4 Costs Your Algorithmic Repricer Must Track
Product Costs: There are many costs to doing business online: product cost or cost of goods sold (COGS) is the largest. Whether you buy inventory before or after it has been sold, this cost – like many others in your business – isn’t fixed. It changes over time. If you stock inventory and buy a new batch at a higher or lower price than before, your average per unit cost changes. If you list supplier inventory for sale, product cost can change on a weekly or daily basis whenever a new price and availability feed is published.
Shipping & Storage Costs: It doesn’t matter how you store inventory and fulfill orders. Whether they’re picked packed and shipped from your warehouse, drop shipped from a suppliers’ warehouse, or cross-docked from a suppliers’ warehouse to yours – each method has a different cost. Suppliers often charge a per-order drop shipping or handling fee in addition to the cost of shipping. FBA charges a similar fulfillment fee that varies depending on the size and weight of the package. FBA also charges a fee for inbound shipping and monthly and long-term inventory storage.
These fees – which many sellers fail to factor in – are always going up, and are more expensive in Q4. On April 1, 2018 FBA’s monthly inventory storage fees rose to $0.69 per cubic foot for standard-size items and to $0.48 per cubic foot for oversized items for January through September. For October through December – the holiday selling season – fees rose to $2.40 per cubic foot for standard-size items and $1.20 per cubic foot for oversized items.
FBA’s long-term storage fees are always going up as well. Starting September 15, 2018 its long-term storage fees go up. More importantly, its assessment dates changed from a semi-annual basis to a monthly basis. Amazon is also introducing a minimum charge of $0.50 per unit per month for any items that have been in storage for 1 year or longer.
Of course, the cost to stock and ship products yourself might, in some cases, be higher than these methods, and lower in others. The point is, your total costs are always changing and they differ depending on which fulfillment method is used.
Sales Costs: This is the referral fee you pay Amazon. Sometimes it’s 15% of your product’s selling price, other times it’s 8% or even 20%. It all depends on which product category your sales listing falls under. But what if you offer the same item on two different listings in two different categories with two different referral fee percentages? Some sellers just assume 15% since it’s the most common percentage. However, sometimes this assumption isn’t correct and it can throw off your entire cost structure.
Operating Costs: While rent, utilities, and payroll don’t affect gross profit (total revenue minus the three costs above) they do affect your bottom line or net profit. Therefore, some portion of these often variable costs must be considered when setting and adjusting your floor and ceiling prices.
If any of these costs go up and your algorithmic repricer doesn’t raise floor prices, your items will be underpriced and your gross profit margin will shrink. But what if costs go down and your algorithmic repricer doesn’t lower floor prices? Your items will be overpriced and you could lose the Buy Box – and lots of sales orders – depending on how competitive your category is. Ignoring even a slight cost increase or savings might be the difference between selling at a profit or at a loss and winning or losing the Buy Box. In either case, your algorithmic repricer is putting your business in a bad position.
How to Always Be Selling at the Right Price
Winning – and keeping – the Buy Box and maximizing gross profit margin is now a basic competitive requirement. You must be able to raise or lower the prices of all your SKUs across all your channels and listings when your costs and competitors’ prices change. You never want to be guessing or slow to react. You need to always be selling at your most competitive price no matter where you buy or sell or how you ship. This requires an integrated, cost-based repricer.
Unlike algorithmic repricers, this tool integrates with your sales channels and suppliers. It also connects to your Inventory and Order Management systems. As a result, it can detect when your costs and competitors’ prices rise or fall and automatically raise or lower prices. Plus, it captures changes to product and shipping costs when calculating a price, depending on which supplier or fulfillment method is used. Pricing is based on maximizing gross profit margin and maintaining Buy Box ownership, not just winning the sale at any cost.
An integrated, cost-based repricer also allows you to reprice using advanced policies based on strategic business goals, instead of just blindly reacting to competitors’ actions. For example, you can build strategies around:
- Buy Box Ownership: Win and keep, ignore, or share the Buy Box
- Competitor Type: Reprice based on seller type, product status, product condition
- Liquidation: Reprice based on age of inventory, monthly storage fee or other sales velocity indicators
Factoring all your costs into each decision is the key to profitable repricing. Manually changing the prices of all your SKUs … across all your channels and listings … as often as your costs and competitors’ prices change … isn’t a realistic possibility. If your algorithmic repricer requires you to set and forget your costs or manually change prices when costs change, it might be time to try something different.
Tired of Doing Your Algorithmic Repricer’s Job?
If you’re tired of the never-ending battle of trying to keep your prices right …
If you’re tired of not knowing if you’re losing money or leaving money on the table …
If you’re tired of being outpriced and outsold by your competitors …
With the ability to reprice millions of SKUs many times per hour, you’ll see why some of the largest Amazon sellers in some of the most competitive categories depend on our integrated, cost-based repricer to get the job done.