As a seller, you need to consider discounting against other ways of spending your Amazon marketing budget, such as advertising, or paid social media content. You also need to consider the impact of Amazon fees, for instance, if you’re trying to shift slow-moving stock.

The difficulty is that you think of a discount as money off the sales price. To do your calculations you really ought to think of it as a marketing cost.

For instance, a new product could be introduced with just advertising, or a mixture of advertising with a couple of discount deals, perhaps a Lightning Deal on Amazon. To look at the figures, you’ll want to do this sort of calculation:

•      cost of advertising = cost A

•      cost of advertising plus the discount = cost B.

If you show discount as a cost, rather than changing the sales price, it’s much easier to model different scenarios on your spreadsheet. You can play with different proportions of costs, too; run your figures to see what happens if you spend half your money on advertising, against three-quarters. You may find that there is a certain number of sales at which you want to cap the discount.

Of course, the difficulty is that you won’t know in advance how well the advertising and discounting will work. But you can still choose a mix that suits you.

The other advantage of doing your sums like this is that if you treat the discount as a  cost, in a couple of months’ time you will be able to look back at the return on your investment in terms of the sales that were stimulated (assuming you still make a profit). So you know how much money you made on that level of discount. That can help you work out how useful your discounting and advertising has been, and may help you budget better next time round.

You might also want to discount slow moving stock. In this case, you need to consider the discount against Amazon’s storage and discontinuation fees. Check the rate card at Seller Central (https://sellercentral.amazon.com/gp/help/external/G3EDYEF6KUCFQTNM): they depend on the size and type of product. You might also be charged overage fees (https://sellercentral.amazon.com/gp/help/external/V8JEETWV9Q33CMX) if you go over your allotted storage space, and an aged inventory surcharge (https://sellercentral.amazon.com/gp/help/external/GJQNPA23YWVA4SBD) for units stored over 271 days. (This got more expensive in May – Amazon only used to charge for units that had been in store for a full year.)

We’ve put the links up for you as Amazon has been changing fees fairly regularly for a while. If we put them on this blog they’ll probably be out of date by the time you look at them.

Add together all the fees that apply to your slow moving stock over the period that you think you’ll have to keep it in store. To this you may want to add Amazon’s removal order fees, which are charged if you decide to take product out of its warehouses (https://sellercentral.amazon.com/gp/help/external/help.html?itemID=9W7FVTLY343ZBKN&language=en_US&ref=efph_9W7FVTLY343ZBKN_cont_6F7CN3EQS7MEGCN). This is the total amount of discount that you can offer on the stock in hand and still do better than leaving it in the warehouse. (Obviously, don’t forget the Amazon selling fees you’ll have to pay on selling the discounted stock. That would give you a falsely optimistic answer.)

Note that this doesn’t necessarily mean you’ll make a profit, but it will minimize your cost of closing down an unproductive line. It might also be more cost effective to get your inventory back to regular levels with a discount than to pay overage fees or aged inventory surcharges.

Again, the key to making the right decisions is to look at discounts as a cost of doing business, just like your product cost, marketing costs, or other Amazon fees.