On marketplaces, price is the fastest lever. Pull it by 5–10% and it seems like “we’ll boost sales/margin now.” But in reality, price often behaves like a strange chemical reaction: lower the price — profit drops, raise it — sales drop, and profit drops too. Why is that?
Because profit on marketplaces depends not only on price but also on:
- commissions (often a % of the price),
- logistics (often in monetary terms, hardly changes),
- advertising (DRR/order cost),
- card conversion,
- returns,
- participation in promotions and competition.
In this article, we will cover:
- the profit formula when changing price,
- 6 typical scenarios of “why it got worse,”
- how to properly test price,
- when to lower the price and when to raise it instead.
Basics: How Price Affects Profit (Formula)
Simplified profit per unit:
Profit/unit = Actual Price − Commission − Logistics/storage − Cost of Goods Sold − Packaging − Advertising/unit − Losses from Returns
What happens when the price changes:
- Price changes immediately,
- Commission (if %) changes along with the price,
- Logistics usually remains almost the same (in monetary terms),
- Cost of Goods Sold remains unchanged,
- Advertising/unit can change significantly (due to conversion and auction),
- Returns can change due to expectations and demand.
From this, the main conclusion is: price is not “+10% to profit.” It’s a change in several parts of the model at once.
Why Lowering Price Often Makes Profit Worse
Effect 1. “Discount Ate All the Margin”
If the margin is thin, lowering the price by 10% can reduce profit by 2–5 times.
Example Let’s say:
- Price = $1,000
- Commission 15% = $150
- Logistics = $90
- Cost of Goods Sold + Packaging = $650
- Advertising/unit = $60
Profit = 1,000 − 150 − 90 − 650 − 60 = $50
Lowered the price to $900:
- Commission 15% = $135 Profit = 900 − 135 − 90 − 650 − 60 = −$35
The price is only down 10%, but profit has gone negative. And now you’re “scaling the loss.”
Effect 2. Logistics and Fixed Costs Become “Heavier”
Logistics/packaging/some services are often fixed in monetary terms. When the price drops, their share of the price increases — margin in % drops faster.
Effect 3. Sales Increased, But Not Enough to Compensate for the Drop in Profit/unit
Lowering the price only makes sense if the number of sales increases enough for total profit to be greater.
Formally:
- previously: profit/unit = P1, sales = Q1 → total profit = P1×Q1
- now: profit/unit = P2, sales = Q2 → total profit = P2×Q2
If P2 is much lower than P1, you need a huge increase in Q2. In practice, this often doesn’t happen.
Effect 4. Advertising “Ate” the Benefit from Price
Lowering the price sometimes increases conversion, but can simultaneously:
- raise competition in the auction,
- increase the volume of traffic you’re buying,
- lead to “cheap, but non-targeted” traffic.
The result: revenue increases, and DRR/advertising per order rises along with it.
Effect 5. Price Dropped, But Position Didn’t Improve (Sales Didn’t Increase)
This is the saddest version: you gave up margin, but didn’t get an increase in sales. Reasons:
- the card is weak (low CR),
- delivery is long,
- reviews/rating are worse than competitors,
- the price is still not the best in the listing,
- seasonality/demand has dropped.
Effect 6. Discount Worsened the “Quality” of Demand and Increased Returns
Sometimes a lower price attracts an audience that returns more often, complains, or buys “for trying on.” This is noticeable in certain categories.
Why Raising Price Can Also Worsen Profit
Paradox: you raised the price, profit/unit increased, but total profit still dropped. Why?
- sales dropped more than profit/unit increased,
- conversion fell, advertising became more expensive per order,
- competitors remained cheaper,
- the card no longer looks “advantageous” visually.
Therefore, raising the price is just as much a test as lowering it, not an “obvious solution.”
6 Scenarios of Price Impact on Profit (with Practice)
Scenario 1: Lower Price — Conversion Increases — Advertising Becomes Cheaper → Profit Increases
This is ideal. Usually works when:
- the product was slightly more expensive than the market,
- the card is decent,
- delivery is okay,
- competitors are close in quality.
Scenario 2: Lower Price — Conversion Changes Little → Profit Drops
This means the price wasn’t the main problem. More likely:
- the card is weak,
- delivery,
- reviews,
- or simply demand has dropped.
Scenario 3: Lower Price — Sales Increase, But Profit/unit Drops More → Total Profit Drops
This is the “turnover trap”: nice revenue growth, poor profitability.
Scenario 4: Raise Price — Sales Drop, But Profit/unit Increases → Total Profit Doesn’t Change or Increases
This is a good scenario for profit optimization, especially if the product is undervalued and holds on organic.
Scenario 5: Raise Price — Advertising Becomes More Expensive per Order → Profit Drops
Because conversion drops, the auction worsens, and order cost rises.
Scenario 6: Price Changes, But Profit Drops Due to Promotions/Discount Mechanics
Sometimes you change the “base” price, but the actual selling price goes elsewhere due to discounts, participation in promotions, and platform rules. In the end, you think you “raised the price,” but you’re still selling cheaply.
How to Properly Test Price on Marketplaces (So Profit Doesn’t Break)
1) Calculate “Profit per Unit” Before the Test
Create a unit economics model by SKU. → Guide: Profit and Margin (Unit Economics)
2) Test in Small Steps
Usually:
- ±3–5% for sensitive categories,
- ±5–10% if the price is clearly “off.”
3) Give the Test Time
The window depends on sales volume:
- if 50+ orders per day — 2–3 days is fine
- if 5–10 orders per day — better a week
4) Look at Not Only Sales but Also Causal Metrics
- actual selling price (after discounts)
- card CR
- order cost/DRR (if there’s advertising)
- returns (at least with a lag)
5) Don’t Mix Price Tests with Other Changes
If you changed the price, photos, and launched new advertising all at once — you won’t understand what worked.
When Lowering Price is Truly Justified
- you’re more expensive than competitors with comparable quality
- the card converts normally, delivery is okay
- you see that a small decrease increases CR and decreases order cost
- you have margin buffer, and the model shows you remain profitable
When It’s Better Not to Lower Price (But Fix Something Else)
- the card CR is low (the problem isn’t price)
- delivery is long / stock is in unsuccessful warehouses
- ratings/reviews are worse than competitors
- the product is low-margin and a discount easily makes it unprofitable
- returns are high (lowering price often doesn’t help, and sometimes worsens)
Checklist: Price Changed — What to Check to Ensure Profit Doesn’t Drop
- Actual selling price after discounts
- Profit/unit before and after
- Card CR
- DRR and order cost (if there’s advertising)
- Commission in monetary terms (how it changed)
- Share of logistics/storage in price
- Returns (with a lag)
Related Materials
- Guide: Profit and Margin (Unit Economics)
- About Margin: How to Calculate Margin: Common Mistakes
- About Commission: How Commission Affects Profit: Scenarios
- About Advertising: DRR and Advertising: How to Calculate and Manage
- Diagnosis: Advertising Exists, Profit Drops