In a catalog with dozens or hundreds of SKUs, underpriced products often hide in plain sight — selling steadily, looking healthy on a revenue report, while quietly returning far less margin than they should. The real cost to your business is substantial: every underpriced unit compounds across your entire sales volume, eroding profitability in ways that don’t always show up clearly in monthly P&L statements.
Where to look first
- Products where cost has crept up since the price was last set — a common and easy-to-miss cause. For example, if a supplier raised costs by 8% but your price stayed flat for 18 months, you’ve slowly destroyed your margin on that SKU.
- High-volume sellers, since a small per-unit underpricing multiplies fast at scale. A product selling 500 units per month with just a $2 margin shortfall is costing you $12,000 annually in lost profit.
- Products priced mainly by matching a competitor, without checking your own cost structure. Your competitor may have different supplier agreements, overhead, or fulfillment costs — their price isn’t your benchmark.
A quick audit method
Sort your catalog by margin percentage (lowest first), then cross-reference against sales volume. Create a simple matrix: plot products on two axes, with margin percentage on one side and monthly unit sales on the other. A low-margin, high-volume product is worth investigating immediately; a low-margin, low-volume product is lower priority.
For example, if Product A has a 12% margin and sells 600 units monthly, versus Product B with an 8% margin selling 80 units monthly, Product A should be your first target — even though both are underperforming.
What to do once you find one
Don’t assume a price increase is the only fix — sometimes the real problem is cost, not price, and negotiating a better input cost solves the margin issue without touching what the customer pays. Before raising prices, audit your supplier agreements, manufacturing processes, and fulfillment methods. A 5% reduction in COGS has the same bottom-line impact as a 5% price increase, with zero customer friction.
The data says underpricing is the default risk, not overpricing
Pricing research consistently points the same direction: analysts at McKinsey have found that 80–90% of mispriced products are priced too low, not too high. One large-scale B2B pricing analysis found that roughly 89% of products were underpriced by at least 3.5%. The bias runs toward leaving money on the table, not scaring customers away.
The leverage is bigger than it looks, too: a 1% price increase, with no drop in volume, translates to roughly an 11.1% increase in operating profit for a typical business, because that extra revenue mostly skips straight past your existing fixed costs. In concrete terms, if you have $500,000 in annual operating profit and raise prices by 1%, you’re looking at roughly $55,500 in additional profit — assuming no volume loss.
Practical signals a product is underpriced
- It sells out immediately at every restock. Consistent, fast sell-through is usually read as a win, but it’s one of the clearest underpricing signals in a catalog — demand is outrunning price. If you’re restocking weekly and still can’t keep inventory, the price is likely 10–15% too low.
- Its margin sits meaningfully below your catalog average with no strategic reason (loss leader, clearance, market entry) for it to be there. If your average margin is 38% but a core product runs at 22%, that’s a red flag.
- It hasn’t had a price review in 12+ months while input costs have moved. Rule of thumb: review pricing quarterly, minimum, for high-volume SKUs.
- Competitors are priced noticeably higher for a comparable product with no clear quality gap explaining the difference. A 15–20% price gap warrants investigation; a 30%+ gap suggests your pricing is significantly out of line.
Common mistake
Treating a fast-selling, low-margin product as a success story rather than a pricing signal. Strong sell-through with weak margin is usually evidence the price should move up, not proof the price is right. The revenue looks healthy, but the profit tells a different story.
About the Author
Oliver K.G.
Oliver K.G. has 8+ years in pricing strategy and has helped 200+ Amazon FBA sellers, dropshippers, and small business owners optimise their profit margins. He built BizMargin to make gross margin and pricing calculations instant and free. He writes on pricing strategy, gross margin optimisation, and profitability for e-commerce and retail businesses.