Dropshipping is a type of retail fulfillment in which you, the dropshipper, buy items from a third party to sell and ship to customers. Dropshipping might be easiest to explain in the following steps:
A customer buys a product online from an eCommerce store. The store sends the order to a supplier. The supplier fills the order and sends the products to the customer.
The shop then writes an invoice and a shipping notice and sends them to the customer.
Now, dropshippers don’t have to deal with a big and constantly changing inventory, but they still need to have a good plan for how to price their products. If they pick the right pricing strategy, they will be able to make money on every product they sell.
This guide will show you some very interesting pricing tips for dropshipping that you can use in your overall marketing plan.
The Basics Of Dropshipping
Geoffrey Collins, a Brit student and marketing blogger at Origin Writings, says, “When it comes to dropshipping, how you set prices depends on what you’re selling.” “However, no matter what the plan is, there are many ways to make it better, even though there is a lot of competition in this business. That means that at some point, your pricing strategy needs to change. If you need to try out different pricing options or new products to find out what works and what doesn’t, then do so.
Some great ways to try out different product lines and pricing options are:
There are discounts, deals, and coupons.
Freebies sBundling sCross-selling
Suppliers’ suggestions for prices
Choices for signing up
Various Factors That Determine Dropshipping Pricing Strategy
To figure out your pricing strategy, think about the following:
Who do you want to read your work? For example, you can set prices a little higher than average for people who have more money.
What is the value that people think your product has? A neck massager, for example, usually costs more than a neck pillow.
Elastic pricing: Do prices need to change? Are price changes okay with your audience?
Costs of doing business: What business expenses do you need to make up for? In other words, what are the costs of running your business (email, apps, domain, etc.)?
Taxes: What is the usual sales tax for your product?
Costs of marketing: These costs vary because they go up the more products you sell.
What prices make people want to buy something?
Product Costs: Your cost of goods sold (COGS) is an important expense to think about because it depends on what your customers want.
A pricing strategy doesn’t guarantee that you’ll make the most money, but it does give you a good place to start. And you can always change how you set prices in the future.
Why Dropshipping Pricing Strategy Matters
Dropshipping will continue to be popular in the eCommerce industry because it’s a low-risk way for people who want to work from home to make money. And starting out with a pricing strategy can be a good way to learn.
If you don’t have a plan for pricing, one of the following could happen:
You’ll set your price too high, which will cause you to lose sales, OR you’ll set your price too low, which will lower your margins and cause you to lose money.
Also, you need a pricing plan for dropshipping because, in the end, you’ll have to pay:
How much it costs to ship each item
Cost-per-sale is a way to figure out how much your marketing costs.
A transaction cost for your payment provider
Monthly fees for apps
Costs of an eCommerce platform
Some other costs
Types Of Dropshipping Pricing Strategies
Since the price of a dropshipping product depends on how much it costs at the supplier, it’s important to know how to price low-ticket, medium-ticket, and high-ticket items.
Low-Ticket Product ($0-$10)
Most suppliers charge between $0 and $10 for low-priced items. So, when thinking about this kind of dropshipping product, keep these things in mind:
start a drop-shipping business.
Value as seen: Most of the time, low-priced items don’t have a high perceived value.
Low-priced items should be sold in large numbers and at a lower price.
Costs of marketing: Save 30% of the retail price of your product for marketing costs. This kind of dropshipping product is great for people who are just starting out because they don’t have to spend a lot of money on ads.
Fixed-Dollar Markup
A fixed-dollar markup is usually a good way to price really cheap items. Just add a certain amount of money to the price of the item. Try to make a profit of at least $10 per sale. This will give you enough money to cover marketing costs, taxes, and monthly fees.
Fixed-Percentage Markup
With a fixed-percentage markup, you can set the price of your product for sale at a certain percentage above what you paid for it. You may want to set the retail price of your product at 3x (300%) of what you paid for it. This will give you enough profit to cover all your business costs.
Free-Plus-Shipping
With the free-plus-shipping strategy, you sell a product for free but charge the customer for shipping. Since your cost of goods sold (COGS) is so low, this method works well for low-ticket items because you only charge for shipping and give the item away for “free.” When they pay for shipping, you won’t have to pay for shipping.
Medium-Ticket Product ($10-$25)
Your supplier will charge you between $10 and $25 for these items. COGS goes up as the price range goes up. Keeping that in mind, think about the following:
People: Think. Who is willing to buy something for this price range?
Perceived Value: If most of your audience doesn’t know about the product yet, you can decide whether or not to price it at what people think it’s worth.
Costs: You can’t charge more than the maximum for a product or you won’t make any money from it.
Next, we’ll talk about two good ways to price medium-priced products: basing prices on costs and bundling.
Cost-Based
Cost-based pricing is when you decide how much to sell something for based on how much it costs to make. First, you set a lower price so you can learn more about who is buying your product. You can always change the price based on how buyers act once you have the data. From there, you can go after a specific group of people who are ready to buy what you have to sell.
Bundling
Bundling is a way to lower the price of your product while still making money off of it.
Customers can buy your product along with another product that goes well with it and get a discount on both. But again, that depends on who you’re writing for.
High-Ticket Product ($30 Or More)
Your supplier will charge you at least $30 for each high-priced item you buy. But such items can cost as much as $1,000 or more. Now, when pricing high-ticket items, there are a few things to keep in mind:
Value as seen: The value as seen must be high. And the product must solve a problem for the customer in order for the high price to make sense.
Taxes: Because your product is expensive, it must follow national and even international rules and regulations for eCommerce. you will need to learn more about taxes to make sure you follow all the rules.
Costs of marketing: A product with a high CPP (cost per purchase) will have a higher cost of marketing because it costs more to sell. Because of this, those products are for dropshippers who have more experience.
Perceived Value
How much you can charge for high-priced items depends on their brand and how much people think they are worth. Think about the following tips to make your product profitable:
Upsell: Let your customer buy a product and add some accessories at a discount. (This lets you make more money and raises your AOV, or average order value.)
After-Sales: Show the customer how the product works and how it will help them. Also, make sure they can reach you 24/7 if they have any questions or concerns.
Customer Engagement: Having a good relationship with your customers keeps them coming back for more, which raises your Customer Lifetime Value.
Calculating Dropshipping Profit
Now, there’s a simple way to figure out how much money you made from dropshipping:
Profit = Total Revenue – Total Expenses
“It’s pretty easy to figure out how much money you make, but it’s harder to figure out how much money you spend,” says Danny Salazar, a business writer at 1 Day 2 write and Writemyx. “Sales are the only way to make money, but there are many ways to spend money.”
Usually, you have two kinds of costs: those that are fixed and those that change.
Fixed costs have nothing to do with how many sales you make. Some examples are:
Subscriptions for Shopify Apps and eCommerce services
Variable costs, on the other hand, change depending on how many products you sell. Some examples are:
COGS Freight costs
Costs of transactions
Costs of marketing
Taxes On top of that, you need to think about the processing time for dropshipping, which can be very long or very short depending on many things.
Good Profit Margin For Dropshipping
Once you know how much money you made, you can figure out what a good profit margin is. The average profit margin for dropshippers is 20%. Over time, however, profit margins can go as high as 50%. But let’s not forget that this move has to make money, and CLV is the place to start. The CLV goes up when a customer comes back and buys from you more often.
Conclusion
So, now that you know more about dropshipping, it might be time to try it out! This is a great chance to work from home or at least give the business a try. Now is the time to take action!
Dropship-empire is the perfect partner if you’re looking for a supplier who can help you automate your daily business tasks and find products at B2B prices.
We will help you with everything, from finding the best Chinese suppliers for your products to delivering them to your customers and helping you out after the sale.
We will give you a solution for your business that includes everything you need.