In 2023, dropshipping will remain one of the few ways to make a passive income. Although only 10% to 20% of new dropshipping stores will make money in their first year, the business is bigger than ever. But one challenge remains: pricing. Without a clear strategy, you don’t stand a chance at being among the 10-20% that turn a profit in year one.
So, how much should you charge? Too high, and you might scare customers away. Too low, and you end up with little or no profit.
Don’t worry; we’ve got you covered. This guide will break down the best dropshipping pricing strategies. You’ll learn to set prices right, maximize profits, and satisfy customers.
Let’s dive in and master the art of dropshipping pricing!
Table of Contents
What is a Dropshipping Pricing Strategy?
A dropshipping pricing strategy is how you decide what to charge for products. In dropshipping, you don’t hold inventory. Instead, you buy from suppliers when orders come in. Your price must cover the costs of acquiring these items and make a profit. Most importantly, it must attract buyers.
The aim of any dropshipping pricing strategy is to set a price that attracts the most customers while generating maximum profit.
For that to happen, the right balance is crucial. This strategy helps find that balance. It ensures a win for you and your customers.
Factors to Consider in a Dropshipping Pricing Strategy
Before you decide on the best strategy for your business. You should gather as much info as you can. Doing that will ensure you make an informed decision. The following are the factors to consider.
- Product Cost: This is the foundation. Always know your product’s base cost. That’s what you pay your supplier. Remember to include all fees.
- Shipping Costs: Don’t overlook this. Some suppliers offer free shipping. Others don’t. Always factor in these costs. Your price should cover it.
- Competitor Prices: Research is key. Know what others charge for similar products. This gives insight. It helps you find a sweet spot for pricing.
- Target Audience: Who are you selling to? Budget shoppers? Premium buyers? Understand your audience’s spending habits. Price accordingly.
- Perceived Value: This is crucial. It’s not just about cost. How does the customer view your product? High perceived value lets you charge more.
- Brand Image: Are you a luxury brand? Or budget-friendly? Your brand image impacts pricing. Stay consistent.
- Platform Fees: Selling on platforms like Shopify or eBay? They charge fees. Know them. Account for them in your pricing.
- Taxes: Some regions have sales taxes. Always be aware. Price your products to cover these extra costs.
- Marketing Costs: Promoting your products isn’t free. Ads cost money. If marketing eats a big chunk, consider it in your pricing.
- Returns and Customer Service: Returns happen. So do customer inquiries. Sometimes, there are extra costs. Be ready. Adjust your dropshipping prices to cover them.
- Volume vs. Margin: Decide on your approach. Sell more at lower prices? Or less at higher prices? Both can work. It’s your call.
- Economic Trends: The world changes. So does buying power. Always stay updated. Adjust prices according to economic shifts.
- Seasonal Demand: Some products are seasonal. Prices can change with demand. Be flexible. Adjust with the seasons.
- Supplier Relations: Good relations can mean discounts. If your supplier gives you a deal, consider it in your pricing.
- Long-term Goals: Think about the future. Want steady growth? Maybe start with lower margins. Aim for customer acquisition. Then, raise prices slowly.
Why You Need a Dropshipping Pricing Strategy in 2023
The e-commerce landscape is more competitive than ever in 2023. Having a clear dropshipping pricing strategy is no longer an option, but a necessity. Let’s take Jane as an example:
Jane launched a dropshipping store selling handcrafted mugs. Excitedly, she priced them at $15, overlooking shipping and fees. When orders rolled in, she realized her costs totaled $16 per mug. Every sale meant a $1 loss. Jane’s hasty pricing turned her anticipated profits into unintended losses.
Today’s shoppers are savvy. They’re pros at playing the comparison game, hopping between platforms to find the best deal. So, a well-cooked pricing strategy? That’s your ticket to winning their hearts (and wallets).
Dropshipping? It’s like tightrope walking. Juggling product costs, shipping fees, and more, you’re treading a fine line between cashing in and cashing out. A clear game plan? That ensures you always land on your feet, profit-wise.
Want to supersize your dropshipping venture? Consistent profits are your building blocks. A sturdy pricing plan lays down the groundwork, propelling you to soar higher.
Rolling into 2023, dropshipping success isn’t just about flaunting top-tier products or flashy marketing. It’s all in the price tag. The right strategy snags your ideal crowd, plumps up those profits, and paves the way for lasting success.
How to Price Your Dropshipping Products (7 Proven Strategies)
The price you set determines your profit margins, competitiveness, and customer satisfaction. Here, we break down the best strategies for different price ranges.
Dropshipping Pricing Strategies for Low-Ticket Product ($0-$10)
1. Fixed Dollar Markup:
How It Works: This involves adding a standard dollar amount to the cost of every product.
Example: If a product costs you $2, and you add a fixed $3 markup, you’d sell it for $5.
Advantages: Clean, easy, and a sure-shot way to a steady profit.
When to Use: Perfect when overheads are pretty much the same, or products are cut from the same cloth.
2. Fixed Percentage Markup:
How It Works: Forget fixed dollar amounts; we’re talking percentages here.
Example: Got a product for $2? Crank it up by 150%, and you’re ringing in at $5.
Advantages: Prices go up or down? No sweat. Your profit percentage stays put.
When to Use: Ideal when your inventory contains a diverse range of low-budget products.
3. Free Plus Shipping Strategy:
How It Works: Flash the “FREE” sign on the product, but put the profit into the shipping charge.
Example: A product costs you $2. You offer it for “free” but charge $7 for shipping, earning a $5 profit in the process. The Walmart Beauty Box marketing strategy uses a similar strategy. You pay $6.98 to get the box shipped to your location.
Advantages: Customers feel they’re getting a deal, which can boost sales.
When to Use: For promotional items or to draw traffic to your store.
Dropshipping Pricing Strategies for Medium-Ticket Product ($10-$25)
1. Cost-Based Pricing:
How It Works: Determine all your costs, then add your desired profit margin.
Example: A product costs $12. Your overheads (shipping, ads, fees) amount to $5. You want a 20% profit, so you price it at $20.40.
Advantages: This ensures all costs are covered, and you achieve your target profit.
When to Use: For most medium-ticket items, especially when costs can vary.
2. Bundle Pricing:
How It Works: Group several products and offer them as a bundle at a price lower than if bought separately.
Example: Three products costing $8 each are bundled for $21, enticing customers to spend more.
Squatty Potty uses a similar strategy to sell a replacement brush that’s not doing so well. Here’s how both products sell as individuals. You can see it only has 3 reviews compared to the Invisibrush’s 41 reviews.
As a combined bundle, the replacement brush sells better.
Advantages: Increases average order value and can move slow-selling items.
When to Use: When you have complementary products or want to incentivize higher purchases.
Dropshipping Pricing Strategies for High-Ticket Product ($30+)
1. Perceived Value Pricing:
How It Works: Base your pricing on the perceived value rather than the actual cost.
Example: A designer lamp costs you $35, but similar designs are selling for $80. You price yours at $79, based on its perceived market value.
Advantages: Allows for higher profit margins if your product can command a higher perceived value.
When to Use: For exclusive, high-quality, or branded items.
2. After-Sale Value Pricing:
How It Works: Offer the product at a competitive price but focus on post-purchase value to the customer, like warranties, maintenance, or premium support.
Example: A camera is priced at $50, but it comes with a 3-year warranty and a free first-time service.
A real-life case study can be found on a luxury watch retailer site called The WatchBox. They provide an authentication guarantee on all products in the store. You also get access to an expert client advisor.
Advantages: Differentiates your product and can justify a slightly higher price due to the added value.
When to Use: For electronics, appliances, or items that might require future servicing.
How to Round Up Dropshipping Pricing
Deciphering how to round your dropshipping prices can significantly influence customer purchasing behavior. Among the strategies you can employ, “odd-even pricing” is especially prominent. But how should you implement it, and which ending values are the most effective? Let’s dive in.
Should You Use “Odd-Even Pricing” (e.g., $19.95 rather than $20)?
What is Odd-Even Pricing?
Odd-even pricing, also known as psychological pricing, refers to pricing products just below a round number. For example, setting the price at $19.95 or $19.99 instead of an even $20.
- Perceived Bargain: Prices ending in .95 or .99 give the perception of a deal or discount. To the consumer, $39.99 seems considerably cheaper than $40, even though the difference is just a cent.
- Increased Sales: Studies have consistently shown that odd-even pricing can lead to increased sales compared to rounding up to the nearest dollar.
- Positioning: It can position your product as competitively priced, which may appeal to budget-conscious shoppers.
- Perceived Quality: Continuously using this pricing strategy might lead customers to perceive your brand as ‘cheap’ or ‘value-based’, which might not align with luxury or premium branding goals.
- Profit Margins: If not monitored, these pennies left on each sale can add up, affecting your overall profit.
Best Ending Values for Odd-Even Pricing
Arguably the most common, prices ending in .99 are ubiquitous in retail.
Advantage: The .99 ending is ingrained in consumer minds as signaling value. For many, it feels almost natural to see prices end this way in a retail setting.
Best for: Popular items, fast-moving consumer goods, and when competing with other businesses on price.
While not as common as .99, the .95 ending is still a popular choice.
Advantage: It feels softer and less ‘commercial’ than the .99 ending. It’s often used to give an impression of a thoughtful price set by the seller, rather than a corporate strategy.
Best for: Niche markets, boutique stores, or when aiming for a slightly more upscale or specialized image than mainstream retailers.
.97 or .98 Endings:
These endings are less common and can be used to signal clearance or items on sale.
Advantage: It can attract deal hunters and those specifically looking for reduced items.
Best for: Clearance items, sales, or special promotions to indicate a special reduced rate.
Dropshipping Pricing Tips and Hacks
Let’s dive deep into the realm of dropshipping pricing and explore some tips and tricks to ensure success.
1. Track All Expenses
In the excitement of setting up a dropshipping store, it’s easy to overlook certain costs. Remember, it’s not just the product’s cost. Think about payment gateway fees, shipping costs, platform fees, advertising expenses, and even transactional costs. Overlooking these can erode your profit margins. Regularly tally these costs, so you’re always in the know.
2. Understand Your Profit Margins
Once all expenses are on the table, determine how much profit you want to make. For some products, a 10% profit is sufficient, while others might demand 50%. Don’t just aim for a flat profit across all products; tailor it to the product, its demand, and the audience you’re targeting.
3. Dive Deep into Market Research
One can’t stress this enough: knowledge is power. Look at your competitors. How much are they charging? Can you discern why? Maybe they offer free shipping, or perhaps they provide premium customer support. Understand the market dynamics, so your pricing isn’t just a shot in the dark.
4. Periodically Adjust Your Prices
Nothing remains constant. Supplier costs change, shipping rates get revised, and even customer preferences evolve. This means you should occasionally revisit and adjust your prices. Also, remember, customers perceive value over time. If you enhance product quality or offer better support, a small hike in price is justified.
5. Prioritize Your Clientele
Remember, you’re serving real people. They have emotions, budgets, and preferences. If customers feel they’re getting value for their money, they’ll return, recommend, and even willingly pay a premium. Think from their perspective, and you’ll rarely go wrong.
6. Roll Out Special Deals
Who doesn’t love a good deal? Bundle deals, seasonal discounts, or buy-one-get-one offers can not only boost sales but also help offload stagnant inventory. Keep these deals genuine. Customers can spot fake discounts from a mile away!
7. Encourage Swift Customer Actions
Sometimes, you need to create urgency. Limited-time offers, countdown timers, or low-stock indicators can make customers decide faster. But use them judiciously; too much pressure can push them away!
8. Account for Refunds and Returns
Returns are an inevitable part of e-commerce. Factor in this cost, so that when a customer does ask for a refund, it doesn’t send your calculations haywire. Having a clear, fair return policy can also boost customer trust.
9. Keep Testing and Adapting
The world of e-commerce is dynamic. What works today might not work tomorrow. Regularly experiment with your pricing strategies. Maybe bundle pricing works better in the winter, while discounts work in the summer. You’ll never know until you try.
Dropshipping Pricing FAQ
1. How do you calculate your profit when dropshipping?
To calculate your dropshipping profit, follow these steps:
- Determine Your Revenue: This is the total money you receive from sales.
Formula: Revenue = Selling Price × Number of Items Sold.
- Calculate Your Costs: Consider all associated expenses (product cost, shipping cost, fees, etc.)
- Determine Your Profit: Subtract your total costs from your revenue.
Formula: Profit = Revenue – Total Costs.
For instance, if you sell a product for $50 and your total associated costs are $38, your profit is $12 per sale.
2. What is a good profit margin when dropshipping?
A typical profit margin for dropshipping ranges between 15% and 45%. This range varies based on:
- Product Type: Low-ticket items can have margins above 50%, while high-ticket ones hover between 10% and 30%.
- Niche Competition: High competition might require lower margins, while unique products can command more.
- Value Additions: Services like faster shipping or premium support can justify higher margins.
- Brand Reputation: Established brands can often set higher margins due to trust.
3. How do you price products with different variants?
When pricing products with different variants, start with a base price for the standard variant. Adjustments can be made based on factors like material quality, size, rarity, or manufacturing costs.
The most important thing to remember is to always indicate that the price on display is a minimum value. You may also choose to show the pricing as a range of values rather than a fixed price. Both strategies can be equally effective.
The American Blinds online store shows the minimum price of it’s shades. You can click on a product and choose from different size variants that have varying prices.
For instance, a product made with premium materials or in a larger size might be priced higher. Limited editions or highly sought-after variants can also command a higher price.
Conversely, items that cost less to produce or are more common can be priced lower. Monitoring sales and feedback is crucial to refining these prices, ensuring they reflect both market demand and production costs.
4. Free shipping vs. lower product prices: Which strategy is better?
Both free shipping and lower product prices can appeal to customers, but their effectiveness varies based on context.
Free shipping often drives more conversions, as customers dislike hidden or additional costs at checkout. It simplifies the buying decision and can boost the average order value.
On the other hand, lower product prices can attract price-sensitive shoppers and give them an edge in competitive markets. For some consumers, seeing a reduced product price upfront is a stronger draw.
The best strategy often depends on the target audience, product type, and market research. Testing both approaches can help determine which resonates more with your customer base.
5. Can I Dropship on Amazon?
Yes, you can dropship on Amazon, but there are specific guidelines you must follow. We talked all about that in our guide to ethical Amazon dropshipping. Feel free to give it a quick look.
Now you know everything you need to create your first dropshipping pricing strategy. Combine this knowledge with the right product and market research, and your store could turn into an unstoppable money-making machine. Leave a comment if you have any unanswered questions about pricing dropshipping products. We’ll be happy to help!