HOW TO PRICE dropshipping products is necessary to succeed in eCommerce.
Pricing is a double-edged sword. Set prices too high, and customers may stay away. Opt for low prices, and profits will be lost.
I’ve been dropshipping products for almost 15 years now. I’ll share the MOST EFFECTIVE dropshipping pricing strategies for every dropshipping business.
Cost-based pricing, bundle pricing, and psychological pricing strategies are our GO TO’s. These three pricing methods allow you to set attractive retail prices. Attracting CUSTOMERS while giving you ample revenue.
Want to learn more pricing tips? Keep scrolling!
What is a Pricing Strategy?
Pricing strategy decides HOW MUCH dropshipping stores charge their products. Letting potential customers know the perceived value of a brand or product. And STRONGLY INFLUENCES their purchase decision.
A well-researched pricing strategy needs careful thinking. Taking into account various factors like:
- Target audience
- Business costs
- Product costs
- Shipping costs
- Marketing costs
- Manufacturing costs
It’s a delicate process. Aimed to determine the OPTIMAL PRICE POINT that resonates with potential customers. And ensuring a dropshipping business MEETS its target revenue.
Different Dropshipping Pricing Strategies
Here are the MOST popular pricing strategies we’ve tried in our dropshipping stores. Encourage customers to buy while still bagging BIG PROFITS.
1. Cost-Based Pricing
Cost-based pricing is one of the SIMPLEST ways of pricing products. Just CALCULATE all the expenses you spent on ONE product. Including all VARIABLE costs such as:
- Marketing costs
- Product cost
- Shipping cost
After that, determine a good profit margin for your product. Ensure to SET SELLING PRICES that are neither too high nor too low. Higher profit margins are good. But if a product is priced way higher than the average market price. It’s easy to RISK, scaring away customers.
2. Cost Tiered Markup
This product pricing strategy requires setting a HIGHER profit margin on cheap products. As well as lowering fixed percentage markup on HUNDREDS OF DOLLARS of product costs.
Think of it this way…
A 50% markup on items below $10 still ensures affordable product prices. But SET a similar markup on expensive items. You’ll end up pricing a $500 item higher than $750. Which is likely too expensive for customers.
TIERED MARKUP pricing method always gives a healthy profit margin. While still keeping products AFFORDABLE.
3. Fixed Markup Cost
This is the NO-BRAINER markup price strategy for any dropshipping business. Just decide on a FIXED DOLLAR MARKUP. Or a FIXED PERCENTAGE MARKUP of your desired profit margins. Then, apply that fixed markup to ALL dropshipping products.
Fixed dollar markup example (using $5):
ADD a $5 markup on an item’s total product cost to determine its selling price. If it costs YOU $12.5 in total (with all the variable costs such as the shipping cost included). Go ahead and set the product price to $17.5.
Fixed percentage markup example (using 20%):
Compute the product cost of EACH ITEM. Then, add a 20% fixed markup to find their product prices. If it costs you $100 to PROCURE an item for a dropshipping store. Sell it for $120 to always secure 20% profits.
4. Manufacturer Suggested Retail Price (MSRP)
The MSRP or the manufacturer’s suggested retail price. Is the SELLING AMOUNT already recommended by suppliers? It SKIPS the COMPLEX MATH of pricing altogether. Making it one of the most popular dropshipping pricing strategies.
Do I recommend it?
Not always. The MSRP doesn’t accurately consider the expenses of an online dropshipping store. Shipping cost, for one thing. Blindly following the MSRP for a product’s retail price gives you low profit margins.
5. Psychological Pricing
The psychological pricing is the MASTERMIND behind all the fancy prices.
I’m talking about the classic “0.99” price ending. Or even the use of odd-numbered cents such as 5s, 7s and 9s.
Instead of setting an item’s average price as $15.00, for example. Use $14.99. This ODD PRICING strategy works wonders. It makes customers perceive that your products have a lower price.
6. Bundle Pricing
DISCOUNTS encourage customers to buy like no other product pricing strategy. But to ensure you’re not losing profits while giving out discounts. TAKE ON the bundle pricing approach.
It’s the CLASSIC “buy one, get another free” promo. Or “buy 10 pieces to get a 30% discount.
Bundle pricing lowers a product’s retail price in the eyes of customers. But make it up for your revenue by generating MORE SALES.
How to Price Dropshipping Products?
Step #1. Calculate the Lowest Retail Price
Determine the minimum retail price by ADDING UP all product costs, excluding profit.
This provides a base price. Enabling dropshippers to establish a SUITABLE PROFIT MARGIN without overlooking any expenses.
Step #2. Know Your Market
Understand market trends and customer preferences.
AVOID pricing out-of-season products is way too high. Hence, consider the MARKET DEMAND for specific items. Product prices SHOULD ALIGN with customer expectations and market standards.
Step #3. Compare Competitors’ Prices
Research competitors’ pricing strategies.
Avoid setting prices significantly higher than them. As it may deter customers. Successful competitors provide BETTER INSIGHTS into acceptable market prices.
Step #4. Focus on Target Audience
Understand the target audience’s preferences, demographics, and interests.
High-demand items among your target customers support higher pricing. Compared to less popular products that need competitive pricing.
Step #5: Decide Fixed Markup
Finally, set a fair markup rate based on market prices and competitor markups.
Remember that the right dropshipping pricing strategy needs a perfect balance. Between PROFITABILITY and COMPETITIVE PRICING. This ensures that your products appeal more to a broader customer base.
What is a Good Dropshipping Profit Margin?
Now, let’s talk about something everyone wonders about. “What contributes to a decent profit margin?”
A good profit margin shows how well a dropshipping business uses a pricing strategy. On average, most drop shippers make around 15% to 20% margin. But remember, it varies based on the type of products being sold. And HOW MUCH the product costs.
If you wish to gain a HIGHER PROFIT MARGIN. Try aiming for a percentage higher than 20%. Some successful dropshippers set profit margins of 100% up to 300%. But this DEPENDS on supplier prices and other variable costs.
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People Also Ask about How To Price Dropshipping Products
What’s the best product pricing strategy on Shopify?
All dropshipping pricing strategies have pros and cons. But many businesses FIND SUCCESS in using cost-based pricing. This requires combining all product expenses with desired profits.
How much is the maximum dropshipping profit margin?
Profits are NOT CERTAIN, especially in dropshipping. So there’s no such thing as “maximum profits” in this line of business model. Note to AVOID using product prices that are too high. Or else customers might find CHEAPER alternatives from another online store.
What is the average dropshipping profit margin?
Most dropshippers aim to make anywhere from 20% to 30% profit margins. Some set lower or higher profit margins. But this range is the BEST starting point. Especially for beginners.
A good dropshipping pricing strategy is crucial for a successful dropshipping business. It either makes or breaks a store’s profits. So, it needs overnight consideration and careful planning. Attract more customers with an ATTRACTIVE pricing strategy.
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