Clear Note on Dropshipping Profit Margin Strategy

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Defining the Profit Strategy for your Dropship Products

It is not easy to identify the pricing plan for your Dropship goods.

By jacking up your rates, you want to increase your profits, but the effect can be reduced sales volume. You don’t want to reduce your costs too much on the other side that the volume kicks up, but you’re generating more work and less benefit.

How do we find the optimal compromise in how a commodity is priced? What if we had nobody or anything to compare our goods with? How will we come up with the right price plan for dropshipping?

Let’s find out!

Each Pricing Strategy and When to Use It to Price a Product

There is no singular dropshipping pricing policy. There are several different pricing techniques, and all of them have a time and a place. The one you pick will decide how a product is priced and how you will sell it to your audience.

Here are some of the most common pricing techniques for eCommerce:

Fixed Markup

A set markup is straightforward. For all of your goods around the board, you can find out a fixed profit-margin that you like. Let’s presume that on anything you like, a 20 percent markup, and you have an item that costs you $20. To the commodity price, you would add $4, and that’s what you would market it for.

It’s quick to set up and convenient to handle with a fixed markup, but based on the purchase price of what you’re selling, the earnings can rise or decline drastically.

Tiered Markup

When you market several different kinds of items, the tiered markup is perfect. Based on the average price of the piece, you can tweak the markup percentage. This helps the pricing policy to appeal to each product uniquely.

E.g., you may not want a 20 percent markup on a $400 commodity because it would jack it up to $80 per device. In contrast to the competitors and what your audience can afford, it could be too much.

On the flip side, to cover your price, you would like a 50 percent markup on a $10 product. You may set the percentage based on the product’s selling price with a tiered markup strategy.

MSRP (manufacturer suggested retail price)

If you’re not concerned about pricing in and out and want to find safe middle ground for camping out, go with the MSRP. You are held out of the race to the bottom with this pricing policy, and you sell your goods according to what they are worth.

To market your goods and negotiate with people who could have cheaper costs, you should pair an MSRP approach with discounts.

Competition-Based Pricing

You’re going to spy on the rivals now and see if their goods are being priced. There are several different devices out there, such as Prisync and DSM Tool, to help you track rivals’ prices.

To steal their sales, the initial idea is to undercut the rival. Bear in mind that all online retailers use these same resources. If anyone beats their price and most of the time, they’ll get notifications; their goods will instantly adjust lower.

The outcome here is a sprint to the bottom where nobody makes any money and everybody losses their margins.

Another factor you don’t want to discredit the rivals for the same commodity is that they might assume that yours is of a lesser standard.

If you base your entire dropshipping pricing plan on “beating your rivals,” you will fail each time.

Psychological Pricing

To cater to human psychology, there are a few ways to go about pricing a commodity.

We all remember the entire $99.99 vs. $100.00 argument. Using an uneven number, you still choose to price a commodity, making it look much better than the maximum number. There is a lot of discussion about odd and even numbers as well.

Many people say the conversions are aided by using an odd number, but there is no evidence. The “movie theater strategy” of pricing can also be introduced. It goes as follows:

You can choose between mini, medium, or big popcorn in your movies. These are the prices:

Small: $1.49

Medium: $4.49

Large: $4.99

Can you see the price policy here? “The price of the small one is so low that people immediately think, “its not big enough; I’m going to want more popcorn.

Then they look at the medium and the big, and they see how close they are to the price. “They’ll figure, “Well, it’s just 50 cents extra, so we should go for it as well.

The typical popcorn is a decoy in this case. In most cases, regardless of their appetite, people either buy the small or they get the big because of the perceived worth.

For goods with different sizes or price levels, you can use this pricing strategy in your dropshipping business. By tossing a decoy at them, attempt to force the viewers to upgrade to the more costly kit or commodity.

Free Plus Shipping

Some individuals have many hurt feelings about this technique, but it’s used on such a scale that we need to learn about it.

The method of selling your goods for “free” while increasing the shipping expense to accommodate the loss is free plus shipping.

How many times have you seen a Facebook ad claiming, “I’ll give you this for free if you only cover the shipping.” Influencers and big names use this tactic to market books so that they can move you down their pipeline and sell you more on the backend.

Only if you’re doing the same thing would you want to try this technique. You don’t want to be one of the ones who “bait and change” your audience because it will affect you in the long term. Don’t ask customers to buy a free shipping item that you’re asking $45 for. Online shoppers are more sophisticated than ever before.

The aim of free plus shipping is to get customers to your shop so that anything else can cross and upsell them.

If they’re there for a free flashlight for hunting, you could sell them a knife or a binocular. You’re going to lose some cash up front, so to make sales on the back end, you can attract a lot of interest.

Bundle Pricing

Another price tactic that we’ve seen elsewhere is here. As with the popcorn example, this approach goes back to’ perceived worth.’ How many times have you gone for one item anywhere, to buy two or three because of a sale?

“Buy two, get one free of charge,” “Buy one, get one for a dollar,” and so on.

In your online shop, you can use this tactic to pad your earnings on low-margin pieces. A perfect way to package the products is also to add accessories to more oversized products.

Another terrific thing about bundling is that it distinguishes you from the rivals. For starters, if you sell comprehensive equipment and goods for vehicles. There could be a hundred other retailers that sell the same items.

You could build a kit that will help you stand out from the crowd, where you sell an entire cleaning set.

However, make careful not to overdo this. There are shops where everything is marked down, and everything is packaged with every product. If you do so, people will start to catch on and get suspicious.

Other Factors That Impact Dropship Product Prices

Although the cost is significant, you don’t want to let that guide all your decisions with your dropshipping shop. Many other items matter more than costs. Such variables can affect your opportunity to sell a commodity higher than your rivalry.

Trust Signals

Why will anyone order Amazon’s Lysol Cleaning Spray vs.

Since Amazon has our confidence, they do it.

We know that our payment information is secure, that we’re going to get our order, and that we’ll like what we get in the mail. The method works, and as an unknown retailer, you need to understand that you are at a disadvantage.

Using confidence cues, such as payment authentication badges, ratings, testimonials, and lock icons, you will give yourself a leg up. Your clients should be at ease doing business with you.

You will be able to charge more for your goods if you can create confidence in your audience, and they will choose to use your shop, even if it means spending a few bucks more for the same thing.

Dropshipping Suppliers

To supply your goods, what dropshipping vendors are you using?

Without recognizing that they’re overpaying, several online retailers run to sites like Aliexpress. Several groups out there will partner with online retailers directly to help supply them with a rock bottom offer. These agents work outside of Aliexpress with the manufacturers, so you don’t get stuck paying the markup, and you can even “at cost” purchase goods.

For what they are, don’t accept rates. Negotiate to identify the lowest price on the highest-quality commodity for manufacturers.

Final ideas about how a commodity should be priced

Not to dwell on it is the vital thing to remember about pricing your dropshipping goods.

Pick a plan and roll with it. Try a new one if it’s not working out. In your shop, try multiple pricing methods to find the one that fits well for you. We’re all in it to make money, and the prices of your dropshipping items are relevant but not the most crucial aspect of your store.

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