Dropshipping sellers often find it difficult to decide the price of dropshipping products. Is it too costly? Are I underpricing my potential profits or is it too expensive? Let’s find the secret formula to pricing dropshipping Aliexpress products correctly.
Pricing products is more than just covering costs. It’s about making a profit.
Pricing strategies in today’s highly competitive business environment are more than just about covering costs. They also need to provide a profit margin. Aliexpress Product pricing is now more of a marketing tool. Many retailers manipulate the product pricing to drive customers to their stores.
Dropshipping pricing is an indirect marketing strategy that can help you increase sales and profits.
Did you know that online shoppers have one purchase influence: the price of the Aliexpress product. The product’s price is not the only factor that has an influence on a buyer’s decision, but also the second and third.
It is crucial to choose the right price for your product in order to ensure business success.
How to price dropship products
Dropshipping products can be difficult to sell if the price is too high.
Dropshipping shop owners have many options for pricing Aliexpress products. This guide will help you choose the right pricing strategy for your dropshipping business.
Dropshipping pricing strategies – Content lineup
- Pricing products based on cost is the traditional pricing strategy
- Pricing strategy based on competition
- Pricing strategy based on customer needs
- Dropshipping products can also be offered in other pricing options
- Psychological pricing
- FREE plus shipping
- Bundle pricing
- Cutthroat pricing
Dropshipping products can be done using the traditional cost-based pricing strategy
The majority of traditional sellers use cost-based pricing for their pricing strategy. This is a safe way to set Aliexpress product prices.
Dropshipping is a great place to start if you’re just starting out. Cost-based pricing might be the best option. Dropshipping pricing strategies that are cost-based have a simple logic. You can also pre-calculate your profits. This gives you the flexibility to experiment with different pricing options.
Cost-based pricing is very simple. You must first forecast and calculate all costs related to Dropshipping Aliexpress products.
Here are the costs of Dropshipping products. This list is not complete. You can create your own listing by reviewing it and adding any additional fees that you might have depending on your business model.
- Supplier Price
- Shipping Cost
- Marketing costs (typically around 30%)
- Selling platform fees (If you are selling on eBay , it would be around 12%)
- Shopify charges for shopping cart transactions (approximately 2%)
- Payment gateway fees (i.e. PayPal Merchant Account 3.7% + 0.33 USD
- Margins for currency exchange
- Taxes
- Allocation of refunds (Typically 5%).
- There are running charges for all other apps or tools that you use.
- Profit margin (40% – 50%)
- Marketing Costs –
For Facebook ads, 30% is the average value when it comes to marketing expenses. Calculate the marketing costs and decide your CPA. It is not financially profitable to rely on advertising to drive traffic to your store. This can take a lot of your potential profits. You need to focus on SEO and look at other sales channels to generate sales for your Dropshipping shop. - Returns and Refunds
You can lower the return rate to 5% if you give accurate product descriptions. However, you might have to give more if the product descriptions are not accurate and misleading. - Profit margin
The profit margin is up to you. As you can see, I didn’t add any fixed costs or overheads such as your time, salaries and annual fees, Internet charges, and so forth. These costs are not included in your Aliexpress product cost calculations. You can also decide on a profit margin for these expenses. I usually keep 2.5x to 3.0x markup when dropshipping products.
As you can see, traditional pricing is based upon simple logic. You can begin your dropshipping business with a cost-based strategy.
This strategy, however, lacks significant input. It is blind. It doesn’t take into account market conditions or competition.
This market data is crucial as it can help you determine if your prices are too high or low in comparison to other dropshipping shops.
Dropshipping pricing based on competition
This is basically how we spy on dropshipping companies and adjust the prices of our Aliexpress products accordingly.
Modern E-commerce platforms have many tools that allow you to automatically track competitor prices, and sometimes even track stock levels. Price tracking tools such as Prisync and Keepa are useful for keeping track of product prices in another e-commerce shop.
Let’s discuss the pricing strategy behind competitor-based pricing
You may think that if I know the prices of my competitors, I will offer my lowest price so I can get more Dropshipping customers.” This is not going to work. There are few things that can go wrong when the selling price is too low.
- This will prevent you from losing all the profits that could be made by raising your price.
- Customers might believe that your Aliexpress products and services are not of high quality. This could be the reason for the low price.
- You might lose your customers to a competitor who may set the price lower. You would be unable to offer anything else if the “low price” was your only strategy.
What if your prices are too high? Dropshipping shops with higher product prices will show you why.
They might offer short delivery times and excellent customer service. Or, they may offer discounts to customers who return. You cannot increase your price and then wait. For that price, you must offer something unique.
So where are you going to place your price?
This section will help you understand basic math concepts. If you don’t want to learn maths, you can skip the next para.
If you gather competitor price data and create a price distribution depending on your Dropshipping niche you might end up with either a positively or negatively skewed curve.
The curve will be negative skewed if you have high-end products. Conversely, a curve that is low-end will be positively skewed if it has high-end products.
If you are able to recall the Arithmetic Mean and Median as well as the Mode of data distribution, then the Mode is the price at the highest number sellers are selling this Aliexpress product. The median will be the middle price (about 50-50). The mean price will be the average price of a competitor.
The price data of competitors can be biased in different directions depending on the niche.
If you are a high-quality store/service with good customer service, you can easily target the Average value (mean value). If you feel your services are superior to the average Dropshipping store you can increase and test the price.
Pricing isn’t a one-time thing. To find the best price, you will need to adjust your pricing several times. This is part of running an online Dropshipping company.
Dropshipping pricing determined by the customer
You must understand the importance of your online dropshipping business to your customers. You should adapt your game plan to meet their needs and behaviors. When it comes to Aliexpress product pricing, the customer factor cannot be ignored.
Let’s now see what the visitors to your site are thinking. According to some studies,
- 2/3 people visit an online ecommerce shop to check out the Aliexpress products and compare prices.
- Nearly half the population is looking for coupons and discounts.
- Approximately 1/4 of these people are searching for promotions.
You may be able create a blurred image of your customers by keeping these numbers in mind. We need to make this image more clear before we can set product prices.
Let’s now see what you’re selling.
- People will not compare prices when you sell high-end or luxury products. They will instead compare your services. Your site is visited by quality-conscious customers. You can increase your prices and customer service by investing in quality.
- You can sell to hobbyists and people who are passionate about your products if they are familiar with the prices. They will be able to tell the difference between a $38 product or a $40 product. You must be concerned about price. Many potential customers may be searching for coupons, deals, and promotions. With a few coupons, you can convert this target market to returning customers.
- People will look for lower prices if you sell low-end Aliexpress products that aren’t as concerned about quality or customer service. They may not conduct extensive market research. They might not do much market research, but if the price is right for a product, they will buy it.
Dropshipping pricing options
Psychological pricing
This is an old way to create price tags. It is far more affordable than $10 to get $9.99. This is not going to expire. However, there are limitations.
- This pricing method is only applicable to low- and mid-range products. Your reputation can be damaged if you put a $9999.99 price tag on top of $10000.
- It is also true that prices ending in odd numbers work well. However, I could not find any way to test this idea. Perhaps you could check that out.
- Complex prices can hurt your Dropshipping sales conversion rate, especially when we are talking about psychological pricing. A price tag of 387.82 is more likely than a tag of $388.03 to get a sale. Despite the higher price tag, the second tag looks simpler and smaller than the original.
FREE plus shipping
This pricing method uses the keyword “FREE”. People are more likely to buy if they see that word. This is basically what you do: promote the Aliexpress product by giving away a sample, but increase shipping costs to cover expenses and have a small margin.
The idea behind free shipping plus is to attract new customers.
Once you have a customer, you need a way to cross-sell, up-sell, or convert them into returning customers. You won’t be able to use the free plush shipping strategy as your only pricing strategy for very long if you don’t have such a system.
Remember to provide a reason for the promotion if you offer FREE shipping plus shipping to Dropshipping customers. Your promotion will not look like a fraud to your customers.
Bundle pricing
You might have seen sales promotions such as “buy two and get one free” or even “buy two and get 10% off”.
These are bundle pricing options. A bundle can be made of multiple Aliexpress products to create an offer. You can offer a 30% discount on a Bluetooth mouse by offering a mouse-pad.
This will allow you to make secondary sales and, even though you may have a lower profit margin, you can still make some money by selling more.
Bundle offers have one problem: customers will not be tempted to purchase individual products at a regular or higher price after seeing the offer.
Cutthroat pricing
This is when you set your product’s price below the average market price. If you have enough marketing power, you could quickly promote the offer as a limited-time deal and then slowly increase the price.
This will allow you to break into the market and attract new customers with a brand new product. As we discussed, it is important to have a way to keep your customers from being harmed by this promotion. You will quickly lose money.
These were the strategies used to price drop shipping products
After we’ve discussed the pricing strategies of online Dropshipping merchants, it is time to choose the methods that you will use for your Dropshipping niche.
You can’t use one pricing strategy. You may need to use multiple pricing strategies to make Dropshipping a success.
Are there any other topics you’d like to learn more about or would you prefer this article to include? Leave a comment below to let us know! Check out our blog for more information about dropshipping or digital marketing.
