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So you might be one of the many dropshippers who are rubbing shoulders with many other micro-businesses currently sharing the stage with over 75% of all private sector enterprises.
But how do you stay ahead of the game and create a robust dropshipping pricing strategy in 2021 to compete?
In this article we are going to discover how to price dropshipping products, find out the ideal markup for dropshipping products, and more importantly how to make it profitable.
Let’s start with the brief takeaway before we get down to details.
How do I create a profitable dropshipping strategy in 2022? When creating a profitable dropshipping strategy in 2022, price match products in your niche, utilize free tools for profit margins, research competitor’s sites, set tiered pricing, bundle products, offer free shipping on specific quantities, utilize MSRP and offer great customer service.
So now we’ve seen the takeaway, let’s look a little more in-depth at how to price dropshipping products for the best returns.
Let’s begin by looking at some all-important tips to calculate drop shipping profits to get you started.
How to calculate drop shipping profits
First of all, it’s important to understand that your profit is a simple formula.
Your profit is essentially what money is left after you’ve paid out for everything you need to run your business. These include:
- Shipping costs
- Labour – this will include your own time and also that of any help you enlist, such as a VA (virtual assistant)
- Any indirect costs – these are more commonly known as overheads such as hosting, utilities, marketing and promotion
Or put another way, you simply need to find the difference between the two price points for each product.
- Price 1 is how much you bought the item for, and Price 2 is how much you are charging your customers.
- Simply deduct price 1 from price 2 and then deduct any overheads you incurred.
However, this method can have its drawbacks as it means doing tricky calculations dividing up your outgoing over a number of sales.
Unless number crunching is your thing, novices may find that these kinds of calculations can bring you out in a cold sweat!
So using online profit calculators can help you take the heat out of these important figures.
Online profit calculators
There is a wealth of free online tools for dropshipping to calculate important profit margins.
These simple calculators can help you find a profitable selling price for your product.
The usual method is you simply enter your gross cost for each item and what percentage in profit you’d like to make on each sale.
Many margin calculators work in the same way. The profit margin tool will run your figures through its profit margin formula to find the final price you should charge your customers.
From there, you can effectively price your dropshipping products and begin profiting straight away.
So now we know there’s help available for working out how much profit we are likely to make, how do you actually get to those figures in the first place?
What is FMOC?
FMOC is an abbreviation for fixed mark-up on cost.
FMOC creates the bottom line for deciding margin or markup on products.
This is where all your costs as we mentioned above are taken into account and a fixed percentage or amount is added for these costs on top of your initial outlay purchasing your product.
For instance, You might decide you want to use a 10% markup. Meaning for a product costs $10, you add $1 to it.
This is when a great pricing strategy is required! Let’s discover a little more below.
So how do you reach that sweet spot of pricing that ensures you are ahead of the race?
Not too high or too low
When you are running a small business, a price race can be your first thought.
Offering the lowest price for a product means you will automatically win over the competition, right?
However, this isn’t always the case.
By simply going in with a low price you could be:
- Driving away customers with unrealistic prices If your price is too low, your customers may doubt the integrity of the product or wonder if it may be a low-quality item. Setting a realistic cost based on your niche is important to keep the trust of your customers
- Not sustainable pricing your product too low could mean you are earning dangerous close to your profit margins and may not even have factored in enough profit to sustain your business
- A busy fool Very very low costs could mean you are working full throttle for very little return and could lead to burn-out
It’s important to remember that customers pay for more than just the product.
They are also looking for great customer service and will build a rapport with sites that offer this along with the fact they will always be willing to pay market value for a product they can’t live without!
Match your price to the niche
Price matching according to others in your niche is important as we’ve seen above.
Your customers will already understand the kinds of pricing reasonable and realistic, especially for highly competitive niches such as electronics, fashion clothing, or fashion accessories, for example.
Consumers have expectations for pricing and it’s important for your 2022 dropshipping strategy that you keep in line with customer expectations.
For instance, offering any branded pair of flip flops at $50 would turn most consumers away to your competitors.
So what other ways can you make sure your pricing is great for your profit margins …but also an attractive proposition for your customers? Read on to find out.
“it’s important for your 2022 dropshipping strategy that you keep in line with customer expectations.”
So how else can you build the best dropshipping pricing for your business?
More great dropshipping strategies for 2022
- Set tiered pricing: For high-cost products, make sure to add less margin to avoid your customers going with your competitors and for low-cost products, make sure to add enough margin to ensure basic costs
- Pay attention to shipping: it’s worth remembering that bulky, oversized or or those containing liquid will attract higher shipping costs
- Compared to pricings: Make full use of Add compared to price calculations or MSRP. This will help you find the most attractive price for your customers, but make sure you don’t add too much over and above the recommendations.
- One cent drops: We all know the magic of just one cent difference and what psychological pull it is for anyone ready to spend! So make sure you utilize this tried and tested pricing method to increase the profit in your dropshipping store in 2021! $4.99 is always going to be more appealing than $5, for example.
- Research on competitors stores: checking your competitors’ stores regularly provides a good benchmark for your own pricing
- Be unique: Adding value to your customers’ experience with great attention to their journey, including awesome service important in winning customers away from the competition.
- Bundle products Utilize bundles. Offer discounts for bundles. For example, $50 for one pair of yoga pants and $89 for two pairs.
- Offer free shipping. If customers spend a fixed amount at your dropshipping store, offer free shipping. This strategy works particularly well with low-cost products.
For anyone looking to begin a new drop shipping venture or those who are enjoying the benefits of dropshipping business, it’s important to make sure you absolutely nail your pricing strategy.
We hope this article has given you some great tips and hacks.
Be unique, use the free tools offered and make sure you spend a little time every so often checking out your competitor’s site will make sure you have a robust dropshipping pricing strategy for 2022 and beyond.
And, don’t forget a reliable supplier will help you save cost from fundamental level. Contact HyperSKU now to enjoy lower cost and improved fulfillment efficiency.