A dropshipping pricing strategy shouldn’t remain static. Before a pricing strategy can be chosen, you must decide on which type of products you are going to sell. Try experimenting with different pricing options, exploring new product lines, and scrutinizing how different markets react to different pricing.
Explore what are the most popular dropshipping pricing strategies businesses can follow in the current situation.
There is no singular pricing strategy for dropshipping. In fact, there are many different pricing strategies, and they all have a time and a place. Some people tout choosing the right product as the most important part of your dropshipping process, but really, if you don’t get your pricing right then the product you choose will largely become irrelevant as you won’t have a sustainable business to pursue.
A dropshipping pricing strategy shouldn’t remain static. Try experimenting with different pricing options, exploring new product lines, and scrutinizing how different markets react to different pricing. Always keep a close eye on your competitors and regularly re-evaluate your prices in line with competitors.
Here are a few of the more popular dropshipping pricing strategies to consider:
- Fixed markup on cost
FMOC or fixed markup on cost is a type of dropshipping pricing strategy that involves adding a pre-set profit margin to the cost of your products. You can either do this by the dollar or by percentage. Let’s pretend for a moment that the average price of your products is $10. You might decide you want to use a 10% markup. Meaning you add $1 to the price provided to you by the seller.
- Cost-based pricing
This is a pricing methodology in which we calculate our total business costs and add it up with a certain profit margin to set its selling price.
Basic cost-plus pricing:
Expenses + desired profit margin = price
It’s the simplest way to set your prices unless you want to go for a loss-driven business. With this, you can build a solid layout for growth and persevere in a harsh market.
- Profit margin
You have to decide about the profit margin by yourself. If you have noticed, I did not add any fixed charges, or costs of other overheads like your time, salaries, annual fees, Internet charges, etc. The reason is, I think it is inconvenient to calculate these costs along with your product costs. So you can decide on a profit margin to cover these expenses as well. Usually, I keep 2.5x to 3x markup for dropshipping products.
- Tiered markup on cost dropshipping pricing strategy
Tiered markup on cost is a price strategy most commonly used when the supplier has a variety of different products ranging from low to high in value. It allows you to not price your expensive items too high, but at the same time, you can make money from your low dollar items. Set parameters for yourself where items under $10 get a 50% markup and items over $500 get a 15% markup. These numbers are of course personable and will depend on what your store sells. The object here though is to have a higher markup on the lower items to make it worthwhile for you to sell them.
Before a pricing strategy can be chosen, you must decide on which type of products you are going to sell, the industry they are in, and what the price point of the product should be. These questions are crucial because even though there is little overhead for drop shipped items, their profit margins can be quite narrow. For instance, while electronics can be very popular items to sell online, their cost is so high that it can be challenging to sell them at a competitive price and still make a significant profit.