Dropshipping Pricing Strategy: How to Price Your Products
Quick answer: To price dropshipping products, add up your full cost per order (product cost, shipping, payment and app fees, and the advertising cost per sale), then add your target profit. A practical formula is retail price = landed cost + marketing cost per sale + fees + profit. Use a higher markup on low-ticket products, a lower percentage on high-ticket products, and test strategies like tiered markup, psychological pricing, free plus shipping and bundles.
If you have an online dropshipping store, the question of pricing your products is definitely something you need to consider.
When you price your products, you have to take into account expenses such as product costs, marketing costs, and taxes. But don’t worry, in this article, you will be able to learn what is a dropshipping pricing strategy and how to choose the best retail price for your dropshipping products.
Now let’s get started!
What Is a Pricing Strategy and Why Is It Important?
A pricing strategy is a method used to determine the price of a product being sold. As one of the P’s of marketing, pricing is also considered a marketing strategy to predict the perception of a product or brand. Pricing strategy is important because, without it, you risk incurring losses on each order. Too high a price will stop people from adding the product to their shopping cart, and too low a price will cost you your profit margin.
Dropshipping Pricing Formula
Before choosing a strategy, work out what one order really costs you:
Retail price = product cost + shipping cost + platform and payment fees + marketing cost per sale + profit
For example, if a product costs you $8, shipping costs $4, fees are about $1 and you spend $10 on ads to get one sale, your break-even price is $23. Anything above that is profit. Once you know your break-even price, you can apply one of the strategies below and check that every product still makes money after advertising.
What Are the Different Pricing Strategies?
There is no single pricing strategy for dropshipping. In fact, there are many different pricing strategies, and the one you choose will determine how you price your products and how you market them to your audience.
Here are some of the most popular e-commerce pricing strategies.
Fixed Markup
The fixed markup is simple. You will calculate a fixed margin that you want to have on all your products. Let’s say you want a 20% markup on all products, and you have a product that costs $200. You would add $40 to the cost of that product and that is the price you would sell it for.
Tiered Markup
When you sell many different types of products, it is recommended that you use tiered markups. You can adjust your markup percentage based on the overall price of the item. This allows you to tailor your pricing strategy to meet the needs of each product individually.
For example, you may not want to add a 20% markup on a $500 product because that would add $100 to it and could price you out compared with your competitors. But you can add a 50% markup on a $10 product to cover your costs. With a tiered markup strategy, you can set the percentage based on the retail price of the product.
MSRP (Manufacturer Suggested Retail Price)
MSRP is one of the safest options, with this pricing strategy you price your products based on their value while being free from competition. MSRP strategies can be paired with discounts to bring in customers by promoting your products and competing with sites that have the same products but at lower prices.
Competition-Based Pricing
Competition-based pricing is setting your price based on your competitors’ prices. This pricing strategy is generally not recommended because lower prices may translate into lower product quality in the minds of customers. A dropshipping business that thinks in terms of “beating your competition” will never thrive.
Psychological Pricing
Using prices that appeal to the human psyche has been a win-win situation for many resellers in the past. Using numbers like 0.99 and 1.99 is very appealing to customers. It is well known that playing with customer psychology in pricing can lead to more conversions than traditional methods of pricing strategy.
Free Plus Shipping
Free plus shipping means selling your product for “free” while adding shipping costs to cover your losses. We often see Facebook ads that say, “Just cover the shipping and you get your product for free.” The purpose of free plus shipping is to get people to come to your store so you can cross and up-sell their other stuff.
Dropshipping Pricing Strategies
Low-ticket product ($0-$25) dropshipping pricing strategy
We’ll start with the low price point, where you’ll buy products from your supplier for $0 to $10. So, what factors do you consider when pricing a low-priced product?
Perceived value. Generally speaking, low-priced products will not have a very high perceived value. Having a margin of $20 or more is often quite tricky for low-priced products.
Audience. If you are selling a low-priced product, your goal should be to sell as much of the product as possible. Try to get visitors to buy your product impulsively. Since your COGS is low, you can also sell your product at a lower price.
Marketing costs. A good rule of thumb is to set aside 30% of your product’s retail price for marketing costs, which depend on the price of your product.
Fixed markups
For low-priced products, a fixed markup is a good enough pricing strategy. Simply add a specific dollar amount to the vendor’s product price. This will leave you some wiggle room to cover your marketing costs, taxes, and monthly fees.
Free plus shipping strategy
This is another pricing strategy that works well for lower-priced products where you sell the product for $0.00 and only charge the customer for shipping.
The reason this method works so well for low-ticket products is that your COGS is very low. You can simply get away with offering the actual product “for free” by just asking for shipping! Your costs are very low. However, you will actually need to recover all of your costs from the shipping costs you charge your customers.
High-ticket product ($30+) dropshipping pricing strategy
Just like low-ticket products, high-ticket products have their own specific things that you must consider when pricing.
Perceived value. When selling high-ticket products, you have to make sure the perceived value of the product is high. You can’t buy a product for $40 that’s only worth $50 to most people. Your product must solve a big problem for people, and the product must be really high quality. Only then will people willingly pay for it.
Taxes. Since you are selling a product with a high value, you will have to look into tax issues to make sure you are complying with all the rules. For example, the EU used to let consumers import goods worth less than €22 without paying import VAT, but that exemption was removed in July 2021, so VAT now applies to all imports into the EU. If you are shipping a high-value product to the EU, check how VAT and duties are collected before you set your price.
Marketing costs. Remember what I said about more expensive products having higher marketing costs? Well, higher-priced products will have higher marketing costs because the CPP (cost per purchase) for these products will be relatively high. This is why you tend to need a large budget when you start making dropshipping for high-priced products. If you are a beginner, I don’t recommend starting with these products.
Cost-based pricing
The first one is cost-based pricing. Here we will try to determine a selling price based on your expenses, such as marketing costs, COGS, hosting fees, and application costs.
Bundled Pricing
Believe it or not, there’s actually a way to lower the retail price of your product and make a higher profit at the end of the day! You can do this by using product bundle pricing. Customers can buy your product and a different matching product and get a discount on both.
Final Thoughts on How To Price a Product
When choosing a pricing strategy, it is important to experiment and understand what works and what does not work. Only by trying different strategies and sticking with the perfect one will you be able to make a profit in the dropshipping business. If you have any questions about dropshipping business, or if you want to cooperate with a reliable dropshipping company, join our community or get in touch with us!
FAQ
How do I price dropshipping products?
Start from your full cost per order: product cost, shipping, payment and app fees, and the marketing cost per sale. Add the profit you want on top, then check the result against competitor prices and the perceived value of the product.
What is the dropshipping pricing formula?
A simple formula is: retail price = (product cost + shipping cost + fees + marketing cost per sale) + desired profit. Many sellers express this as a markup, for example multiplying the landed cost by a fixed factor for low-ticket products.
How much markup should I use for dropshipping?
There is no single right number. Low-ticket products usually need a higher percentage markup to cover ad costs, while high-ticket products use a lower percentage but earn more dollars per order. Tiered markups let you set a different percentage per price range.
What is the best dropshipping pricing strategy?
For most stores, a tiered markup combined with psychological pricing (such as $19.99) and product bundles works well. Free plus shipping suits cheap impulse products, and MSRP pricing suits branded goods with a suggested retail price.
Should I compete on price in dropshipping?
Usually not. Competing only on price shrinks your margin and can make customers doubt the quality. Compete on branding, product pages, shipping speed and customer service instead.