The dropshipping business is a lucrative way to generate steady income without having to put too much time and money to get things rolling. This has made dropshipping products an attractive online means for generating income in the ever-growing e-commerce industry.
However, the dropshipping model is a competitive one and a lot of factors have to be accounted for in order to stand out and be noticed. One such factor is price. Pricing can play a vital part in the marketing strategy and in the dropshipping model especially, pricing is crucial.
This is because, as you may already know, dropshipping profits are essentially the difference between the price specified by the seller and the price advertised on your store. You would think that the higher the price you set the more profit is to be made but this is a lot more challenging to pull off no matter what niche you may be targeting.
If you are currently managing a dropshipping store and looking for ways to improve your bottom line you have come to the right place! Let us take a look at different pricing strategies, tips, and tricks that one can adopt to get the most profit out of their dropshipping store.
BUY LOW. SELL HIGH. MAXIMIZE YOUR DROPSHIPPING PROFITS
Keeping track of all costs incurred in running your dropshipping store is of vital importance. Make sure that you keep a record of all business expenses from the cost of products listed to shipping and branding costs (if any).
Knowing your numbers is essential when it comes to dropshipping profits as it allows you to fine-tune processes and ensure that costs are kept to a minimum. The lower the cost the higher the profit margins.
It is almost always recommended to set a high stock price for a product and then play around with that price using a combination of price marketing strategies such as discounts, coupons, promotions, etc. If you start with too low of a price point you won’t be able to offer deals that are attractive enough to trigger an impulse buy.
We will talk about pricing strategies and pricing psychology is more detail so keep reading!
Knowledge Is Priceless
Research is perhaps the most time-consuming aspect of any successful dropshipping model. The more you research the more enlightened you become on what your target audience wants and what your competitors are doing. These insights can be the difference between making nominal profits or making abnormal profits.
By doing research and due diligence one can better understand the market and the needs of its target audience. Things like what markets hold the highest potential for a particular product? or what products or manufacturers are popular and trending can only be answered by doing research and learning about the industry and target audience.
Price Should Never Remain Fixed.
The belief that consistency is pricing is the key to sustained profits no longer holds true in the online world. Price fluctuations are common and in fact one of the most effective ways to help improve your bottom line. By playing with the pricing of different products listed in your store you can formulate a better understanding of what price point brings in the most profit.
Cost based Strategy
When you’re creating a cost-based pricing strategy for your business, there are two main things that you need to worry about.
The total cost that you incur when you’re making a sale, and the profit margin that you want to make per sale.
So, let’s use an example to show exactly how cost-based pricing works.
Let’s say that you’re running a women’s clothing store and you’re selling v-neck t-shirts.
You’re dropshipping, so you won’t need to worry about production costs, as you’re purchasing your products directly from your supplier every time you make a sale.
It costs you $5 to source your products from your supplier, and $2 to ship the products to your customers.
That takes you to $7 in total.
Then you set a cost of $5 more per product for Facebook ads to draw in traffic to your online store and land a conversion.
So, in total you’ll spend $12 to source a product, make a sale, and ship it to our customer.
Pretty simple so far. Next, you’ll need to decide the amount of money that you want to charge per product to complete this cost-based pricing strategy.
You could try selling the crop tops at $15 each, or even $20, and see if you can land the sales – you’d be earning a decent profit at both of those prices.
Understand The Mindset Of Your Target Audience
If you are dealing with exclusive products that appeal to certain niche demographics than generally, a higher pricing strategy is the way to go. For more generic products more often than not, the cheaper they are the more they tend to sell. This is why it is important to truly understand your target audience for dropshipping.
However, that is but the basics of pricing. One needs to dwell a lot further and look for answers to questions like; What do customers value most about the product, brand or promotion? Is the product meeting customer expectations? What sets my store apart from the rest of the competition? Am I getting return customers? What do customers most like about the store? What do they most dislike about the store? So on so forth…
SALE! SALE! SALE!
It is no secret that our human psychology generally makes us want a product if we see it on a big sale or some form of exclusive discount or promotion. The fear of loss is a factor that is perhaps the biggest contributor to an impulse buy decision.
If you have shopped online you know exactly what we mean. A timer telling you that they are but just a few minutes left on this once in a lifetime sale is likely going to make you want to buy that product regardless of what it may be.
This is why it is essential to have sales, promotions, special offers, coupons, discounts, and more available on your store all-year-round for not all but a majority of the products listed to entice customers to visit the store and browse its wares.
Be cautious though, over use of discounting and sales can lead your customers to expecting this and it can be very difficult to get them out of that mindset when they have caught on.
Psychological pricing is one way to make a product seem less than its actual price. A product priced at $29.99 is read by most as $29 when it is, in fact, $30. This is just how our minds work and marketers have been using such pricing techniques for decades. So why shouldn’t you?
The Do’s & Don’ts Of Pricing
When setting a price for your dropshipping products here are a few things that you should always do and a few things that you avoid.
- Constantly experiment with pricing.
- Change the sales offers and promotions periodically and monitor the stats to see what is working and what isn’t.
- Spend a little on branding in order to differentiate your product from the rest of the competition.
- Know your market and target audience
- Learn, adapt, grow!
- Never copy or follow your competition’s pricing strategies.
- Avoid listing products without the free shipping or a preferred express shipping option.
- Never set too low of a price point. Cheap isn’t always best.
- Don’t be rigid with your pricing. The more you experiment the more you are likely to learn.