April 4, 2018

12 Pricing Strategies: How to Price Dropshipping Products

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Many dropshipping store owners mostly newbies ask "what prices to set" or "why people will buy from me?". The topic about pricing strategy is extremely important, as we're saying about money.

There is no one-size-fits-all answer to the question how to price dropshipping products to profit. Margin and expenses depend on products you sell. There are products that are sold with higher margin but not much in quantity, for instance, luxury elements of decoration. There are other products that are sold not much but with smaller margin. The second variant is more appropriate for ecommerce. Find below 12 dropshipping pricing strategies to choose what match your market most and a calculator you may use to price your products.

Pricing Strategies for Dropshipping Website

1 - Charge Lower than Big Retailers Do

Dropshipping concerns shopping in the emotion of the moment, so we need to offer customers a good deal. So, prices you have should be lower. Big retailers have more expenses than dropshippers do. They pay for rent, salaries, warehouse, delivery, etc. Your spending is less and this is your advantage. Remember about a gap between your prices and prices of your competitors.
Tip: the best price comparison websites and apps you may use are listed here.
Don't do that
About low prices and price wars: I don't want to say that your prices should be the lowest on the market. The strategy of offering the lowest prices may be a very tempting idea. You may think that if you sell products to all the consumer needs on the market with the lowest prices, you will still win due to the number of units sold. However, life shows that this strategy has no success. Your competitors may offer lower prices too when you start going down, one day you will find there is no profit and everything you earn is not a business. Keep your prices in the line with the prices of your competitors, offer a well "packed" offer which is a value for a customer and a reason to purchase from you. The examples of offers are listed below.
Your sales prices should include all your expenses and leave you enough room to profit.
2 - Triple Purchase Pricing Strategy
This strategy is quite popular among dropshipping stores. If a purchase value including shipping cost is $14.90 (13.00+1.9), so when we triple it, we get $44.70 (14.90×3) as a selling price. It means $29,80 (44.70-14.90) is your profit that includes expenses on ads, transaction fees, and your margin.
12 Pricing Strategies: How to Price Dropshipping Products
Source is Dropwow.com
This formula is not universal, as when you sell for $3 a product you buy for $1, the difference is too small to cover expenses. The same way $600 is not an appropriate selling price for a product you buy for $200, this price is too high.

If we take into consideration that your estimated profit should be 30% and total expenses usually come to 70%, estimated selling prices will be like these ones:

  • Purchase price $0-1 = Selling price $9.99
  • Purchase price $1-5 = Selling price $12.99-69.99
  • Purchase price $5-30 = Selling price $12.99-69.99
  • Purchase price $30-50 = Selling price $69.99-124.99
  • Purchase price $50-100 = Selling price $124.99-225.99
  • Purchase price $100-200 = Selling price $225.99-449.9

Read below a part called "Pricing calculator" to learn how to properly price a product. A list of expenses that should be taken into consideration is given there.
3 - Market-Based Pricing Strategy
This may sound logical but this point is essential I should mention it. Make competitive research. If you already know what products to sell, you know they are trendy and much in demand, it doesn't mean your research is over. You also need to learn who your competitors are, what prices they have, what special offers they provide.

This additional research will give you the answer to a very important question: if your products are viable to profit according to the purchasing prices of your suppliers and sales prices of your competitors. Don't take into consideration prices on Amazon and eBay while researching.
Tip: use 9 free tools to spy on your competitors.
Why People will Buy from You?

Let's respond the question "why people will buy from you?", if you're in doubt how these strategies will help you. People buy from Shopify stores (read here as "from you") but not from Amazon or some big retailers because dropshipping stores have good offers. As almost all the ads are made on Facebook and Instagram, people don't think about buying stuff at the moment.

When we plan purchases, we surf the Internet to compare prices, read reviews, search for coupons. When we see a special offer in the feed of Facebook or Instagram with a discount which is related to our interest and passion. Boom! We're on the hook. Urgency and scarcity made by countdown timers and limited-number of products, plus trust due to social prove elements like customer reviews add to an effect even more.

Some people also say about a Unique Selling Proposition (USP) but I would say that Shopify store is all about an impulse buy. The right offer at the right time in the right place accomplishes wonders. However, if you wish to offer USP and build a brand, these both ideas are great but not when you're a newbie who should launch the first dropshipping website.
4 - Perceived Value-Based Pricing Strategy
Use common sense. Look at the product and respond two questions "is this a normal price for shoppers?", "would you buy this product for the set price?" People should agree to pay you the price you ask for. When we say that some prices are high (I'm sure at least once you said that), it means we're not ready to pay the price as perceived value is low.

How to identify low perceived value? Your ads result in engagement but not orders. People like, comment, share your ad, visit your store and leave abandoned carts.

I'm saying about a situation when your website looks nice (high-quality pictures, good descriptions, visible buy button, etc.) and there is no reason for real-time visitors not to buy but they still leave with no purchase.
5 - Psychological Pricing Strategy
It was psychologically proved that prices with .99 ending, for instance, $19.99, are perceived as a better deal than $20 accordingly though the difference is extremely small.

Try not round-off prices with for instance .85 or .74 endings (not .99). I mean when people see popular endings of this pricing strategy (.99, .97, .95) they understand where it comes from. It still works but some people may feel to be cheated. When there is something non-standard like .64, people think the cost was calculated somehow and a store owner charges according to some formula and not more.

In any case, don't focus much on this pricing method and don't expect much from it. There is an effect but it's not huge. The whole deal should seem to be good to a customer, so the whole marketing should work for that.
6 - Free Plus Shipping Strategy
This may be your promotional strategy, on the other hand, the shipping charge may give additional income to dropshippers.

The strategy is not new for the audience. The idea of this marketing strategy is offering a product for free and paying for shipping cost only. A selling price includes your expenses (purchase price, shipping cost, etc.).

Criteria for Free Plus Shipping strategy:
  • Shipping cost is charged per an item - if your customers buy 5 products at a time and pay you for shipping cost only once, you will sustain losses. Make all the necessary settings in your Shopify admin panel.
  • High perceived value for the low price - the price you request for should be lower than market prices customers are used to. Shoppers should be happy to pay you to get the product
  • Rational limit of shipping cost for customers - shipping cost should vary from $7.99 to $10.99. This range is not a must, these prices are popular.
  • Target European countries (not only the USA) to spend less on ads. In addition, they are less spoiled with a free plus shipping offer than people in the US.
  • Selecting products with wholesale prices lower than $5. The point is that if you charge $10 and spend about $4 on CPO (Cost Per Order), you earn $3-4.
  • Focus on upselling to earn more.
  • Make a time-limited offer - no comments to this point, as it's clear that we need an impulse buy.
This strategy requires selling many items during the specified time when the offer is opened. The point is a Free Plus Shipping pricing strategy has a low margin.

Dropshipping tip: this strategy is good for beginners (new dropshipping stores). You may not earn money spending on ads everything you earn. However, further you may do 2 things:
  1. create lookalike audiences (as a rule lookalike audiences show better results than Facebook targeting),
  2. create Facebook retarget ads (it's known that retargeting costs less than targeting).

Watch this short video to learn about Shopify "Free Plus Shipping" setup.
Shopify Free Plus Shipping Setup
Watch how you may set up Free Plus Shipping (10:45 min)
7 - Spend $X, Get Free Shipping Strategy
This marketing strategy motivates customers to spend more and increase an average purchase size. Pay attention to the amount you state to spend.

How much should customers spend for free shipping? Calculate an average purchase size of your dropshipping store. If it's equal to $30 and a shipping cost is $10, you may ask for, for instance, $60. When a customer adds to card an item and the final price is $40 including shipping cost, it is reasonable to order one more item to get two products and don't pay for shipping.
8 - Bundle Pricing Strategy
Offer bundling to increase an average purchase size. Or, provide a possibility to buy more than one item for a less price.

For instance, if we're saying about a toothbrush, it's normal to buy more than one for a family. If we're saying about tights, they may be sold more than one at once as they are torn off quite often.
Your offer may look like this:
  • Buy 1 for $9.95
  • Buy 2 for $13.95
  • Buy 3 for $15.95
  • Buy 4 for $18.95

The same situation when you offer bundling and give a fixed price for 2, 3 or 4 products that are frequently bought together. For instance, a face mask and a pore cleaner, or a tent with a portable lighter.
9 - Buy X, Get Y for Free Strategy
This marketing strategy is popular. Here you either offer to buy 2 toothbrushes and get 1 for free or offer a tent and get a portable lighter for free.
10 - Spend $X, Get $X Strategy
You may offer your customers to spend an average purchase size of your dropshipping store and get similar or even the same amount of money for the next purchase. This way you provide your customers a possibility to save money further. This ecommerce pricing strategy increases reselling. You may try to request little higher than your average purchase size to motivate shoppers to spend more.
11 - Free Shipping on Each Order Strategy
Offer free shipping in the header on each page of your dropshipping store. State the information on the product pages too. You may mark "Free Global Shipping" or "Free Domestic Shipping", it's up to you to decide how to limit the offer geographically.

Click here to learn how to set up Shipping zones in your Shopify store.
12 - Platform Related Strategies
Test strategies on different platforms. Free plus shipping with a discount may work better on Instagram than on Facebook, for instance. Remember that not only prices but promo platforms may be tested too.
Pricing Calculator
You may have your own pricing policy but in all circumstances, your selling prices should cover your fixed charges, variable expense, and profit.

This table is not exactly a calculator. You may see there how to calculate selling prices of dropshipping products.
12 Pricing Strategies: How to Price Dropshipping Products
30% is roughly spent on Facebook ads. When you calculate your CPA (it will be $5 or 8 I don't know), you will add it to your pricing.

5% is an average returns rate. If you have wrong sizes in descriptions, returns rate will be higher and may reach 8-9%. When description matches and quality is high, a return rate is less, it should be about 2-3%. Again, when you calculate your return rate, you will add it.

30-35% is an average profit margin in a dropshipping business. I put 33% as it's between.

You may have a different list of expenses, if you don't need currency change or use 2CO instead of Stripe and Paypal, hire Instagram influencers. This is an example for your reference.
It's All About Testing
Instead of conclusion: As I have mentioned, there is no match-all pricing strategy. Each market is unique. Testing and results analyses will show you growth areas.

Set prices you think are the best and check conversion. When you have sales, you may charge higher to maximize profit and see how increasing effects sales volume. Otherwise, when you have engagement and no sales, your Facebook pixel data will help you to reach the audience again to make a special offer with a lower price or something different. Search for a compromise.
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Gulnur Ismailova
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