Defining the pricing strategy for your dropship products is not easy.
You want to maximize your profits by jacking up your prices, but the result may be decreased sales volume. On the flip side, you don’t want to lower your prices so much that your volume kicks up, but you’re creating more work and less profit.
How do we find that perfect balance of how to price a product? What if we don’t have anyone or anything to compare our product? How can we come up with the perfect dropshipping pricing strategy?
Let’s find out!
Each Pricing Strategy and When to Use It to Price a Product
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. The one you choose will determine how you price a product and how you’ll market them to your audience.
Here are some of the most popular eCommerce pricing strategies:
A fixed markup is simple. You’ll figure out a set profit-margin that you want on all your products across the board. Let’s say you want a 20% markup on everything and you have an item that costs you $20. You would add $4 to the price of that product, and that is what you would sell it for.
With a fixed markup, it’s simple to set up and easy to manage, but your profits will dramatically increase or decrease depending on the retail price of what you’re selling.
Tiered markup is ideal when you’re selling many different types of products.
You can tweak your markup percentage based on the overall price of the item. This allows your pricing strategy to cater to each product individually.
For example, you may not want a 20% markup on a $400 product because that would jack it up to $80 per unit. That may be too much compared to your competition and what your audience can afford.
On the flip side, you might want 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)
If you’re not worried about the in’s and out’s of pricing and you want to find a safe middle ground to camp out, go with the MSRP. This pricing strategy keeps you out of the race to the bottom, and you price your products according to what they are worth.
You can pair an MSRP strategy with discounts to advertise your products and compete with people who may have lower prices.
The immediate thought is to undercut your competition so you can steal their sales. Keep in mind that all online stores are using these same tools. They’ll get notifications when someone beats their price and much of the time; their products will automatically adjust lower.
The result here is a race to the bottom where everyone loses their margins, and no one makes any money.
Another reason you don’t want to undercut your competition for the same product is they may think yours is of less quality.
If you’re basing your entire dropshipping pricing strategy around “beating your competitors,” you’re going to lose every time.
There are a few ways to go about pricing a product to appeal to human psychology.
We all know the whole $99.99 versus $100.00 debate. You always want to price a product using an uneven number because it makes it look much cheaper than the full number.
There is also a lot of debate over odd and even numbers. Many people say using an odd number helps your conversions, but there is no proof.
You can also implement the “movie theater strategy” of pricing. It goes like this:
At the movies, you can choose between a small, medium, or large popcorn. The prices are:
- Small: $1.49
- Medium: $4.49
- Large: $4.99
Do you see the pricing strategy here? The small is priced so low that people immediately think, “that’s not big enough; I’m going to want more popcorn.”
Then they look at the medium and large, and they see how close the price is. They’ll figure “well, it’s only 50 cents more so we might as well go for it.”
In this situation, the medium popcorn is a decoy. In most cases, people either purchase the small because of their appetite or they get the large because of the perceived value.
You can utilize this pricing strategy in your dropshipping business with products that have multiple sizes or price levels. Try to push your audience to upgrade to the more expensive package or product by throwing a decoy at them.
Free Plus Shipping
Many people have a lot of hurt feelings over this strategy, but it’s used at such a scale that we need to talk about it.
Free plus shipping is the process of selling your product for “free” while increasing the shipping cost to accommodate the loss.
How many times have you seen a Facebook ad that said, “I’ll give this to you for free if you only cover the shipping.” This method is used by influencers and big names to sell books so they can move you into their funnel and sell you something on the backend.
You will only want to use this strategy if you’re doing the same thing. You don’t want to be one of those people who “bait and switch” their audience because it will hurt you in the long run. Don’t expect people to buy a free product that you’re charging $45 for shipping. Online shoppers are savvier than ever.
The goal of free plus shipping is to get people to your store so you can cross and upsell them on something else.
If they’re there for a free hunting flashlight, maybe you sell them a knife or binoculars. You’ll lose some money upfront, but you should generate a lot of attention to make sales on the back end.
Here’s another pricing strategy we’ve seen everywhere.
This method goes back to “perceived value” like with the popcorn example. How many times have you gone somewhere for one thing, but purchase two or three because of a sale?
“Buy two, get one free” “Buy one, get one for a dollar,” and so on.
You can utilize this method in your online store to pad your profit on low-margin items. Adding accessories to larger products is also a great way to bundle your products.
Something else great about bundling is it separates you from your competition.
For example, if you sell car detailing equipment and products. There may be a dozen other stores selling the same items.
You could create a bundle where you sell an entire cleaning package, and that would make you stand out from the competition.
Be sure not to overdo this though. There are stores where everything is marked down, and every product is bundled with something. People will start to catch on and get suspicious if you do that.
Other Factors That Impact Dropship Product Prices
While the price is important, you don’t want to let that guide all your decisions with your dropshipping store. There are many other things that are more important than price. These factors will impact your ability to price a product higher than your competition.
Why would someone buy Lysol cleaning spray from Amazon versus Bigjoescleaningsupplies.org?
They do it because Amazon has our trust.
We know that our payment info is safe, that our order will get to us, and that we’ll like what we get in the mail. The process works, and you need to realize that you’re at a disadvantage as an unknown retailer.
You can give yourself a leg up by using trust signals like payment security badges, reviews, testimonials, and lock symbols. Your customers should feel comfortable doing business with you.
If you can build trust with your audience, you’ll be able to charge more for your products because they’ll prefer using your store even if it means paying a few dollars more for the same thing.
What dropshipping suppliers are you using to source your products?
Many online stores run to places like Aliexpress without realizing that they’re overpaying. There are many agencies out there that will work directly with online stores to help provide them a rock bottom price. These agents work with the manufacturers outside of Aliexpress, so you don’t get stuck paying the markup, and you can sometimes buy products “at cost.”
Don’t accept prices for what they are. Negotiate with suppliers and find the lowest price for the highest quality product.
Final Thoughts on How to Price a Product
The main thing to remember about pricing your dropshipping products is not to dwell on it.
Choose a strategy and roll with it. If it’s not working out, try a different one. Test different pricing strategies in your store to find the one that works best for you. We’re all in it to make money, and your dropshipping product prices are important, but not the most essential part of your store.