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Dropshipping Pricing Strategy: A Complete Guide for Beginners
Setting the wrong retail prices for your products is one of the most common mistakes that might break your dropshipping business.
That’s why an effective dropshipping pricing strategy is crucial to strike a balance between generating sales and making a profit in the world of dropshipping.
In this post, we will walk you through the basics of a dropshipping pricing strategy and some of the most popular pricing strategies you can use for a profitable dropshipping business.
What Is A Dropshipping Pricing Strategy?
First thing first, what is dropshipping exactly?
Dropshipping is a business model that allows you to sell products without handling production, inventory management, packaging or delivery.
How Dropshipping Works
Due to the unique nature of the dropshipping model, where you can get rid of logistics headaches, having a proper pricing strategy is a critical factor in determining your brand’s success.
A dropshipping pricing strategy is a methodological approach used to price dropshipping products sold on your online store. In other words, a pricing strategy takes all possible expenses into account to arrive at the most optimal price point that allows for profitability.
Why Do You Need A Dropshipping Pricing Strategy?
Pricing is one key element of the marketing mix, or the four P’s of marketing, demonstrating how important it is to a dropshipping business.
- A well-researched pricing strategy guarantees your profitability. In absence of a well-researched pricing strategy, you incur a loss on every single item you sell. Low prices might make you lose profits, while high prices can make you miss out on sales.
- An effective pricing strategy helps you gain a competitive edge against your competitors. If you set your product prices higher than the competition without added value, you might risk losing potential customers to your competitors. Meanwhile, pricing your products lower than the industry standard can affect profitability and decrease your brand’s perceived value in the long term.
Learn more: Dropshipping Tips: 15+ Proven Strategies to Skyrocket Your Sales
How to Price Dropshipping Products for A Profitable Business
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Dropshipping Pricing Strategies for Low-ticket Products
Low-ticket products belong to the cheapest category of your product offering and generally cost from US$0 to US$10 to purchase from your supplier, including shipping. Remember that these are not the fixed prices for such product types and can depend on how you define it.
These products often come from categories such as simple toys or accessories, small electronic devices, etcetera.
Silicone teethers on Amazon are an example of low-ticket products.
Features of low-ticket products include but are not limited to:
- Low cost per purchase
- Low perceived value
- Low marketing cost
- Small
- Simple to deliver and deposit
- Sensitive to people with impulse buying behavior
Low-ticket products (or low-cost items) can make for great profit margins if you choose the right pricing strategy. There are two dropshipping pricing strategies that can work for this type of product, including:
1. Fixed Markup on Cost
Fixed Markup on Cost is a simple and easy-to-understand pricing strategy in which you add a fixed percentage or dollar amount to the cost of a product to determine its price point. The markup remains constant and is applied to all products on your store offer.
Dropshipping Pricing Formula:
- Fixed dollar markup: Selling price = Cost per unit + Dollar markup
- Fixed percentage markup: Selling price = Cost per unit + Cost per unit x Markup percentage
Tips: To decide whether to use fixed dollar markup or fixed percentage markup, look at the average cost of your products. With very low-priced products, consider using the fixed dollar markup instead of the fixed percentage markup.
Example: Pretend that the average price of your products is around US$5. If you apply a 10% markup, you’ll only get US$0.5 for each product. On the other hand, you could add a fixed dollar amount of US$2 or US$4 and get a much higher profit margin per item.
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2. Free Plus Shipping Strategy
Another dropshipping pricing strategy that works ideally for low-ticket products is Free Plus Shipping, where you offer a product for free and charge the customer only for the shipping cost. The product provided for free is usually one with a high perceived value, while the fee charged to customers will be higher than the actual cost of shipping to cover your product costs and give you a profit.
Tips: Apply this strategy to products that cost you less than US$10 to buy and deliver. Do not charge more than US$15 for shipping; otherwise, customers may feel manipulated as they pay for both the shipping fee and the product price, thus losing trust in your brand.
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Dropshipping Pricing Strategies for Medium-ticket Products
Medium-ticket products fall in the middle range of your product lineup and have a price that fits most consumers’ budget. You can usually buy these items at between US$10 and US$30 from the supplier, including shipping.
Medium-ticket products present a good balance between low-ticket and high-ticket ones in terms of product complexity, costs, values, profit margins, and shipping.
Such products include hair straightener brushes, baby wrap brackets, home decor items, etcetera.
Learn more: 10 Best Home Decor Dropshipping Suppliers for Your Online Store
Hair straightener brushes on Amazon are an example of medium-ticket products.
Below are two ideal pricing strategies for medium-ticket products:
1. Cost-Based Pricing
As one of the best pricing methods for medium-ticket products, cost-based pricing is the practice of setting product prices based on the costs incurred to produce, distribute and sell the product, including the cost of goods sold, marketing costs, platform fees, etc.
Using this strategy, you determine the final selling price by adding a desired markup to the total cost of production.
Dropshipping Pricing Formula: Selling price = Total cost per order x (1 + Markup percentage)
Example: Suppose you have an online dropshipping store on Shopify that sells fitness equipment. Each pair of dumbbells costs US$25 to purchase from a supplier and a shipping fee of US$5 per order. You also have a monthly Shopify basic plan of US$29 and a monthly domain & email hosting cost of US$11, which totals a fixed cost of US$40 per month.
Assuming you sell 50 pairs of dumbbells per month and decide to add a markup percentage of 30%, the dropshipping pricing calculation will be as follows:
- Cost per purchase = US$25
- Shipping fee = US$5
- Monthly fixed cost per product = US$40 ÷ 50 = US$0.8
- Total cost per order = US$25 + US$5 + US$0.8 = US$30.8
- Markup percentage = 30%
- Selling price = US$30.8 x (1 + 30%) = $40.04
Therefore, you must charge around US$40.04 for a pair of dumbbells to cover all incurred costs and get a nice profit of 30% or US$9.24 per order.
Pro Tip: To make your products more psychologically appealing to customers, consider rounding the price to a .99 value if possible. In the example above, you can price a dumbbell pair at US$39.99.
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2. Bundle Pricing
Bundling is a perfect choice for medium-ticket products that encourage customers to make larger purchases, thus increasing your revenue.
The bundle pricing method combines several medium-ticket products into a bundle and offers them at a lower price than the individual items sold separately.
Tip: To ensure profitability for your bundles, be careful when selecting products to include in a bundle; otherwise, this strategy will work against you. Items in bundles should be related and provide equal value to customers. Do not include items that already have excellent sales performance, as it may cause profit loss.
GemPages’ customer, Cookie Chips, applies bundle pricing on their store.
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Dropshipping Pricing Strategies for High-ticket Products
Luxury watches by Longines on Amazon are an example of high-ticket products.
Features of high-ticket products include but are not limited to:
- High quality
- High cost per purchase
- High perceived value
- High marketing cost
- Can be large and difficult to deliver
High-ticket products can be harder to sell and price, but with the appropriate dropshipping pricing strategy, you can guarantee maximum profits for your business.
Here we provide two pricing strategies that fit this type of product.
1. Perceived Value Pricing
Perceived value pricing is a pricing method often used for high-ticket products. With this strategy, your product price is determined by the perceived value of the product in the eyes of the customers.
The perceived value of a product can be influenced by numerous factors, including outer appearance, quality, functionality, availability, brand value, customer service, and overall customer experience. Investing more in these factors can increase the products’ perceived value and allow for higher prices.
To make this strategy work for your business, you must deeply understand your target audience and what factors may influence their perception of value to tailor the product and your dropshipping pricing strategy accordingly.
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2. Premium Pricing
Premium pricing, or prestige pricing, involves tactically pricing your products higher than the average market price. Aiming to create a perception of premium quality and exclusivity among customers, this strategy can benefit dropshipping businesses offering high-end products or looking to position themselves as high-end or luxury brands.
Tip: Premium pricing requires higher product quality and customer service, such as faster shipping times and personalized support, to justify the higher price point. Therefore, make sure you source quality products from trusted suppliers to build a well-known brand reputation for luxury offerings.
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Other Pricing Strategies For Your Dropshipping Business
1. Tiered Markup on Cost
Tiered Markup on Cost is a pricing strategy in which you set a range for markup percentage based on the cost of the products. Simply put, different markups are applied to products in different price ranges or "tiers” to determine the selling price, allowing more flexibility in pricing.
Suitable for: Stores offering various products accompanied by multiple price ranges.
2. Competition-Based Pricing
As the name suggests, competition-based pricing is a method where the selling price is set based on the price points of your direct competitors. It involves conducting a dropshipping price comparison and analysis to decide whether to price your dropshipping products above, below, or the same as the competition.
Competition-based pricing lets businesses launch a quick presence in the market and, at the same time, effectively maintain customers and increase market share.
Suitable for: Markets where numerous retailers are selling the same products.
3. Psychological Pricing
Psychological pricing is probably the most tricky pricing method that uses pricing to influence customers' buying behavior and perception of value. Charm pricing is a well-known example of psychological pricing, where the prices are set slightly lower than a whole number, or most commonly to .99 cents.
GemPages’ customer, Backbone Swag, uses psychological pricing to attract customers’ attention and generate more sales.
This strategy can be combined with any other pricing methods to create instant appeal to your products and boost sales.
Suitable for: All products
Earn Big With The Right Dropshipping Pricing Strategy
There is no formula for a great pricing strategy that fits all dropshipping businesses. Only experimenting with different pricing strategies and analyzing your results can help determine the best approach for your own brand.
With the right pricing strategy in place, you can attract and retain customers and generate more sales while ensuring maximum profitability.
While wavering between different dropshipping pricing strategies, do not forget to make your online dropshipping store visible. GemPages is a drag-and-drop page builder with a wide array of pre-designed templates, intuitive design elements and advanced features, empowering you to build a stunning yet professional-looking and high-converting storefront.
FAQs about Dropshipping Pricing Strategy
