If you are a business looking to enter the promising e-commerce market, you need to equip yourself with knowledge about the dropshipping platform.
When you start exploring dropshipping, you’ll need to set prices for your products. Setting product prices in dropshipping must be done carefully. You need to consider factors such as product cost, marketing expenses, server costs, software, and psychological pricing.
In this article by Bluefocus, we will outline the methods for setting product prices in dropshipping. We’ll cover the strategies you can use and how to determine reasonable pricing.
Let’s dive in!
Which Method of Setting Product Prices in Dropshipping is Most Effective?
Are you wondering about how much to price products when adding them to your dropshipping store?
Factors to consider for setting product prices in dropshipping include:
- Targeting Middle and Upper-Class Customers: When targeting middle to upper-class customers with higher disposable incomes, you may set prices slightly above average.
- Considering Product Value: Evaluate the perceived value of the product. For example, you might set higher prices for refrigerators compared to clothing, even if the wholesale prices are similar.
- Analyzing Customer Experience: If increasing prices by 15% results in a 5% decrease in orders, it could be a smart strategy.
- Business Expenses: You need to cover expenses for software, email marketing, apps, domain, etc. Therefore, determine how to set product prices to ensure profitability.
- Marketing Costs: Essentially, these are advertising costs. The more products you sell, the higher your marketing expenses.
- Understanding Customer Psychology: People often purchase products priced at X.99, X.90, or X.89. Depending on your perception, set prices that make customers feel safe and motivated to purchase.
- Product Costs: Naturally, selling prices should be higher than purchase prices. Set prices that are reasonable to generate profit without scaring away customers.
You can always adjust prices when selling products to different customer groups. In other words, set prices based on the target audience.
Pricing products for Setting Product Prices in Dropshipping is highly diverse.
You might wonder, Why bother spending time when I can just set a price that feels right or matches my competitor’s website?
However, you shouldn’t do that. Without a proper pricing strategy, you could fail in your business:
- Setting prices too high can lead to a decrease in the number of orders.
- Setting prices too low can reduce profit margins.
- Therefore, you need to optimize product pricing for Setting Product Prices in Dropshipping to ensure profitability.
For example, let’s say you purchase a product for $10 from a supplier and plan to sell it for $30. It may sound good, but here are some hidden costs:
- $3 shipping cost.
- $15 advertising cost.
- $1 payment service fee (PayPal, 2Checkout, Stripe, etc.).
- $200 monthly app cost.
- $29 monthly Shopify fee (or $10 with WooCommerce).
- Additionally, Dropshipping Costs Incurred During Advertising Campaigns.
In summary, you need to set prices carefully before selling products. That’s why you need a strategic approach to Setting Product Prices in Dropshipping.
Pricing low-ticket products in dropshipping ($0 – $10)
You may not know this, but low-priced products are also known as “Low ticket products.” These are typically products that you purchase from suppliers for between $0 and $10. Here are some things to consider when setting product prices in dropshipping:
- Perceived value of the product: Generally, low-priced products often lack a high perceived value. If you increase the price above $20, it can significantly reduce the conversion rate.
- By Customer Group: When selling low-priced products, your strategy should be to sell as many products as possible. Therefore, you need to select products that appeal to a wide audience. You may also consider offering discounts to increase conversions.
- Investment in marketing: A suggested method is to allocate 30% of the total product price for marketing expenses.
For more expensive products, marketing costs are higher. Therefore, it can be challenging to persuade people to buy more expensive products. You may have noticed that people often use larger funnels with multiple steps to sell higher-priced products. Refer to the method of setting product prices in dropshipping and building a profitable 8-figure brand.
Additionally, with low-priced products, you’ll typically have lower Facebook CPA costs because they convert more easily. This method of setting product prices in dropshipping is suitable for beginners with a limited budget.
A tempered glass screen protector for phones. So how do you set the price for this product? There are 3 methods:
1. Increase by a Fixed Dollar Amount
This means that from the price of the product you purchase (including shipping fees), you add a fixed $10.
In reality, you need to account for additional costs, so you should always increase by at least $10 per order. This helps compensate for marketing expenses and monthly tool maintenance costs.
For example, if you are selling the product at a base price of $6, then increasing it to $16 is reasonable.
2. Increase the Product Value by a Fixed Percentage
This means that with this method, we will increase the product price by a fixed percentage. For example, increasing it by 250%.
When setting product prices in dropshipping, increasing prices significantly allows you more flexibility to cover business expenses. For example, if the product costs $8, you can sell it for $22. Usually, cheaper products are easier to sell. Cheap products are often bought impulsively without much thought. Customers also tend to be less concerned about customer service and product quality.
When setting product prices in dropshipping for more expensive products, customers are likely to search on Google for similar products at a lower price. As a result, the customers you spent money advertising to may end up purchasing from your competitors.
In the case of an $8 product, instead of increasing the price to $22, you might reduce it slightly to $19.99. By lowering the price slightly, the leading digit changes from “2” to “1,” which is more appealing (psychologically) to customers. They are more likely to buy a product priced at $19.99, especially after watching a Facebook ad.
3. Offer Free Products
- When setting product prices in dropshipping, many Clickbank products attract customers using this method. The product itself is free, but packaging and shipping fees are charged. This is a very effective strategy because people love getting something for free.
- In this method, you set the product price to $0 and only charge for shipping. Since the product is free, you need to set the “packaging and shipping fee” a bit higher to compensate for the product cost.
- For example, if you are selling a very cheap product ($3), you can set the product price to $0 and the shipping fee to $9.95. Although the profit margin is small, this method is feasible for beginners.
- However, you should not set the fee higher than $9.99, as customers may become suspicious if it’s too high. Therefore, when setting product prices in dropshipping, this method is best suited for products that cost less than $4.
Setting Product Prices in Dropshipping for Mid-Range Products
When setting product prices in dropshipping for mid-range products, these are typically priced between $10 – $25 (including shipping costs). For example:
This product costs $18 to deliver to the customer. Here’s a method for setting product prices in dropshipping:
Set Retail Price Based on Costs
- Take into account advertising costs, server costs, tool costs, etc.
- When advertising on Facebook, you might have to pay a CPA (cost per acquisition) of around 30% of the retail price.
- You need to understand that CPA in Facebook advertising is the amount you pay Facebook to help you sell a product.
- Let’s look at two scenarios for a product priced over $15:
1. Product Costs $15, Retail Price $28
Let’s analyze this scenario: the product costs $15, and you sell it for $28. If you sell 3-4 products a day, that’s approximately 100 products a month.
- Profit per product: $28 – $15 = $13
- Total profit for 100 products: 100 x $13 = $1,300
- Facebook advertising cost: 30% of $25 = $8.4, so for 100 products, $8.4 x 100 = $840
- Remaining profit: $1,300 – $840 = $460
- Subtract Shopify cost: $29
- Subtract transaction fees: 3% of $2,800 = $84
- Net profit: $460 – $29 – $84 = $347
- Summary: If the original product price is $15 and you sell it for $25, your net profit after a month could be $347 (assuming this calculation is for a newbie).
This doesn’t account for potential business risks. Therefore, $28 is too low to sell an $18 product.
2. Product Costs $15, Retail Price $35
- Using similar calculations as above, if a product costs $18 and you sell it for $35, you would make about $917 per month, which is fairly decent.
- Therefore, for a product that costs $15, you should aim to sell it for at least $40. You can test this price point and adjust it based on the results.
- Maintaining a $40 price point also allows you to collect user data, gradually build a Facebook pixel, and create a lookalike audience to target more potential customers.
This approach to setting product prices in dropshipping ensures that you cover your costs and maximize profitability.
Product Bundle Strategy
- With this method, you can combine multiple products, allowing customers to purchase a “product bundle” at a discounted price.
- You can design bundles of products and use the excel sheet mentioned earlier to calculate prices (or create your own excel file based on it).
- Customers enjoy buying multiple products at a discounted price. However, you need to design the website cleverly to make it more convenient for them to choose product bundles.
Setting Product Prices in Dropshipping: High-Priced Products (Over $30)
High-priced products are often referred to as high-ticket products. These are items that cost at least $30 to purchase from the supplier. Some products can even have prices exceeding $800. For example, a high-ticket product could be a high-end smartphone or a premium quality kitchen appliance.
- This is a premium product. It will cost you around $50 (including shipping). High-priced products are generally harder to sell, but there is a market segment that prefers expensive items (people with money). What they care about is the quality of the product and customer service.
- Therefore, to sell such products, you need to create a high-quality website optimized for conversions. Create a dedicated landing page to sell the product (instead of using a regular product page). Design a compelling sales video, add images, and include testimonials. You can also set up email funnels, remarketing campaigns, and apply every “trick” to potentially sell the product for over $350.
- One advantage of WooCommerce over Shopify is its high customization capability. With Thrive Themes, you can design quality landing pages. Alternatively, using Elementor gives you access to many pre-designed product page templates. An example is the Hyperice website; they use one product and build a brand website, then resell it for $199.
- Incorporating the keyword setting product prices in dropshipping into this strategy will help you optimize and tailor your approach to different pricing scenarios. The important thing is that you need good marketing skills, so join a Membership to watch videos from top marketing experts.
In reality, it’s very difficult to come up with a fixed formula for these High-ticket products, so adjust as needed. High-priced products are for more experienced individuals.
Utilize promotional programs.
- Proceed with Free Shipping vs. Product Discount. You should set it against the price of $40 and offer free shipping. Or sell it for $35 and charge a $5 shipping fee?
- Customers often prefer “free shipping”.
- According to Bluefocus analysis, half of respondents said they wouldn’t buy if there wasn’t free shipping. And 84% of interviewees said they were more motivated to buy when offered Free shipping.
- Therefore, in many cases, you should increase the price slightly and offer “free shipping” to sell more. Don’t emphasize the product price too much. Set the product price in dropshipping ($49.95 and $50) You should understand that these two prices are no different, but most people prefer $49.95. It looks nicer.
- Experience shows that for high-priced products, you shouldn’t round decimal numbers. Instead of setting the price at $399.55, set it at $399 to attract customers more.
The profit calculation formula in dropshipping
- You can use Excel (or a spreadsheet) to calculate profits. The formula is very basic:
- Total profit = Total revenue – Total cost
- The Excel file I provided also calculates this formula, but it’s just for prediction. The formula for calculating results is different (it’s clearer).
- If you don’t know Excel, don’t worry, you don’t need to “hire an accountant”. Just spend some time exploring, and you’ll figure it out.
Conclusion
Bluefocus’s insights shed light on the crucial aspects of Setting Product Prices in Dropshipping. Our analysis underscores the significance of factors like offering free shipping, avoiding price emphasis, and utilizing promotional strategies. By considering these elements, sellers can enhance their pricing strategies, cater to customer preferences, and ultimately drive sales and profitability in the dropshipping business.
