Dropshipping is a great way to get into e-commerce without investing in inventory, but you have to know how to price dropshipping products. What is dropshipping? Dropshipping is an e-commerce model where you sell a product without buying and stocking it yourself. Instead, you partner with a wholesale supplier that stocks the product for you. When customers buy from your online store, you place an order with your supplier, and they ship the product directly to your customer.
Dropshipping is an attractive option when you’re new to e-commerce and can’t afford to buy inventory upfront, but not every product is suitable for price dropshipping products. Before deciding whether or not it’s right for you, there are some things to consider before deciding whether or not it’s right for you. The first thing to consider is shipping times and costs. If it takes weeks or months for products to arrive at your customer’s door, they may cancel their order or request a refund while they wait, which can affect your bottom line and your reputation as a reliable merchant. You also don’t want customers paying insane shipping fees because the items are being shipped from China or other countries with long distances. After all, that will cut into. Here are factors to consider when making a dropshipping pricing strategy:
Audience
To start pricing your products for dropshipping pricing strategy, you need to know who will be buying them. This includes their age, income, gender, and more. Your audience’s price sensitivity is a huge component of how you should price your products. For example, it’s safe to assume that people shopping online are generally more price-sensitive than those in brick-and-mortar stores who have chosen to spend their time looking at your items.
It’s also important to consider the demand for your product in the market. If there are many similar products available at prices lower than yours, you may have trouble attracting customers. So how do you know what your audience wants? And how do you ensure that your product meets their needs? To answer these questions, you need to understand your target market. What is it about them that makes them different from other potential buyers? What are their buying habits? What motivates them? An excellent way to get started is by asking yourself these questions:
- What do they want?
- How do they want it delivered?
- Why do they want it delivered this way?
- When do they want it delivered this way?
Business Costs
When you’re thinking about setting prices for your dropshipping products, it can be easy to get distracted by your competitors’ prices. After all, that’s a pretty good indication of what price points work for your audience. But if you want to avoid losing money, you need to make sure that you’re taking all of the business costs that go into maintaining a viable dropshipping pricing strategy. Here are just some of the factors to consider:
- How much time have you spent tracking down and ordering this product?
- What sort of fees are associated with each order?
- Are there any shipping fees involved? If so, how much? Or is shipping free?
- How much do you pay for any listing fees or other fees associated with selling this item?
Price Elasticity
When you’re deciding how much to charge for your products, you have to consider the price elasticity of your market. Price elasticity measures how much demand increases as the price decreases. There are four types of price elasticity:
- Perfectly inelastic: demand does not increase with a price decrease.
- Inelastic: a minimal increase in demand when the price drops.
- Elastic: there is an increase in demand when the price drops, but only if that drop is significant.
- Perfectly elastic: an unlimited increase in demand when the price drops.
Understanding the elasticity of your market can help you make strategic decisions about how much to charge for your products and what kinds of discounts to offer or promotions to run. You can also use it to gauge customer reaction when you first release a product-if you get tons of initial interest and sales remain high even after you lower prices, your market is pretty elastic!
Marketing Costs
You should always keep in mind marketing costs when pricing your products for dropshipping. Many people think that marketing costs are only a factor if you have a physical business, like a retail shop, but this is not true. Marketing costs on Amazon can be pretty high at times.
Why do you have to pay for marketing? Even though the term “marketing” might seem intimidating, it does not have to be complicated. You will have to pay for advertising to get your products in front of your target audience. In other words, you will have to pay for people to see your products and hopefully purchase them.
There are so many ways to market your business online. From Google Ads and Facebook ads to content marketing and social media marketing (Instagram, Twitter, Pinterest), there are many options. Depending on where you want to put your money, your marketing costs could be close to nothing or pretty expensive.
Product Costs
Dropshipping is a great way to get a lot of traffic to your site without investing in a lot of inventory. But it cannot be easy to identify which items you should price for dropshipping.
Most merchants are under the impression that the price of their products should be at the low end of their cost per unit. This is true for physical goods but not necessarily for digital products. Digital products are often created by highly skilled professionals and incur many incremental costs over the life of a digital product, such as design time, programming and maintenance costs, hosting, and marketing. These costs add up quickly, making digital products more expensive than physical goods. To determine whether your product will be profitable on dropshipping websites, look at what other similar companies are charging for similar services.
Psychology
When choosing how to price your products, it’s essential to consider pricing psychology. How much are customers willing and able to pay? Will they be more likely to buy if a product is newly discounted? Do they care whether or not a price dropshipping product is on sale? Many factors go into setting prices. You need to know what you’re selling, who you’re selling it to, and their expectations. Once you have that information, the rest is a question of making sure you have the right tools to make sure you can meet those expectations in a way that’s profitable for your business.
Perceived Value
When you’re dropshipping, you presumably have no idea how much it would cost you to source and make the item(s) you’re selling. So what are some of the factors to consider when pricing your products? First off: Perceived Value.
- You don’t want to sell your product for too low a price-people will think it’s too good to be accurate or that there’s something wrong with it.
- You don’t want to sell your product for too high a price-people will think it’s too expensive and either not buy it at all or go somewhere else for that item.
- Somewhere between these two extremes is where you want to be, but how do you find out where that is?
Wrapping Up
The best way to price dropshipping products is to determine your desired margin and then figure out which price point will get you there. Knowing what you’re aiming for will allow you to eliminate arbitrary pricing decisions, thereby ensuring that you reach your goal every time. Also, by selling at a profit from the off, you’ll have the potential to grow your business and make more money in the long term.
