How to Price Dropshipping Products: A Beginners Guide for Online Sellers

Launching a dropshipping business brings its fair share of questions, with one of the most crucial being: how to price dropshipping products effectively?

Whether you’re new to dropshipping or refining your approach, this guide will provide you with an overview of pricing strategies that will set your sales in motion. From calculating your business costs to exploring methods like competitor pricing, read on to learn the essentials of dropshipping pricing strategies. 

Let’s dive in!

How to price dropshipping products in 3 steps:

Coming up with a dropshipping pricing strategy can seem like a daunting task, but breaking it down into manageable steps simplifies the process. In this section, we’ll guide you through a three-step approach for pricing your dropshipping products.

1. Calculate costs

When setting up a dropshipping store, a fundamental step is calculating your total costs accurately. Start with the cost of purchasing your items from the supplier. Add any shipping fees, especially if you’re offering free shipping to your customers, as this will be an expense you absorb.

Another element to factor in is transaction fees. These are fees charged by payment gateways like PayPal or credit card processors. Also, plan for marketing costs, as these are pivotal for driving traffic to your store. 

Source: Pexels

As an example, let’s consider the costs of selling a custom t-shirt:

• Let’s say you’re purchasing a t-shirt from a print-on-demand supplier and the product costs $12.

• In addition, your supplier might charge a shipping fee for each item sent directly to your customers. Let’s assume this fee is $3 per t-shirt.

• If you use a service like PayPal or Stripe for processing payments, they typically charge a percentage of the transaction plus a fixed fee. For example, if Stripe charges 2.9% + $0.30 per transaction, and your t-shirt is sold for $25, the fee would be (2.9% of $25) + $0.30 = $1.03.

• Finally, you spend $500 on monthly marketing costs and sell 100 t-shirts. This adds $5 to the cost of each item ($500 / 100).

When you include all the fees, the total cost reaches $21.03, which is a lot more than just the base cost of the t-shirt itself. This cost-based pricing approach takes into account all the costs involved before setting the product price.

2. Don’t forget about fixed costs

When considering costs, it’s easy to overlook business expenses that aren’t tied directly to your products but still pop up every month or once a year. For example, the cost of web hosting, your domain registration, and any subscription fees for services you use to keep your store running smoothly are all important to account for.

If the fixed costs total $50 per month, and you estimate selling 100 t-shirts per month, then add $50 / 100 = $0.50 per t-shirt.

3. Add a profit margin

In the example above, you need to sell each t-shirt for at least $21.53 to break even. However, to make a profit, you’ll need to price it higher. The difference between your costs and your profit is called a profit margin.

Calculating your profit margin can help you arrive at a retail price you’re comfortable with. For instance, aiming for a 30% profit margin, you’d calculate the selling price as follows: $21.53 / (1 - 0.30) = $30.76. Rounding this figure, you might set a price of $30.99 for each custom t-shirt.

So, what’s a good profit margin? First off, look at what your competitors are doing, and think about how your customers behave, how they shop, and what they value. Researching these factors helps you figure out where your brand stands in the market and how to price your dropshipping products.

Remember, not all customers think about price the same way. Let’s say you’re selling electronics and tech accessories, from budget-friendly earphones to high-end smartwatches. You’ve got two main types of buyers: those looking for the best deal and those who don’t mind paying extra. The first group is all about getting the lowest price, while the second group cares more about the product and its perceived value.

Your brand’s reputation makes a big difference, too. If your product is viewed as high quality or offers unique features, customers are more willing to pay a premium. Plus, if shopping with you is a great experience, from customer service to website use, people will see more value in what you’re selling, and that means you can aim for higher profit margins.

However, the cornerstone of a profitable dropshipping business is choosing the right products. Dropshipping products with high profit margins are typically those that strike a perfect balance between cost, demand, and scalability. 

Aim for products that are not only in demand but also offer enough room for a healthy profit margin without pricing out your target market. If you’d like to offer bestselling print-on-demand products, look for items that are in demand and try to identify your own unique spin, be it artsy designs or personalized embroidery.

More dropshipping pricing strategies to consider

In this section, we’ll delve into strategies that help dropshippers quickly respond to changing market conditions and customer preferences. Whether you’re aiming to sell trending products or have a particular niche in mind, let’s explore pricing strategies that can improve your competitive edge and maximize profitability.

1. Competitive pricing

Competitive pricing is a popular approach in dropshipping, especially in saturated markets. This pricing strategy involves setting your product prices based on what your competitors are charging. The primary goal is to make sure your products are attractively priced in comparison to similar items sold by a competing online store.

The first step is to conduct thorough research on your competitors. This involves identifying other businesses selling similar or identical products and noting their prices. Tools like price-tracking software can be beneficial, but thorough online research can get you similar results.

Based on your findings, decide how you want to position your store in the market. You can choose to price your products lower than your competitors, match their prices, or even price higher if you believe your store offers additional value through better customer service or faster shipping.

If you’re new to the market, a common approach is to price below competitors. By lowering product prices slightly below the competition, you can draw in customers who are looking for the best deal. However, this pricing strategy significantly reduces your profit margins, making it more suitable in the short-term rather than being a long-term approach.

Matching the prices of your competitors can be a safer bet. It allows you to compete on aspects other than price, like product quality, customer service, or brand image.

If you’re offering added value through branded dropshipping, you can try premium pricing and set your prices slightly higher than the competition. Customers are often prepared to pay a premium for products that are customized and tailored just for them. That also extends to order personalization with branded packaging and pack-ins.

2. Psychological pricing

Psychological pricing is a method that taps into customer psychology to encourage more purchases. It’s all about setting prices that make people more likely to buy based on how certain numbers make them feel. This pricing strategy is particularly effective because it plays on the common consumer tendency  to not overthink a purchase if it seems like a good deal.

One of the most popular approaches is charm pricing, which means pricing products just below a round number, e.g., $19.99 instead of $20. This strategy is similar to odd pricing, which proposes that $19.99 feels significantly cheaper than $20, even though the difference is minimal. This is because of the left-digit effect, where customers focus on the leftmost digit of a price when making quick judgments.

Source: Walmart

However, if you’re in the luxury goods market, round pricing (e.g., $200 instead of $199.99) can be more effective. Rounded numbers are perceived as more straightforward and consistent with the image of premium products.

Source: Mytheresa

Another strategy worth exploring is anchor pricing. This involves displaying a higher original price next to the sale price (e.g., “Was $50, Now $30”). The original higher price serves as an anchor, making the sale price appear more attractive. It creates a sense of urgency and higher perceived value.

Offering products in a bundle for a single price can also make individual items seem less expensive than they are when sold separately. For example, selling three t-shirts for $45 can be more appealing to shoppers than selling each for $15. Plus, bundle pricing encourages customers to spend more per transaction.

The good news is you can experiment and apply several pricing methods simultaneously. Check out how Harmony uses anchor pricing and bundle pricing to sell t-shirts.

Source: Harmony

3. Fixed markup on cost

Fixed markup on cost is a straightforward, widely used pricing strategy, especially in retail and dropshipping. This approach involves adding a set percentage to the cost of the product to determine its selling price. The markup is essentially your profit margin; it’s the amount by which the cost of the product is increased to arrive at the final price.

To start with, you need to know the total cost of the product. Remember, this includes the purchase price from your supplier, shipping costs, and any other costs associated with getting the product to the customer.

Next, decide on a fixed percentage markup that you will add to the cost of each product to cover your expenses. To calculate the price, multiply the total cost of the product by the markup percentage. Add this to the original cost to determine the selling price.

For example, you’re selling a custom hoodie that costs you $25 (including all expenses from the supplier, transaction fees, and fixed costs). If you decide on a markup of 20%, the calculation would be:

• Costs: $25

• Markup: 20% of $25 = $5

• Selling price: $25 (cost) + $5 (markup) = $30

In this scenario, you’d price the hoodie at $30. The simplicity of this strategy makes it attractive for many businesses, particularly those with a wide range of products where complex pricing methods are impractical. Adopting a fixed dollar markup approach guarantees a good profit margin across all items, which is easy to keep track of.

4. Tiered markup on cost

Tiered markup on cost is a pricing strategy where you apply varying markup percentages to products based on their cost range. It’s great for businesses with a diverse product lineup, where items differ a lot in cost and value. The key is to put higher markups on less expensive items and smaller markups on pricier ones, which helps maximize profits while still offering competitive prices to your customers.

First, categorize your products into different price ranges or tiers. You might have a tier for items priced between $0 and $10, and another for those priced between $10.01 and $20.

Second, decide on a markup percentage for each tier, usually decreasing the percentage as the product cost increases. For instance, you could choose a 60% markup for items in the $0 to $10 range and a 50% markup for those in the $10.01 to $20 range. Finally, apply these percentages to the cost of each item to figure out your selling price.

Here are a couple of examples:

• For a product that costs $8, you’d price it at $8 plus 60% of $8, which is $8 + $4.80, totaling $12.80.

• For a $15 item, apply a 50% markup, making it $15 + $7.50, which comes to $22.50.

This tiered approach can be more profitable than a flat markup strategy, especially when you have a wide variety of products. It ensures that cheaper items are priced competitively without cutting into your overall profit margins.

However, this strategy requires careful planning and a solid understanding of your product range to determine the most appropriate tiers and markups. It’s also important to regularly review and adjust these figures to stay aligned with market trends, cost fluctuations, and customer buying habits.

Ready to elevate your dropshipping game with strategic pricing?

A well-thought-out pricing strategy is the cornerstone of a successful dropshipping store. As we’ve explored in this guide, understanding how to price your products is more than a mere numbers game. Knowing the ins and outs of customer behavior and market dynamics will help you arrive at a pricing strategy that’s a good fit for your dropshipping business.

Remember, there is no one-size-fits-all approach to different pricing strategies. Whether you choose fixed or tiered markups or decide to compete on product price, it’s all about customizing these approaches to suit your specific business model and target audience.

We hope that the insights and strategies shared in this blog post will empower you to boost your sales and take your online dropshipping store to new heights. Best of luck and happy selling!