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How to Price Dropshipping Products?
Pricing a dropshipping product can be challenging, especially when starting out with dropshipping. Getting the pricing right can be the difference between a profitable store and losing money on each sale. The following are the strategies that should be considered when pricing a dropshipping product.
Competing on Price vs Service
One of the challenges in dropshipping a product is that there will be other stores selling the same product and the stores will inevitably be competing against each other on price. Deciding whether you are competing on prices or positioning yourself as a premium brand is key in your pricing strategy.
Positioning your store as a premium brand should provide some value adds to the customer, this is a topic on its own which we will not be covering in this article but having a clear vision of this could help to make the pricing decisions much easier.
Understand Your Costs
Before setting a price for your dropshipping product, it's essential to have a clear understanding of your costs. These costs can vary between suppliers so it's essential to understand the charges from each supplier to price the products better. Following are some of the costs charged by dropshipping suppliers.
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Supplier Costs
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Product Cost
Product cost is the basic cost and the product cost will be the major share of the final cost from the supplier. Many suppliers show the cost of the price without the sales tax so understanding whether the product cost from the suppliers includes sales tax or not is critical in calculating the final cost.
If the supplier hasn't made clear whether the price of a product includes sales tax or not the best way to find out is by following the checkout process on their website which should eventually give the final price of the product to be shipped.
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Shipping Cost
Shipping cost will be the next cost to consider when pricing the product, most of the dropshipping suppliers charge separate shipping fees.
It is highly likely that the shipping costs of different categories of products can be different. Some of the factors influencing the shipping costs include the weight of the product, the dimensions of the product and the risk in shipping the products. Fragile products like mirrors and lighting can cost more to ship as it involves handling and packing elements. Knowing this ahead of time will help to tailor the product pricing based on the cost elements.
Another factor that influences the shipping cost is the location of the customer. For instance, many dropshipping suppliers based in the mainland UK charge an additional cost when shipping products to Northern Ireland or the Channel Islands.
Even though it is not possible to predict the location of future customers who might visit your store, you can leverage the sales data you already have to understand any patterns. If the sales to your stores come from a few specific locations using shipping costs that can pay for the most expensive shipping should cover all your costs. This strategy will keep the shipping cost simple and make sure your store does not lose money on shipping.
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Handling Cost
This is a cost charged by some suppliers, especially the suppliers who supply larger items like furniture. This could be a one-off fee or it can vary based on the weight of the item. Knowing how the supplier charges this fee will be understanding your total cost.
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Surcharges
Some suppliers charge a surcharge for certain products, this can be for specific items or it can be for every item. Check with your dropshipping supplier or their website for more details about this charge.
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Product Cost
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eCommerce Platform Fee
The transaction charge when a sale happens on your website can vary depending on the platform you use and the payment provider. Including this cost within the pricing calculation can make sure that no stone is left until when it comes to calculating the total cost.
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Advertisement Cost
This is one of the trickiest costs to calculate, when you calculate the advertisement cost or Customer Acquisition Cost(CAC) if a CAC for a particular product or its category is known you can use the cost and it has a higher chance of being accurate. However, if the CAC for a particular category or product is not known an average customer acquisition cost across the advertisement campaign could be used.
Using the CAC for the entire store could be used but if the price range of the products widely vary this could make the CAC for lower price point product look higher and the higher price product CAC could appear lower.
When calculating the advertisement cost the best action is to get started and make a calculated decision on what value to use. As the advertisement campaigns progress, adjust these values to reflect the true cost and constantly review it to reflect the true cost within the product pricing.
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Operating Costs
Operating costs can vary widely depending on the size of the business, and the overheads the business has like salaries, rent and so on. Making a list of all the operating costs and including this within the product pricing will be a great practice. This can look daunting when you start as the sales can look sporadic across different price ranges but as you make sales consistently some pattern should emerge.
A practice I followed was to add a certain percentage of the total cost of the product as operating costs. Even though it might not be highly scientific to start with when you have a consistent pattern of sales and you can identify the best-performing SKUs the operator costs a percentage of those products can be optimised to cover the operating costs with more predictability.
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Keep Pricing Upto Date
The cost of the products can change frequently with the cost of manufacturing, shipping and delivery fluctuating suppliers can update and change product pricing. Keeping the product pricing up to date will ensure you sell products and gain profit every time.
Stockistly has an auto price update feature that will ensure the product pricing reflects the change in costs automatically. Want to see a demo? Contact us.
Conclusion
The cost for the stores can vary widely depending on the size, overheads and advertisement costs. However, the cost elements like the product costs and shipping costs can be straightforward and clear to calculate. Considering both these elements when pricing dropshipping products can yield the best return on investment for a store.