- Moshe Lugasi
- Jun 9, 2024
- 12 min read
Updated: May 14
When you’re running a dropshipping business, one of the most critical decisions you’ll have to make will be around pricing. How much should you charge your customers?
After all, your pricing will have a ripple effect on everything else—from your profits and competitiveness to how customers perceive your products. In short, a solid pricing strategy promises a steady cash flow, while strengthening your position in the market.
However, setting the right price is easier said than done. In this article, we’ll explore how to price dropshipping products in a way that makes sense. Keep reading for tips on different pricing approaches and finding your sweet spot.
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What is a dropshipping pricing strategy?
A dropshipping pricing strategy refers to your method of setting prices for products that are procured and shipped by a third party. (Learn more about what is dropshipping.)
While your dropshipping suppliers handle order fulfillment, you’re responsible for marketing and taking orders around your products. This includes knowing how to make a website, manage prices and draw people to your store.
Unlike other retail pricing strategies, a dropshipping pricing strategy needs to factor in costs owed to your third-party manufacturer or supplier. Depending on your agreement, you may still have to cover shipping costs, for example, in addition to per-order and/or transaction fees.
How to set your dropshipping product prices
There’s a suitable dropshipping pricing strategy for every product type or business model. However, keep in mind that your strategy may evolve as you go from learning how to start dropshipping to getting more familiar with your audience and your dropshipping niche over time.
Regardless of which strategy you choose, there are also several basic steps you’ll want to take:
01. Define your minimum retail price
To get started, calculate a base retail price for every product. This price should cover all expenses, including marketing, operations, packaging, shipping and others. The minimum retail price for any given product should ensure that you don’t lose money on a sale.
If you're going through a supplier, the minimum price will depend a lot on them too. There are various print-on-demand companies and dropshipping marketplaces that can help you figure out what that price should be.
Getting a firm grasp on your minimum prices will give you a good start, letting you know how low you can go. Once you’ve defined your price range, you can create dynamic pricing without risking profitability.
02. Understand your market or niche
Though your expenses and costs can make or break your profits, it’s equally important to understand your target market and any seasonal or year-round factors. To this end, you’ll want to study:
Product availability: Sometimes, products aren’t widely available and are in high demand, allowing you to increase the price. Alternatively, some products may be widely and readily available, so you might lower your prices to stay competitive.
Product seasonality: Some items will sell better in specific seasons. For example, swimsuits are more prominent in the summer and spring, while wool coats are in higher demand in the winter.
Demand may fluctuate a lot throughout the year for dropshipping niches like:
03. Research your competitors
Given that multiple sellers could be dropshipping the same product as you, you’ll want to pay extra attention to the competitors around you.
Rather than focusing on the big-name retailers, consider other brands or dropshippers in your specific niche. Check out their online stores and presence on third-party marketplaces, like Amazon or social media. Analyze their pricing structures, marketing methods and customer satisfaction to help guide your thinking.
Generally speaking, if your competitors offer the same or similar products, you’ll want to avoid charging more unless you’re including something extra or different. For example, let’s say that plain water bottles sell for $10. You could potentially charge $15 by offering a product that is BPA-free or made in the USA.
That said, don’t get caught in a race to the bottom. If you’re always lowering pricing to stay ahead of the competition, you’ll risk financial instability. Instead, use pricing as a stepping stone and focus on providing better customer service and differentiating your store.
04. Get to know your target audience
Ultimately, understanding your target audience is the key to making sales. Finding out who they are—age, geographic location, income, interests, etc.—can help you make the right decisions regarding marketing and pricing.
But think beyond demographics. Consider how customers evaluate products like yours and what they expect from both your product and business. Look into factors like:
Buyer purchasing behavior (e.g., where they find and research new products)
Purchase rate (i.e., one-time, monthly, weekly)
Seasonality
The highest price they’re willing to pay
What they value most (e.g., price, quality, brand reputation, etc.)
Did you know? 66% of Gen Z consumers say they like finding new local businesses through social media, compared to 37% who use search engines. See more in VistaPrint and Wix’s 2024 Small Business Marketing Report.
05. Set your markups
Your markup rate must strike a balance between making a profit and producing steady sales. It may be helpful to calculate your competition’s markup and work from there. You can calculate it just like you would your own, using your competitor’s online retail price and estimated wholesale price.
Once you’ve done your research and determined the retail price range, you’re ready to start thinking about strategic pricing. Noodle on the different approaches as presented below and be open to testing different options before doubling down on one.
Why you need a dropshipping pricing strategy
Overall, pricing is a key element of marketing dropshipping products effectively and is beneficial for these reasons:
Protect your profits: Without a well-researched dropshipping pricing strategy, you could be selling at a loss on all items. Low prices cause you to lose profits, though higher ones may lead to fewer sales—you need to find a good in-between price.
Helps you gain a competitive edge: Dropshippers often compete on price, so it’s extra important to keep a close pulse on your pricing and be prepared to adjust prices based on your competitors. That said, there are various strategies you can experiment with to maximize your profits.
Makes it easier to plan promotions: A clear pricing strategy can make your job easier when planning promotional events. It can help you decide on the right discounts and offers to extend to your customers while guarding your profits.
Mitigate risks: By accounting for all costs and potential challenges (like returns or shipping issues), a pricing strategy helps mitigate risks associated with dropshipping. It serves as protection against unexpected expenses and market fluctuations.
Types of dropshipping pricing strategies (with examples)
Below are some of the most common dropshipping pricing strategies, plus various ways to implement them. Think about which would be most effective given your niche and product type.
Cost-based pricing
The goal of this dropshipping pricing strategy is to cover all of your production costs while achieving a desired profit margin. This pricing strategy is popular among manufacturing companies but can be equally useful for dropshipping operations. There are several key pricing methods within this category.
Cost-plus pricing
Cost-plus pricing sets a final price by adding a desired profit market (a.k.a. “markup”), which can be either a fixed percentage or dollar amount, to your total business costs.
For example, if you know your cost of goods sold (COGS) is $10 per unit, and your other fees (such as shipping, transaction fees and packaging) amount to $6 per order, then your total business costs equal $16. Let’s say you want your profit margin to be 50%. This gives you:
$16 (total business costs) + $8 (markup amount; 50% of $16) = $24
Your final price would be $24 per unit.
Note that when calculating your business costs, it’s important to include all of your dropshipping expenses like:
Software
Bank and processing fees
Returns and refunds
Shipping
Platform fees
Sourcing products
Salaries and payments
Break-even pricing
Break-even pricing looks at how much you need to charge for each product to cover all of your costs (both fixed and variable) without making a loss.
Fixed costs include things like office equipment, software subscriptions and insurance, which remain constant regardless of how many products you sell. Variable costs include things like per-unit costs and marketing costs that vary with the volume of sales you make or orders that are fulfilled. To calculate your break-even price, use the following formula:
Break-even price = Fixed costs/number of units + variable cost per unit
After determining your break-even price, you can include a desired profit in your pricing. This would change the formula to:
Break-even price (with markup) = (Fixed costs + desired profit)/number of units + variable cost per unit
Alternatively, some sellers may choose to set a price below their break-even point and sacrifice profitability to gain more market share. For instance, If your product is sold by multiple dropshippers and lacks unique features, your competitors might try to win customers by offering the lowest price (see more under “penetration pricing”).
Tiered markup on cost
The tiered markup on cost pricing strategy applies different markup percentages, depending on your product’s cost range. This strategy is particularly useful if you plan to sell products that run the gamut between low- and high-value items. It helps you profit from lower-priced items and avoid overpricing expensive things.
Simply create levels or tiers for your items, then assign markup percentages. Your tiers could look something like this:
Cost up to $100: 10% markup
Cost $101 - $500: 15% markup
Cost $501 - $1,000: 20% markup
Cost above $1,000: 25% markup
Tip: Using a dropshipping app like Importify can simplify the process of adjusting and setting
markups. It’s easy to use and offers many benefits.
Competitive pricing
As the name suggests, competitive pricing bases prices on your competitors’ activity. This approach may take priority if you’re competing in a crowded marketplace or on a sales channel like Amazon, where the sale (such as when you compete for the Featured Offer position) normally goes to sellers with affordable rates. Like cost-based pricing, there are several ways that this can play out.
Penetration pricing
Penetration pricing refers to lowering your prices significantly below the competition to gain market share quickly. This is often used when a business is trying to enter a new market or introduce a new product; it can help you appeal to price-sensitive customers and discourage competitors from entering the market. Once you’ve built brand awareness and a larger customer base, you can raise the cost of your items and increase your profit margins gradually.
Price matching
Like Walmart, you can promise to match lower prices offered by competitors for the same product. This can demonstrate a commitment to providing the best value and potentially prevent customers from shopping around. At the same time, this strategy involves around-the-clock monitoring and strong customer service to get right.
Premium pricing
Set higher prices to create a perception of luxury, quality or exclusivity. This strategy may come in handy if you’re managing high-ticket dropshipping products that appeal to status-conscious consumers.
Geographical pricing
Geographical pricing involves setting different prices for the same product based on the location of your customer, allowing you to account for regional demand, local market conditions, currency exchange rates and shipping costs (among other factors). Bear in mind that this method can be complex and resource-heavy to manage, and potentially irk customers who perceive price differences as unfair.
Price skimming
Under this strategy, you may choose to initially price your products high when they’re new, then reduce the price over time. The goal is to maximize revenue when demand is hot but to open up your product to price-sensitive customers when more competitors enter and your product is no longer a novelty.
Psychological pricing
Psychological pricing is a strategic method where prices are set in a way that makes them appear more attractive or appealing to customers, often by creating an illusion of value, savings or affordability. Psychological pricing techniques include (but aren’t limited to):
Charm pricing
This is when you set prices slightly below a round number, such as $9.99 instead of $10.00. This makes the price seem like a better value; as consumers read from left to right, they may perceive the price to be closer to $9 than $10.
Odd-even pricing
Odd-even pricing is when you deliberately price items with odd numbers (e.g., $19.95) rather than even numbers (e.g., $20.00) to make them appear cheaper. Even prices are often used to convey value and quality, while odd numbers give the illusion of a bargain.
Price anchoring
Display a higher-priced item next to a lower-priced one to create a reference point. The lower-priced item then appears more affordable in comparison.
Decoy pricing
Decoy pricing is when you introduce a third, less attractive option to make the other two options more appealing. For example, offering a basic, advanced and premium product, where the advanced option is priced slightly less than the premium one, making the premium seem like a better deal.
Clearance and sales pricing
This is when you use phrases like "limited-time offer," "clearance sale" or "special discount" to create urgency and a fear of missing out. Similarly, you may choose to show a discounted price next to the MSRP or original price to highlight savings.
Free-plus pricing
With shipping affecting price in most situations, one great approach to pricing is the free-plus strategy (a.k.a. “free plus shipping” or “freebie marketing”). You offer a product at no cost, but still cover costs or earn a profit by having customers pay for the shipping fee or by upselling products.
Generally, this strategy works well when the free item has a high perceived value. For example, let's say you run a cosmetics company. You may offer a free sample kit of skincare products, with a shipping fee of $7.99. Once the customer tries and likes the products, they may return to purchase full-sized items.
Bundle pricing
Bundle pricing is when you sell multiple products or services together as a single combined unit, often at a lower price than if the items were purchased individually. Customers, in turn, may perceive this as a better value and feel inspired to purchase more.
Bundle pricing can be both a psychological and a competitive pricing strategy, depending on how it is implemented and the primary objectives behind its use. Outside of creating a perception of value, this method can help differentiate your company.
Bundles can be presented in various ways, such as:
Pre-packaged goods and bundles: Products are packaged and only sold together (e.g., multi-packs or holiday bundles)
Virtual bundles: Customers can mix and match the items that they want to purchase together (e.g., buy-one-get-one-free deals, or build-your-own-kit offers)
Make sure to communicate with your suppliers before offering bundles; suppliers need to be able to handle the logistics of shipping multiple items together.
Need a better way to upsell and cross-sell? Try AppSell. Entice your customers with smart product bundle recommendations during or before checkout.
Manufacturer suggested retail price (MSRP)
MSRP is the price that manufacturers recommend for their finished products, primarily as a way to keep pricing consistent across resellers while still giving them a profit margin. You do not necessarily have to use the MSRP, however, it can serve as a starting point. (Note that MSRP is not to be confused with MAP policies, which manufacturers may formally enforce.)
Some dropshippers might set their price lower than the MSRP to beat out the competition. Others may set their price a bit higher if products are in high demand.
Dropshipping pricing strategy tips
As you try on different pricing strategies for size, here are a few tips for pricing dropshipping products effectively:
Experiment and adjust prices as needed: In the dropshipping world, pricing isn’t set in stone. Experiment with varying price points, observing market and dropshipping trends and customer reactions. For example, you might have a popular or trending product and wonder if people may consider it a premium item by testing a higher amount.
Account for returns: Returns are typically prevalent in dropshipping, since you don’t have as much control over product quality or shipping. Remember that if someone returns your items, you need to cover costs unless otherwise agreed upon with your supplier. It’s a good idea to factor in average return rates when deciding on the listing price of your items.
Consider cross-selling pricing: Encourage potential customers to explore other products by using bundle strategies. This approach will boost your average order value and enhance the user’s experience on your eCommerce website.
Choose lower discounts: Discounts often attract customers but can impact your profit margin. For example, instead of providing a percentage-off coupon, consider a value-added promotion, like more money off for a larger order or a buy-one-get-one (BOGO) free offer.
Create that sense of urgency: Some customers will put off buying, leaving things in their carts. Try using urgency-inducing language, to encourage purchasing sooner. For example, flash sales are only good for a short period of time. Likewise, “low stock” and other phrases can trigger FOMO. Pricing your products can be challenging, and it’s wise to avoid copying the prices of your competitors.
Never lose sight of your profits: It’s all too easy to lose track of your profits as market conditions change and/or you start testing different marketing tactics. Remember to double and triple-check that you’re making the profit that you think you’re making.
Tip: Check out our list of best dropshipping website builders.
How do you calculate your dropshipping profit?
To calculate your total dropshipping profit over a given period, you can use the basic formula below, which considers your revenue, the cost of goods sold (COGS) and other expenses (like advertising costs, subscription fees, etc.).
Gross profit = Revenue − (COGS + other expenses)
Alternatively, you may choose to calculate net profit (which deducts expenses like returns, taxes and other operating costs from your total revenue) or per-unit profit. Each of these serves a different purpose and has a unique formula.
How to price products for dropshipping FAQ
What is a good profit margin for dropshipping?
The average profit margin for dropshipping tends to range between 15-20%. However, margins may vary a lot depending on the niche and the cost of products. To get the most out of your dropshipping sales, it’s wise to shoot for a profit margin that’s higher than 20%.
Which dropshipping pricing strategy is best?