One of the common mistakes a dropshipper can make when launching an online store is to pay no mind to the pricing of products. Store owners often set random product prices. Some of them make decisions depending on their competitors’ prices. But this approach is misleading.
Your pricing should take into account your real costs and other price forming factors. Otherwise, you risk not making enough money to cover your operational costs.
Factors to consider & mistakes to avoid
Working your pricing strategy out, follow these basic steps.
- Calculate your overall cost
Add all the costs for your product including product costs, shipping fees, credit card processing fees, hosting fees, etc.
- Determine your revenue goals
Decide what profit you should make to cover your costs and to achieve your overall revenue goals.
- Consider your customer base
Your prices should match your customers’ expectations. Think of their motivation – why they want to buy these items? How much are they ready to pay?
- Study prices of your competitors
Spend enough time to study your competitors – both similar small niche websites and major retailers like eBay, Amazon etc. You should compare your prices with the competitors’ to take the optimal position for your products.
Remember about the two most common pricing mistakes that you should avoid.
The first one is overpricing. Unreasonably high prices can lead to loss of customers trust and drop in sales. Nowadays users can make just a few clicks to compare prices in different stores. So, try to walk in your customer’s shoes and ask yourself what a fair price for your product is.
The other extreme is underpricing. If you set too low prices, customers may think your products have poor quality or even take you for a scammer! Besides, price wars always reduce profits of all competing parties.
Profit margin in dropshipping
Dropshipping income depends on what kind of products you offer. Our experience shows that it’s better to stick to low price with a high margin potential. Such products cost about $1-$20, and you can sell them at $20-$50 or more.
We recommend having a profit margin of 40%-70%. You can also try this formula that shows good results for many dropshipping stores:
$0<Supplier Price<$2=Your Price: $7.95
$2<Supplier Price<$5=Your Price: $9.95
$5<Supplier Price<$30=Your Price: Supplier Price x 2
$30<Supplier Price<$50=Your Price: Supplier Price x 1.75
$50<Supplier Price<$100=Your Price: Supplier Price x 1.5
Supplier Price>$100=Your Price: Supplier Price x 1.35
Editing prices with profit margin formula
All AliExpress products imported to your website appear at their original prices. To make your dropshipping business profitable, you need to determine pricing rules and set markups –the amount added to the cost of products to cover overhead and profit.
It’s not a big deal to fix and change product prices manually when you have 20 items in your dropshipping store. But what if you have much more products? How long will it take to check 50, 100, 200 positions?
To save your time and energy, use AliDropship pricing markup formula – a profound system for pricing markup which changes your products’ prices automatically. With this formula, you can adjust and modify your dropshipping pricing strategy in few clicks.
Click Add New Formula to add a new pricing markup rule. Select Supplier Cost Range (these are product prices offered by sellers on AliExpress). Assign an arithmetic operation: addition (+), multiplication (x) or equality (=) and enter the value of this operation. If you need additional rules for your formula, you can use Additional Formula option. Formulas can be applied both to all product categories and to certain ones. If you need some particular category, choose it from the drop-down menu. Add your formula and click Save Changes.
You can set a priority order for formulas that will be applied for some range amount in a certain category and for the rest of your products.
For example, you have formula 5 < cost < 30 * 2 for category Pet Toys and you have formula 5 < cost < 30 * 1.75 for the rest of your products. In this case you need to use Drag and drop option to put formula for Pet Toys category higher in Pricing formula list. To confirm changes, click Update Prices.
When you add your formula, all new products imported into your store will get prices according to your pricing rules. If you need to apply these rules to already existing products in your store, click Update Prices button. If you want to change all prices back to AliExpress original ones, click Reset Prices.
You can create as many formulas as you need. Use x2, x3, x4 buttons for setting a formula fast and add Recommended formula with ready pricing markup rules.
Other pricing options
Use this option if you want to set your own additional discounts for some goods (or, frankly speaking, make your products more appealing for customers). You can apply this option to all pricing formulas, all product categories or to a particular one.
Make sure that your discounts are reasonable. Special offers and discounts help you achieve more sales and, for instance, 78% off sound like a real bargain.. But seriously, who would believe that a $15 plastic phone case could have cost almost 70 bucks? Customers may feel that you manipulate them, so put only believable numbers in discount field and always keep in mind a common price range for products you sell.
With this feature, you can round your prices. If you activate this option, for example, such prices like $7.52 and $3,47 will be automatically changed to $8 and $4, respectively.
You can set a specific cent value for your retail price. You can also set several different values separated by commas – then the plugin will apply these values randomly. This value will be used when forming the final price for your items (for example, if you add 99 to this field, the price of the product to be XX.99).