Did you find yourself selling dropshipping products for a price lower than what you paid for it? If you did I hope you have canceled the transaction rather than push through with it. Selling underpriced products is not a smart way of running a dropshipping business so, make sure that you run it to become successful and not to fall due to wrong decisions and actions.
If you noticed outright that you’ll be losing money with a customer order due to a pricing mistake, you might as well inform the customer of the error and cancel the transaction. However, if the product was already in transit to the customer’s address, then you’ll have no choice but to absorb the loss. To prevent further loss, re-adjust the product price to get a profit after the product expenses have been deducted.
You can underprice a product when you don’t follow a pricing strategy. As it is harder nowadays to get high-profit margins with dropshipping, losing more money with underpriced items would hurt your business more. To protect your business, you should set the right price and increase your dropshipping profit margins.
What is the Profit Margin in Dropshipping?
The profit margin is generally lower in drop shipping products compared to buying wholesale from suppliers. With dropshipping, you are selling products one at a time while with wholesale, you get products in bulk from the supplier. Bulk buying allows you to negotiate a good price with the supplier which means the wholesale price is cheaper than the individual price. Therefore buying wholesale enables you to earn high profits than dropshipping products.
Even if you can get away with high markups on dropshipping products, the cost of customer acquisition could probably drag down your profit if you are selling items with high competition. As you will be fighting for customers’ attention with other drop shippers selling the same products as you, you’ll likely spend money on advertising and creating engaging content. Not only that, but you might also reduce product prices just to drive traffic to your store.
Competing for prices is a common strategy that drop shippers use to get consumers to buy from them. The lower the product price the higher the chance of getting a sale. Yet, this is a strategy that you cannot implement for long as you cannot keep cutting down your prices whenever new competitors pop up.
What to Consider When Pricing Dropshipping Products?
To ensure that you’ll earn profits from selling dropshipping products, these are the things to consider when you set prices.
Your total expenses. This includes product cost, shipping cost, advertising/marketing cost, recurring monthly fees, website fees, salaries (employee/contractor/your own), and your emergency fund. Inflate the total cost by 10% to cover unexpected costs, if any.
Your competitor’s pricing. Check competitors in your niche for their pricing strategy. Look for online stores that sell the same product exclusively or have some level of popularity.
The percentage of discount you want to offer. Discounts can help new dropshipping businesses get the first few sales. However, it can hurt your business if you offer too many discounts for the long-term.
Your target profit margins. Niches like electronics only allow small profit margins while fashion has the potential for higher margins. You have to consider industry standards for the dropshipping products you’re selling.
There’s no right price with dropshipping. By taking into consideration the above-mentioned factors, you’ll be able to set a price to get the profit margins that you are aiming for and not lose money due to underpricing. You can choose to aim for a lower profit margin but sell more products or higher profit margin but sell only a few pieces. The decision lies on you. Just make sure that you are selling winning products to ensure that you have a market to sell to and your suppliers are reputable to avoid acquiring unexpected costs from chargebacks and other delivery issues.
How to Look for Winning Dropshipping Products?
You can never get a decent profit out of over-saturated products. Whether you want low-cost items or high-ticket items, look for product ideas that have winning potential and not yet saturated. By simply subscribing to Product Mafia, you’ll get access to winning products that can get you a net profit of about 15 – 25%. Products are updated daily which gives you a higher chance to find the perfect products to dropship in your store. You’ll also get suppliers’ data and other analytics that can help you sell better. You can find more info about the service here.
The profit margin is generally lower when dropshipping products, therefore, you must ensure that you set a price that will earn you profits not just to break even. Although there is potential to earn high-profit margins in dropshipping products for some niches however you have to conduct product research to find them. You can do it yourself or use Product Mafia’s services.
Just remember that you can only generate profits with winning products so make sure that you have them. Partner only with reliable suppliers to reduce acquiring unexpected costs due to chargebacks and order cancellations. Not only that, but you can also make customers trust you and want to buy again from you.