Dropship Pricing Strategies
One of the more common questions asked by dropship resellers is “What price should I be setting my products at on my ecommerce website?”. There are a ton of different dropship pricing strategies to choose from, and depending on your products, supplier(s) and business model, your approach can vary. There are some that argue that the only “right” strategy is that your pricing should always be changing as you test what works and what doesn’t. Regardless if you buy into that notion or not, choosing a dropship pricing strategy is one of the first steps in launching a dropship ecommerce business and greatly impacts how your customers will perceive your brand. It would serve most resellers well to take time to evaluate the different pricing strategies and how they affect both their profit margin and their buyer’s perception of their business.
The first thing you should consider is what types of products you are selling. Not every product type can be priced the same. For example, electronics sell in higher volume but typically with a lower margin, while fragrances and home decor sell in lower volume but in a higher margin. Look for the product types you can sell and consider your price strategy after selecting your product niche.
Next, talk to your supplier about your pricing thoughts when getting started. It is worth sending your sales representative or their support desk a brief email to see if they have any recommendations for price settings specific to their product types. Some suppliers might not provide much advice with regards to a retail pricing approach, but a good relationship with your sales rep can lead to some helpful advice before getting started.
Many pricing strategies exist and each one is based on a particular set of circumstances.
Now that you understand some of the basic price-setting strategies, there are a few price setting tips to consider:
Fixed Dollar Addition
The use of a fixed dollar addition can be an important part of your price strategy for your wholesale dropship products.
Let’s say you are setting a profit margin for your products, but have you calculated in the amount to cover your marketplace or dropship fee? Are you making enough on some of your low dollar items to be profitable?
The use of a fixed dollar addition can allow you to easily evaluate your potential profit. For example, let’s say you have a 20% margin on your products. If an item costs $5.49 cents, a 20% margin would add $1.10. However, if you used an additional $3.50 fixed dollar addition, then you know you might cover a dropship or listing fee or have some additional margin built into your products. The markup is a larger percentage of your low dollar items while essentially being a “hidden” markup when applied to your much higher dollar items.
When you process an order, it does not take any longer to process an order for a $500 item vs. a $5 item, but when you have a fixed dollar addition added to your markups, then no matter your fixed dollar or percentage markup, you know you have a guaranteed fixed dollar amount added to every product sale to help compensate for any needed fees or processing times.
Price vs. Shipping Markup
Some store owners are worried about having a price that is too high for their items, so they markup their products low, but add a small hidden fee to their shipping module or product weights to increase the cost charged for shipping.
The goal is to have a product price show lower than other stores while making up the needed margin with an increase to the amount charged for shipping. Other owners look to increase the cost of their item prices more significantly while promoting free shipping on their site. These users recognize that many customers might be more focused on your unique deal or temporary free shipping promotion and will be less concerned about the product prices being shown.
Store owners can build their entire approach around one of these strategies while others might change between these approaches or change from a more traditional price strategy to one of these methods and back again multiple times over the course of the year.
Regardless of the approach used, when implementing one of these more custom approaches, it is important to promote your significant price discounts or “free” shipping promotion to make sure it gets the attention needed from the traffic on your website.
NOTE: Incorporating the amount charged for shipping into your overall pricing strategy is a more advanced approach and will require a more experienced store owner to make sure that the total amount charged is enough to cover both your needed product margin and shipping costs.
MAP is the “minimum advertised price” for a product listing that is typically set by the manufacturer. This means when listing the item for sale you are not allowed to price below MAP, or risk potentially losing your ability to resell products from that manufacturer or distributor.
When working with a large distributor that carries products across hundreds if not thousands of manufacturers, you will want to speak with them about their MAP policies and how they might vary across products. Some products may have a “hard MAP” in which it is strictly enforced and you can see this by quickly researching the product online to see all pricing meets this criteria. Other products may have a “soft MAP” where the MAP isn’t really enforced and is a general guideline by the manufacturer.
Determining which products have MAP and whether it is enforced or not factors in greatly to a) whether you want to resell the item or not and b) how to price it. Ideally, your distributor provides the MAP price in the data feed and you are able to build rules around this pricing to easily list products that are competitive but do not put you at risk of losing your reseller privileges.
Featured Product or Product Specific Pricing
This is perhaps the most effective price strategy, but is the most time-consuming and therefore the most overlooked option.
Many resellers want to take the “set it and forget it” approach and apply a simple price setting, but what they forget is taking the time to price some individual products can maximize your website traffic and conversions.
Many wholesale dropship resellers select 10-20 items or so to feature on their website, such as on the main page. All major ecommerce platforms have a “featured product” display option. Smart store owners use this section to promote their more popular items to their customers, but you are missing an opportunity to leverage your traffic if you do not utilize a product-specific price setting for these or other items.
You do not need to price every product on your store with a 5% or 10% margin, but for those items displaying clearly on your main page, listing them at a much more competitive price is the best way to make a great first impression.
A customer might add one of these easy-to-find products to their cart after recognizing the instant savings compared to other websites online, and then continue to add 2 or 3 more accessories or related items where you can make your additional margin.
For the price-conscious customer, they might do a lot of research for the “must-have” item that brought them to your cart, but they can be much less price-sensitive once they see the huge savings on their favorite item while adding some additional items to their cart to spread out their shipping costs.
Do Not Fear Change
Your wholesale dropship supplier might frequently change their product prices based on the season or inventory levels.
Do not be afraid to change your price approach as well. Should you lower your price going into the weekend? Do you prefer to focus on mid-week sales and price drops? Are you just coming into or out of a holiday sales cycle?
If you had to manually change the price showing for 10,000 items on your website, it might make sense to leave your prices more constant, but when you are using dropship automation software, you can change the price on 10 products or 10,000 in seconds.