How To Price Dropshipping Products: A Guide For Beginners

How to price dropshipping products is one of the most important questions for anyone starting in the dropshipping business. Are you wondering why your hard-earned profits seem to slip away?

Could the answer lie in your pricing strategy?

In this article, you’ll uncover the secrets to setting the perfect price for your dropshipping products, ensuring a profitable and sustainable business.

Ready to transform your pricing game? Keep reading to discover how.

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What Is A Pricing Strategy?

Pricing strategy is a methodological approach that answers your question:  How to price my dropshipping products?

It is an indicator to potential customers about how much you appreciate your brand or product.

Hence, it’s one of the first things that can sway a customer’s decision to buy your product or not. As such, it should be calculated precisely.

A pricing strategy considers segments, ability to pay, market conditions, competitor actions, trade margins, and input costs.

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Top 12 Dropshipping Pricing Strategies To Have In Mind

Below, I will discuss a few of the most common strategies that lead dropshippers to success.

1. Cost-Based Pricing

In this pricing strategy, I first calculate total business costs, then add the given profit margin, and finally calculate the selling price.

Imagine you run a Shopify store selling handmade jewelry. To set your prices using cost-based pricing, you first calculate all your expenses.

This includes salaries and payments totaling $1,000, sourcing products at $500, platform fees of $100, shipping costs at $200, returns and refunds costing $50, bank and processing fees of $30, and software subscriptions of $120.

Adding these up, your total costs amount to $2,000. Next, you decide on a profit margin, say 20%.

So, you calculate the selling price by adding your profit margin to the total costs, resulting in a final selling price of $2,400. This method ensures all your expenses are covered and you make a profit.

1. Calculating costs (expenses)

In this calculation, you need to include your dropshipping expenses, like: 

• Salaries and payments
• Sourcing products
• Platform fees
• Shipping
• Returns and refunds 
• Bank and processing fees 
• Software etc.

2. Profit margins

When setting profit margins, first, you think about making your products buyable! Here the balance is a win-win!

Don’t set them too high and deliver high prices; this is a lose-lose situation! Don’t set them too low; this is also a lose-lose situation! You can read more about profit margins in this post below. 

✏️Note: This strategy leads to lower market awareness, so think twice before you choose it. You might want to choose a strategy that requires more attention to analyzing the market.

For instance, the Vintage Pear store, which offers personalized jewelry, likely employs this pricing

Alternatively, with a fixed percentage markup strategy, you set your retail price at a certain percentage of the purchase price. For instance, if you bought the product for $5 and applied a 300% markup, your retail price would be $15. To make the price more attractive to customers, you might set it at $14.99.strategy to ensure that its handcrafted pieces are priced to cover all operational costs and achieve its desired profit margin.

🔸 Fixed Markup on Cost 

There are two strategies you can consider using:

1. Fixed dollar markup strategy

A fixed dollar markup simply means adding a specific dollar amount to the product’s price at your supplier.

For example, let’s say that the product already costs you $5; you set a $10 profit margin per sale, which will make the retail price for your product $15, and by this, you can cover your business expenses.

2. Fixed percentage markup strategy

With this strategy, you set your product’s retail price at a certain percentage of your purchase price.

✏️ Note: When using this strategy, it’s best to choose higher profit margins, like 3x(300%).

For example, let’s say you purchased the product for $5. When you apply your profit margin to your supplier price, you get a $15 retail price. To make the price look low in customers’ eyes, you use a rounding price, like $14.99, and Bam 💥. You gain sales!

Alternatively, with a fixed percentage markup strategy, you set your retail price at a certain percentage of the purchase price.

For instance, Hydro Flask adds a fixed markup to cover costs while maintaining competitive prices.

2. Tiered Markup on Cost

Tiered markup on cost is a pricing strategy that is most commonly used when the supplier has a variety of products ranging in value from low to high.

ANSWERED: How Many Products Should I Start With When Dropshipping With Shopify?

It allows you to avoid overpricing your expensive items while also profiting from your low-cost items.

You can create tiers or levels for your items so that items under $10 have a higher markup, let’s say 50%, while items between $300-500 have a lower markup, like 15%. You can even have multiple tiers.

3. Manufacturer Suggested Retail Price (MSRP)

MSRP is another common strategy smaller retail shops use to avoid price wars while still making a decent profit.

It is a very suitable strategy for dropshipping beginners, where you set your prices best on suppliers’ given recommendations

👉 Learn How To Connect a Dropshipping Supplier to Your Store?

4. Psychological Dropshipping Pricing Strategy

Psychological pricing strategy lies in the “odd-pricing” method, where you set prices lower than the real price, using cents ending values, 5,7 or 9. 

For example, instead of setting your price at $15, set it as $14.99 or $14.95.

Maybe your first thought about this is, “Okay, it’s the 21st century, and everybody knows it”, but believe me, it works!

✏️ Note: If you realize that your competition has many products listed with prices of 99 or 95 cents, you can consider lowering them to 85 or even 55 cents. Just a few cents lower may result in extra sales.

If I sell home decor items, instead of pricing a vase at $50, I might price it at $49.99 to make it seem more affordable.

Hence, Zara frequently uses odd-even pricing to attract budget-conscious shoppers.

This psychological pricing strategy is effective for most consumer goods to make prices seem lower and for luxury items to imply better quality.

5. Bundle Pricing

Bundle pricing refers to offering a sales promotion to your customers. For example, customers can buy your product and a matching product and get a discount for both.

For example, “buy one, get the second piece for free,” or “buy all three pieces and get a 40% discount”.

This strategy can also be a way to lower your product’s retail price.

Bundle pricing can be an effective strategy for a Shopify store selling skincare products.

You might offer a promotion where customers can buy a moisturizer and get a cleanser for free or buy all three items in a skincare routine for a 40% discount.

This not only increases the perceived value but also encourages customers to purchase more.

For instance, SkinnyMeTea uses a bundle dropshipping pricing strategy to promote its products, making it a win-win for both the store and the customers. In fact, they have a separate category for bundles.

6. Penetration Pricing

It may be a smart move for you as a ‘fresh dropshipper” to the market to lower your prices below the competitors and gain market share quickly.

After you build brand awareness and increase your customer base, you can gradually raise your prices. 

I find Netflix‘s idea about the dropshipping pricing strategies very inspiring.

They told customers, “If you can wait a day or two for your DVDs to arrive, you’ll get access to a huge movie library without any late fees.”

From the beginning, Netflix focused on making things easy and affordable to win over Blockbuster customers.

Back in 2000, Netflix let users rent four movies at a time with no due dates for just $15.95 a month.

This worked out to less than a dollar per DVD for regular movie watchers, while Blockbuster charged about $4.99 for a single three-day rental.

Netflix nailed the penetration pricing strategy. Sure, people sometimes grumble about Netflix subscription prices going up or their free trial ending.

But despite the occasional complaints, folks are generally happy to pay more for the constant stream of great content.

👉 Read my Supliful Review: Is It Good For White Label Dropshipping?

7. Free Plus Shipping Strategy

With the Free Plus Shipping strategy, you offer the product for free but charge customers for shipping.

For example, if I sell phone cases that cost me $2 each, I set the shipping fee at $7. This way, my costs are covered, and I make a $5 profit per sale.

In fact, AliExpress uses this strategy to attract more customers. You can find it here all the time

This is great for low-cost items where the perceived value justifies the higher shipping fee, such as phone accessories, small beauty products, and promotional items.

This approach helps keep the product price appealing while effectively covering shipping costs.

8. Premium Pricing

Premium Pricing means setting higher prices to reflect the high value and quality of the product.

For instance, if I sell luxury watches that cost me $100 to produce, I might price them at $500 to emphasize their top-notch materials and craftsmanship.

Stores like Nordgreen do this with their high-quality watches.

This strategy is perfect for high-quality or luxury items where customers are willing to pay more for exclusivity and superior quality, such as luxury goods, high-end electronics, and designer clothing.

This is a great way to achieve higher profit margins and build a prestigious brand image.

9. Perceived Value Pricing

Perceived Value Pricing is all about what customers think a product is worth rather than its actual cost.

For example, if I sell eco-friendly water bottles that cost $5 to produce, I might price them at $30 because of their sustainable materials and strong brand reputation.

S’well water bottles use this strategy, highlighting their eco-friendliness and stylish design.

This works well for products with strong brand stories, innovative features, or unique benefits that customers highly value, like eco-friendly products, innovative gadgets, and health and wellness items.

It helps set a higher retail price based on perceived value.

Remember the Dior scandal?

As reported by the Wall Street Journal, this company was discovered to exploit workers by manufacturing bags at a small fraction of their retail price.

Official documents reveal that Dior paid a supplier just $57 to produce bags that retail for approximately $2,780, not including the cost of raw materials like leather.

10. Low-Ticket Product Dropshipping Pricing Strategy

Low-ticket products are priced to sell quickly with small profit margins but high volumes.

For example, if I sell novelty keychains that cost $1 to source, I sell them for $5, making a $4 profit per item.

For instance, Wish offers many low-ticket items with small margins but high sales volumes.

This strategy is perfect for impulse buying items that customers can purchase without much thought, such as small accessories, novelty items, and inexpensive gadgets.

This helps to maintain a low selling price while achieving a good profit margin through volume.

11. Medium-Ticket Product Dropshipping Pricing Strategy

Medium-ticket products have moderate pricing and profit margins, appealing to a broader market. If I sell fitness bands costing $7 to source and retail them for $20, I make a $13 profit margin.

Amazon products fall into this range, balancing affordability and profit. This strategy is ideal for products that offer good value and functionality, appealing to budget-conscious yet quality-seeking customers, such as fitness accessories, mid-range electronics, and kitchen gadgets.

This pricing strategy helps in achieving a balanced average order value.

12. High-ticket Product Dropshipping Pricing Strategy

High-ticket products are priced higher with substantial profit margins, targeting customers willing to pay more for quality and features.

If I sell advanced home security cameras that cost $50 to source and retail for $150, I make a $100 profit margin.

One great example of a store that uses these dropshipping pricing strategies is BrandsGateway.

This strategy suits premium, feature-rich products that justify a higher price point due to their benefits and quality, such as advanced electronics, luxury home goods, and high-end apparel.

It helps set a solid pricing strategy for high-value items.

How to Determine The Best Price For My Dropshipping Products?

Like my grannie used to say,” for every pot, there is a suitable lit”.😀 This is what popped up to me when I wrote this heading right above.  

There’s a suitable dropshipping pricing strategy for every product niche, business, and product type.

Since all of them rely on a specific market or target audience, so be free to experiment, even if you don’t succeed initially.

So, let’s see how to determine the best pricing strategies for you! Is it a tiered markup on cost, or maybe psychological pricing?

Know Your Customers and Their Buying Habits

Your profits depend on knowing your customers and their buying habits. When you start a dropshipping business, you need to know who your customers are, what they value, and how they spend their money.

Create customer personas with demographics, interests, and pain points, and you can price dropshipping products.

Hence, you can use Google Analytics or Facebook Insights and gather valuable data.

I personally use Meta Ads Library. So, I choose a location, select an ad category, and type in a keyword.

Next, I search for the competitor ad copy Once I find it, I can get insights about my target audience, like the estimated audience size, the amount spent, the number of impressions, and more.

By knowing your customers, you can price your dropshipping products to meet their expectations and needs and make them more appealing.

Competitor Analysis

Competitor analysis is key to pricing strategy. Look at how your competitors price their products and what pricing strategies they use.

But don’t copy them—identify their strengths and weaknesses to find opportunities to differentiate.

For example, Similarweb can give you insights into your competitors’ traffic, keywords, and advertising strategies.

This will help you price competitively and attract customers while offering more value. This is crucial for a dropshipping pricing strategy that wins.

Know Your Costs

Knowing your business costs is part of setting your price. Identify fixed costs like platform fees, salaries, and rent and variable costs like shipping, product, and marketing expenses.

Calculate these costs, so your pricing covers them and gives you a margin.

For instance, I use QuickBooks to track my expenses and financials.

Knowing your costs can ensure that your pricing strategy is sustainable and profitable, which is key to a profitable dropshipping business.

Know Your Product’s Perceived Value

Perceived value is key when pricing your product. This means understanding your product’s uniqueness and why customers will pay a premium. Brand reputation, quality, features, and customer reviews all contribute to perceived value.

I suggest you use customer feedback and social media to see how customers perceive your product. Increasing perceived value will justify higher prices and bigger margins for your online dropshipping store.

This is especially important for premium and perceived value pricing.

Choose Your Pricing Strategy

It is important to choose the right pricing strategy for your dropshipping store. A common strategy is cost-based pricing, where you add a markup to your costs.

On the other hand, you have different pricing strategies at your disposal, like competitive pricing, where you price based on competitors; and value-based pricing, where you price based on perceived value.

Each has pros and cons, and the best one depends on your target audience and business model.

For instance, Price2Spy can help you monitor and adjust your prices. Knowing market trends and customer expectations will help you choose the right dropshipping pricing strategy.

These factors might help you when determining the best price for your dropshipping products. For example, some dropshippers play around with prices like:

• For product prices varying from $0.99-$4.99, they set the selling price at $19.99
• For product prices around $4.99-9.99, they set selling prices around $29.99

As you can see, they put a lot of emphasis on using psychology prices, and they found it successful.

Also, you can realize that they use 3X profit margins. These are usually businesses with many variable costs, so they secure their profits this way. Others use bundling pricing, and most businesses sell skincare and beauty products.

As you can see, it is like that, “for every pot there is a suitable lit”.

What I wanted to recommend to you, which is equally important, is that lower revenues do not always mean lower profits! So stop chasing revenues, but chase your COGS. They might be more important!

Example of How To Price Dropshipping Products

Let me give you an example.

Let’s assume that the maximum revenue for your product is $20, and you will sell 60 pieces at this price. Also, let’s assume that your variable costs are high and your COGS (Costs Of Goods Sold) is $14. So let’s do the maths:

Revenue:    $20 * 60 pieces = $1.200

COGS:        $14 * 60 pieces = $840

Profit:           $1.200 – $840 = $360

Now, let’s assume that you have raised your prices by 10%. This means that your selling price will rise from $20 to $22.

Also, in another scenario, let’s say that as a result of this, your sales decreased, and you will see a 10% decrease in sold pieces. This means you will sell 54 pieces instead of 60. All other remains the same. Let’s do the math now:

Revenue:      $22 * 54 = $1188 COGS:       $14 * 54 = $756

 Profit:      $1188 – $756 = $432

Your revenue has decreased by $12, but your profit increased by $72. Are we on the same road now?

So, always try to determine a price from which you will gain maximum profit and not maximum revenue!

What Is A Good Profit Margin In Dropshipping?

Yet, here I am, answering one of the most popular questions: What is a good profit margin for my dropshipping products?

And you are question is right because profit margins play a big role here, they indicate how much of your total sales your business keeps. 

So to be realistic, I should start talking about the average profit margin that most dropshippers get.

The average dropshipping profit margin is around 15 %—20 %. However, this depends on the dropshipping niches you choose and the average cost of your products.

To maximize your dropshipping product sales, I recommend aiming for a profit margin even higher than 20%.

However, some dropshippers have profit margins of 100%, or even up to 300%, which, in most cases, depends on what prices you get from your suppliers and, of course, your variable costs.

You can also read more about how to calculate your profit margins by yourself, or if you want, you can use our Profit margin calculator tool

If you are interested in any tips and advice on how to increase your profit margins, I recommend you read this article

BONUS: Top 10 Products To Dropship In September 2024

Pricing Tips From 6-Figure Dropshipping Sellers

Here is a list of additional pricing tips for you to consider using to enhance your dropshipping pricing strategy:

1. Experiment and Adjust Your Prices Up and Down

Pricing is not set in stone in the dynamic world of dropshipping. Successful sellers often experiment with different price points, observing customer reactions and market trends.

For example, if you’re selling a popular gadget, test a slightly higher price to see if customers perceive it as a premium item.

Conversely, lower prices should be considered during special promotions to attract bargain hunters. Regularly adjusting your pricing based on real-time feedback can fine-tune your revenue strategy.

For example, Zara uses this strategy very often to see how customers react to their product prices.

2. Leverage the Power of “FREE”

The word “FREE” has a magnetic appeal for customers. Strategically incorporating this term can enhance your product descriptions and marketing materials.

For example, offer free shipping for orders over a certain amount or bundle a complimentary accessory with a purchase. The sound of no shipping cost really points to charm pricing!

This not only attracts attention but also provides customers with perceived added value, influencing their purchasing decisions positively.

3. Implement Cross-Selling Pricing

Implement cross-selling pricing strategies to encourage customers to explore additional products. For example, bundle complementary items together at a slightly discounted rate when purchased as a package.

For instance, if you’re selling fitness equipment, offer a package deal that includes a yoga mat with a set of resistance bands. Or, if you’re dropshipping books, you can always inform your customers about related books in a certain genre. 👇

This approach not only boosts the average order value but also enhances the overall shopping experience.

4. Opt for Lower Discounts

While discounts can attract customers, offering excessively high discounts may impact your profit margins.

Instead of focusing on steep percentage discounts, consider value-added promotions, such as buy-one-get-one-half-off or tiered discounts for larger orders. This way, you maintain perceived value while protecting your profitability.

5. Create a Sense of Urgency

Incorporate urgency-inducing language to prompt quicker customer actions. Thus, phrases like “Limited Stock,” “Last One in Stock,” or “Flash Sale” create a sense of scarcity and encourage customers to make prompt purchasing decisions.

This psychological trigger taps into the fear of missing out (FOMO), prompting potential buyers to act swiftly before the opportunity vanishes.

For example, this strategy is pretty familiar to WizzAir and Booking. Check this out. 👇

By integrating these product price tips into your dropshipping strategy, you can create a more dynamic and effective approach that aligns with customer behavior and market dynamics.

How To Price Dropshipping Products – FAQs

1. How should I price the items I am selling?

To price items I am selling, I should:

First, understand my costs by including all costs such as sourcing, shipping, platform fees, and marketing expenses.

Then, analyze competitors to check how they are pricing similar products, but don’t just copy them. Next, consider customer perceived value by determining what my target market is willing to pay for the product. After that, choose a pricing strategy, such as cost-based pricing, competitive pricing, or value-based pricing.

Finally, set my price by combining these factors to ensure it covers costs and provides a profit margin. This helps in creating a solid pricing strategy for my dropshipping business.

2. How do I calculate the price per sale?

To calculate price per sale, use the formula:
Price per Sale = Total Sales Revenue / Number of Units Sold

This gives me the average price at which each unit is sold. For instance, if I earned $500 from selling 50 units, the price per sale would be:
Price per Sale = $500 / 50 = $10
This helps me understand the average selling price and adjust my pricing strategies accordingly.

3. How should I decide on pricing for dropshipping?

To decide on pricing for dropshipping:

First, calculate total costs, including product costs, shipping fees, platform fees, and marketing expenses. Next, set a reasonable profit margin. Then, analyze market trends and research competitor prices.

After that, choose a pricing strategy, such as cost-based, value-based, or competitive pricing. Finally, adjust prices based on customer feedback and sales performance.

This ensures that I set a competitive and profitable price for my dropshipping products.

How much do I make per sale dropshipping?

The amount I make per sale in dropshipping depends on my pricing strategy and profit margins. After subtracting all costs (product cost, shipping fees, platform fees, and marketing costs) from the selling price, the remaining amount is my profit per sale.

For instance, if I sell a product for $50, with a total cost of $30, my profit per sale is $20. This calculation helps us understand how profitable each sale is.

4. How much should I mark up dropshipping products?

The markup for dropshipping products typically ranges between 20% to 50%, depending on the product and market conditions.

For example, if my product costs $20, a 30% markup would result in a selling price of $26. Markup percentages can vary based on factors like product demand, competition, and perceived value.

This ensures that my prices cover all costs and provide a suitable profit margin, making my dropshipping business profitable.

Conclusion

Pricing your products may be very challenging, but if you are far away from reading this conclusion, you are one step ahead of many other dropshippers that think it is the right way to just copy prices from competitors.

To sum up, I realize that it’s very important to keep track of your COGS and all other business costs associated with your dropshipping business. Profit margins are also very important! 

So keeping them around 20% and a bit higher might be a smart move!

To find the perfect strategies for your dropshipping business, you need to know the niche very well and examine many aspects, like the target audience, the perceived value your dropshipping products deliver, price elasticity, etc.

Of course, to help you, I offer some of the best dropshipping strategies and more pricing tips to add a little more spark to your chosen dropshipping pricing strategy.