How to Price Dropshipping Products to Boost Sales and Margins

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Pricing your dropshipping products correctly is crucial to achieving your business goals. However, there's no one-size-fits-all solution. Pricing too high can drive away potential customers, while pricing too low can destroy your profit margins and lead to financial ruin.

So, how can you find the sweet spot when pricing dropshipping products? In this guide, we’ll cover how to price dropshipping products for your unique business so you can maximize sales, Best Product Research Tools for Dropshipping, ensure healthy profit margins, and remain competitive in your niche.

One way to simplify pricing your dropshipping products is by using Shopify's sales tracker from Shophunter. This handy tool helps you keep track of your sales so you can identify trends, determine what products are profitable, and make informed pricing decisions to help you achieve your business goals.

Why Do You Need 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. 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, dropshipping must 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 pre-order and/or transaction fees.

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 reasonable 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 transparent pricing strategy can make your job easier when planning promotional events. It can help you decide on the correct 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 drop shipping. It serves as protection against unexpected expenses and market fluctuations.

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5 Key Factors to Consider for Dropshipping Pricing

1. Product Cost: The Foundation of Pricing

Product cost is the price that your supplier charges you. For example, if you pay $4 for a supplier product, then the product cost is $4. It's essential to regularly review and update your product costs as they can fluctuate due to changes in manufacturing costs, packaging costs, and other costs associated with the supply side.

2. Shipping Fees: Don’t Forget to Calculate the Costs of Getting Products to Customers

Shipping fees cover the shipping expenses depending on the shipping origin, shipping destination, and shipping provider that you assign to products. As your suppliers may ship worldwide and you may sell internationally, the fees vary greatly. You need to be clear about your target countries or regions and the details of your shipping methods for each product to figure out shipping costs correctly.

Pro tip

As you want to benefit both you and your customers, you can refer to some popular dropshipping shipping calculations and choose the most cost-effective one.

3. Marketing Costs: Calculate the Costs of Advertising Your Dropshipping Business

As marketing is an effective way to expose your business, you may spend a lot of time on it and even pay money to advertise your brand, subscribe to a marketing tool, or hire SEO experts to improve website performance. If so, you must calculate the advertising and employment costs to reflect them in your product pricing.

4. Competitor Pricing: Keep an Eye On the Competition

Dropshipping is not a new concept, and there is a lot of competition. When you set prices for your chosen products, tracking your competitors is a good idea. You can investigate how many merchants are selling your target items, how much they charge for products, and how much order volume they obtain. Once you know your product competition level, you can more appropriately set a price for your products.

5. Profit Margins: Understand Your Financial Goals

Profit margin is a financial metric that measures the profitability of a business relative to its revenue. It represents the percentage of revenue retained as profit after deducting all expenses related to producing and selling goods. No matter how many costs you have to cover for your dropshipping business, profit margins can play a big part in making a profit, more than breaking even. You need to learn whether your niche has a smaller or higher profit margin to know your industry standard and set your decent profit margin.

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How to Price Dropshipping Products

Dropshipping Pricing: How to 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, etc. Any product's minimum retail price should ensure you don’t lose money on a sale.

If you're going through a supplier, the minimum price will depend greatly 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.

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:

Coffee dropshipping

Beauty dropshipping

Reverse dropshipping

Jewelry dropshipping

Digital dropshipping

Clothing dropshipping

White label dropshipping

Tea dropshipping

Sticker dropshipping

Pet dropshipping

Candle dropshipping

B2B dropshipping

T-shirt dropshipping

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 charge $15 by offering a BPA-free product or made in the USA.

That said, don’t get caught in a race to the bottom. You'll risk financial instability if you’re always lowering pricing to stay ahead of the competition. Instead, use pricing as a stepping stone and focus on providing better customer service and differentiating your store.

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 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.)

Set Your Markups

Your markup rate must balance 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.

You can consider strategic pricing once you’ve researched and determined the retail price range. Noodle on the approaches presented below and be open to testing different options before doubling down on one.

Dropshipping Pricing Strategies

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

This dropshipping pricing strategy aims to cover your production costs while achieving a desired profit margin. This pricing strategy is popular among manufacturing companies but can be equally helpful for drop shipping 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, 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 essential to include all of your dropshipping expenses:

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 office equipment, software subscriptions, and insurance, which remain constant regardless of how many products you sell. Variable costs include per-unit 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. 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 set a price below their break-even point and sacrifice profitability to gain market share. For instance, If multiple dropshippers sell your product and lack 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 beneficial 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

Competitive Pricing

As the name suggests, competitive pricing depends on 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) usually 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 more extensive customer base, you can gradually raise the cost of your items and increase your profit margins.

Price matching

Like Walmart, you can promise to match competitors' lower prices 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 help manage high-ticket dropshipping products that appeal to status-conscious consumers.

Geographical pricing

Geographical pricing involves setting different prices for the same product based on your customer's location, 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 potentially irking customers who perceive price differences as unfair.

Price skimming

Under this strategy, you may price your products high when 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 to make 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 introducing a third, less attractive option to make the other two more appealing. For example, offering a basic, advanced, and premium product, where the advanced option is priced slightly less than the premium one, makes 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 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 excellent 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 the shipping fee or 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. I 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 as a single combined unit, often at a lower price than if the items were purchased individually. Customers may perceive this as a better value and feel inspired to buy more.

Bundles can be both a psychological and a competitive pricing strategy, depending on its implementation and the primary objectives behind their 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.

Manufacturer suggested retail price (MSRP)

MSRP is the price manufacturers recommend for their finished products, primarily 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 the competition. Others may set their price 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 must 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. Likewise, “low stock” and other phrases can trigger FOMO.

Pricing your products can be challenging, and avoiding copying your competitors' prices is wise.

How to 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 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.

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