Profit Margins What is the Ideal Markup for Dropshipping Products

Key Takeaways

hey everyone it's David with Ober low and it's question time this week we're looking at a question that we get all the time what is the ideal margin for my drop shipping products now we know money's not the only thing but it's a big thing especially in e-commerce so this is a great question for us to break down in this video we'll share three pricing strategies to consider so let's jump right in first up cost based pricing this is when you add a fixed margin to the cost of your product and when we say cost of your product we mean all the costs associated with it this includes the product itself but also advertising costs and any other expenses that you're incurring so say your supplier charges you ten dollars for products and then it costs you about two dollars per sale and advertising your total cost for that product would be twelve dollars now if you apply a fifty percent markup you would charge your customers eighteen dollars for that product that's cost based pricing in a nutshell but applying a generic markup to all of your products like this could be a recipe for disaster why for a couple reasons first off you're not taking your competitors into account they might be selling the exact same product for much less than you are and that'll make it pretty hard to make sales or they might be selling it for way more than you are in which case they'll make more profit and have a larger advertising budget to leave you and your store in the dust and secondly cost based pricing completely disregards the customers perspective customers don't care about your costs or your profit margin then we care about how much value the product provides them so if your customers think it's too expensive you won't make any sales and if you under price your products you won't make as much profit as you could bottom line using a cost based pricing strategy on its own isn't the best idea so let's also look at competitor based pricing this is when you check how much your competitors are selling their products for and then you price here's similarly this is the easiest way to price your products they removes the calculations and it lets you just mimic the competition but customer based pricing isn't perfect either it's based on the dangerous assumption that your competitors have done their homework because what if they've got their prices wrong your business will struggle right alongside theirs and even if they've got the price about right there still might be room for improvement so once again exclusively on a customer based pricing strategy could be fatal finally let's look at value-based pricing this is when you choose a price based on the value you're providing to customers this might be the best pricing strategy to achieve long-term business success because your customers are more likely to feel happy if the price they've paid represents the value they're getting and a happy customer is much more likely to buy from your store again so how do you find out how much your products are worth to buyers first you need to know who your customers are where do they live how old are they you can do some research inside of Facebook audience insights and Google Analytics to get a better idea of the type of people that are visiting your site and then ask how important is your product to them does it solve a direct problem or is it a luxury item next check out your competitors and see who's liking and commenting on their posts this is especially useful if you're just starting out so in summary when pricing your products you need to take three things into account the costs associated with your products how much your competitors are selling it for and how much your customers value your products those first two are pretty easily quantifiable the last one will require some testing and studying but that's fine pressing your products is an ongoing process that takes time to get right so don't be afraid to experiment do you have any questions about pricing your products if so leave it in the comments below I checked the comments every day and I will be sure to get back with you so that wraps up today's video thanks for watching and if you want to see more videos like this be sure to hit the subscribe button and turn on that notification belt in the meantime happy dropshipping