Online dropshipping businesses are booming as they are easier to manage than other business models. There is no stock to manage and no risk of products going down in value.
After all, a dropshipping eCommerce allows the online store to focus on the promotion and marketing campaigns needed to boost sales from the product catalogue and thus achieve maximum profits. To win the price war at a time when the online channel is fiercely competitive, you will need a price monitoring and analysis tool to monitor your competitors and stay one step ahead of their movements.
What is dropshipping?
Dropshipping is a way for eCommerce to ship and deliver orders without needing to have the products the business sells in its own warehouse. Every time the store sells a product, it is purchased from a supplier and shipped directly to the customer. In this business model, the seller never touches the product. It has enormous advantages, but you should also know its pitfalls.
Key aspects to consider when analyzing a dropshipping company’s products and costs
We must consider several key aspects to ensure we analyze the products and costs of our dropshipping business correctly:
- Firstly, we must consider the specific categories into which products in the catalogue fall.
- Secondly, we must check the current state of the sector and the market where our products will circulate. This will be beneficial in helping to ascertain each product’s sales volume and the profit margin that can be applied.
- The next step will be to analyze the total cost of selling a product. As mentioned above, a dropshipping business procures the product from the manufacturer once the end customer has requested it. Therefore, the cost of sale needs to include all costs relating to the different steps of shipping, receiving, returns and everything associated with running the online platform.
How to define a pricing strategy for a dropshipping business
Before defining a pricing strategy, it is necessary to appraise products in the catalogue and analyze the costs of our eCommerce.
To start with, we will review the products we will sell, categorize them, and thus assess the state of the market and the sector. From this analysis, we can estimate the approximate sales volume and the profit margin we can hope to achieve. The last step is to calculate the total cost of launching the products to market.
Pricing strategies for dropshipping businesses
After analyzing the costs of our eCommerce, it is time to determine the pricing strategy that we will use for each product in our dropshipping business:
It may be worth considering adding a fixed percentage profit margin to the calculated cost of sale. This way, we can ensure a minimum profit on each transaction. Bigger risk takers also choose to add this margin to the price of each unit so that the profit increases. However, it is vital to check where the final prices sit in relation to competitors to ensure you do not lose out on sales simply due to prices.
On the other hand, dropshipping prices can be guided by each manufacturer’s or seller’s MSRP. eCommerce can ensure that it offers attractive prices to its potential customers. It can even offer attractive discounts on the MSRP to improve conversion rate while continuing to reap benefits.
Tips for setting tantalizing prices
As for tricks to consider that will make eCommerce prices more appealing, rounding large numbers and using the pull of 0.99 for lower prices are worth mentioning. In some cases, dropshipping eCommerce sets higher prices than their competitors, and then offers discounts acceptable to customers.
However, don’t forget that users also use tools to monitor the price of the products that interest them, so it is more and more difficult to pull the wool over their eyes with these actions. These bad practices are also increasingly seen in a poor light by the online community, posing a significant threat to the brand image.
In any case, once the pricing strategy of the dropshipping store has been decided, it is essential to keep it updated by reviewing changes that may occur to market conditions. A price intelligence tool, such as the one offered by Minderest, can become your secret weapon to do this comfortably, globally and effectively.
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