Friday, July 5, 2019

What Is The Average Margin In Dropshipping?

I am pretty sure that we already have provided you with information on how to dropship per se.  You know how, why and what to do to market your dropshipping store. Now, we are moving forward to the pricing.  This is one good question most are asking especially to a beginner. Join me as we discuss interesting things about pricing in dropshipping. 

What is the average margin in dropshipping?  The margin added to the dropshipping products varies depending on its value.  We do not want to focus on the definite amount added as margin. This is to ensure we are giving customers a reasonable price.  We will focus on the three strategies used to determine the margin added to the dropshipping products.

Basing on experience, I am assured that you might have seen a long list of strategies used to determine the margin in dropshipping.  To avoid the confusion, let me help you to narrow down the list and highlight the top three strategies that are found to be effective in adding the margin in dropshipping products. 

Cost-Based Pricing
Commonly, this is used to calculate the prices in the cost of a product in dropshipping.  It is a fact that the cost of the dropshipping items are low which allows dropshippers to add a margin. To use cost-based pricing, you have to add a percentage of the margin to the original price.  There are two forms of cost pricing: variable and fixed cost. 
A variable cost is the value of a product that is dependent on the volume of production.  It changes due to the demands of the product to the market. While a fixed cost is a cost that does not change and is not dependent on the demands and number of goods sold.

Here’s how cost-based pricing works in dropshipping.  Let’s say, a product is listed at $10. You add the total cost including the price for ads and any other fees.  So in our example, we say the total cost of other fees is $5. All in all, the cost of the product is $15. As a drop shipper, you decide to add 20% markup. 

$10 + $5 = $15, total cost $15 x .20 (20%) = $3, markup price
$15 + $3 = $18, retail price

Check on the Competition
This is the easiest strategy to use.  We have reiterated how much competition there is in dropshipping.  This also means, there are dropshippers who have made their homework and made a lot of research on their products especially the pricing.  

Checking the prices of your competition eliminates the time and effort need for computation.  You also fair with your fellow dropshipper and make a good price tag off your list. A downside of following the trend of your competition is that, if one made a wrong computation of their margin, you all go wrong.

Value-Based Pricing 
As a customer, the value of the product is very important.  Most of the time, they choose value over the price. Imagine a wallet is on sale for $20 in dropshipping.  Let’s say that the price range of a wallet costs around $40. 

With this example, we draw customers to the fact that they are buying the $20 wallet even if at the time they do not need it.  They buy the product because they see the price difference and how much they can save on this sale. 

That explains why if we think about making our customers happy, this is the best strategy to use to determine the margin.  In a customer’s perspective, they care less about the margin of a dropshipping product.  

If the items are sold at a price that is too expensive, customers will not buy from. On the other hand, if the prices of your items are too cheap, then it will impact your sales and not make a profit.  However, not only that we need to know the product values. We also need to understand how customers think. Which we will discuss on the next.

Leveraging on the Product Value
Well, we previously talked about the strategies to determine the margin in an item for dropshipping.  Personally, I think that the most effective of all three would be to settle with the value of the product.  It only makes sense since we want to cater to our customer’s satisfaction, right? Moving on, we will talk about how we can leverage the product value.
Check Demographics of the Customers 
Online shopping has been accepted as a socially acceptable addiction.  We can see advertisements everywhere. Influential people encourages us to spend on products.  It is an act of attracting us to buy even if we do not necessarily need it. 

Remember we cater to the needs and wants of the customer.  To leverage the customer’s satisfaction we want to know our market.  We need to know our customers. How the products impact the customer makes them want to buy your products and convert them as you need.  

Know Who Your Competitors Are
We are aware that there’s competition everywhere.  We not only want to know the products they sell, the price list, also we need to check on their strategies so that we can use it as a way to be competitive against the market.  You have to understand that the customers would like to feel they got a good deal.

We do not only research the products.  One of the biggest competition would be big retailers.  We have to take advantage of the economical prices sold by dropshippers to fair the competition.  We cannot sell items off the same prices sold in big retailers because people will not buy it. Remember that customers would always want to save and make a good deal.

In this type of business, we have to get a good picture of quantity over quality.  The main goal is to sell more. We cannot put high margin off the products we are selling because if so, people are not likely to buy from us if the prices are too high.  But of course, there’s always a way to get around things. We just gotta be smart about it. 

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