How to Price Winning Products for Maximum Profit

How well you succeed as a dropshipper largely depends on the product pricing strategies you use. While the right pricing strategy is your ticket to a successful dropshipping business, the wrong one can sink your business fast.

The problem, however, is that developing the best pricing strategy is not a walk in the park – there are many variables you need to take into consideration. Although not easy, it’s not rocket science either.

In this post, we will walk you through the process of pricing your products correctly to maximize profits without chasing price-sensitive customers away with ridiculous prices. So be sure to read to the end because it promises to be interesting.

What is a Pricing Strategy?

Although it’s safe you have a good idea of what a pricing strategy is, we thought it necessary to briefly touch on it before going any further.

A pricing strategy is a method you use to determine the optimal price for your products. It involves setting a price point that aligns with business goals, market conditions, customer perceptions, and competitive forces. Your pricing strategy can affect your profitability, brand positioning, and customer loyalty, so it’s crucial to choose one that suits your overall business objectives.

Why is The Right Pricing Strategy Important?

An effective pricing strategy is key to succeeding as a dropshipping store. By succeeding, we mean making good profits while maintaining a steady, or even increasing, inflow of sales. That being said, the other reasons why have the right pricing model are as follows:

1. Determines Profitability

At its core, a pricing strategy directly impacts your profitability. Setting a price that covers your costs and generates a sufficient profit margin is essential for building a successful dropshipping business. If your prices are too low, you risk operating at a loss. If your prices are too high, you could lose customers to more affordable competitors.

2. Reflects Brand Positioning

Prospective customers can easily decode your brand positioning by merely checking your products’ prices. If they are ridiculously low, they will likely interpret your store as selling low-quality, cheap stuff. Premium pricing, on the other hand, signals high quality, exclusivity, and luxury. Customers expect top-tier products and services at a higher price point.

3. Influences Customers’ Behavior

How you price your products can influence how customers react to your product offerings. For example, utilizing bundle pricing encourages customers to buy more by offering discounts for buying multiple items. On the other hand, leveraging psychological buying (selling products for $9.99 instead of $10) can push customers into an impulsive buying spin, which connotes more sales for your store.

4. Gives You a Competitive Edge

A competitive pricing strategy can help you stay ahead of the market curve. Offering customers competitive prices or irresistible promotional offers not only helps you stay one step ahead of your competitors but also provides your business with the thrust it needs to grow quickly.

5. Boosts Customer Retention and Loyalty

A consistent and transparent pricing strategy helps build trust with your customers. If customers feel they are getting good value for their money, they are more likely to return and become loyal to your brand. You just have to ensure that your customers are getting the biggest bang for their buck, and they will happily entrust you with their loyalty.

6. Helps Your Business Expand

Adopting a penetration pricing strategy, for instance, allows you to enter new markets without much hassles. Alternatively, utilizing the price skimming strategy (starting with a high price) can allow you to maximize profits from early adopters before reducing the price for the mass market.

7. Allows You to Stay Agile and Adaptable

The dropshipping market keeps evolving every day, so much so that keeping up with changing trends can be challenging. As such you have to stay agile and adaptable, and one of the ways you can do that is having the right pricing method.

To stay agile in business, your pricing strategy must be based on current and anticipated economic trends, market conditions, and competitor behavior.

Key Factors That Influence Your Pricing Strategy

A lot of critical factors play key roles in determining your pricing strategy. Understanding these factors enables you to develop a competitive pricing strategy that helps your dropshipping business stay profitable. The factors are as follows:

1. Cost of Goods Sold (COGS)

At the heart of every pricing method is the unit cost of the products you are selling. In accounting, this is referred to as the cost of goods sold – or COGS for short. This includes all expenses associated with getting the product to the customer, such as:

• Product cost: The unit price you paid to a supplier/manufacturer for each product
• Shipping and Handling Fees: Costs for logistics, including international shipping if applicable.
• Packaging Materials: Expenses for branded or protective packaging.
• Payment Processing or Platform Fees: Fees charged by platforms like PayPal, Shopify, or Stripe.
• Advertising Cost: You also need to factor how much you spend on ads while trying to reach your target customers into your product prices.

Knowing the unit costs of your products ensures you calculate your profit margins accurately. Plus, it makes it easy to find customers willing to pay premium prices, provided you offer high-quality products.

For example, let’s say you sourced a product from a supplier on Aliexpress at a unit cost of $15. Packaging, advertising, and handling fees come out at a unit cost of $5. COGS would be $20. A 25% markup will put your product price at $25.

2. Market Demand

Understanding what customers are willing to pay is essential for setting a competitive price. Market demand determines whether you can set premium prices or need to lower them to attract buyers. Here are ways to analyze demand:

• Keyword Research: Use tools like Google Trends or SEMrush to identify how many people are searching for your product.
• Competitor Research: Analyze products similar to yours on platforms like Amazon, Etsy, or eBay.
• Trending Products: Checking for trending, in-demand products can also help better understand market demand.
• Seasonality: Consider seasonal trends. Products like swimwear have higher demand during summer, while holiday decor peaks in December.
• Customer Surveys and Feedback: Directly ask your audience what they would pay for your product.

3. Competitor Pricing

It is also important to have a good idea of your competitors’ pricing strategy. The truth is that if your product prices are way above average market prices, you might end up chasing away potential customers. Conversely, lowballing your products will likely attract penny pinchers, and this set of customers is difficult to please.

For this technique to work, you need to find at least 10 stores in your niche, check how they price their products, and see if they are using any discount pricing strategy. You can also take a step further by checking what customers are saying about their prices in the product review section. With this insight, you can figure out how to price your products correctly.

4. Overhead Costs

A lot goes into running a dropshipping business. You’d have to pay for labor, office space (though it depends on your setup), software fees, internet, etc. Collectively, they constitute what is referred to as overhead costs, which means the cost of doing business.

At first, these costs might look insignificant. But when you do the maths, you’ll realize there’s nothing insignificant about them. Failing to account for these seemingly irrelevant costs when developing your pricing strategy can lead to incredible losses.

5. Perceived Value

Although subtle, how customers perceive the value of your products can also influence their prices. Perceived value refers to how much customers believe your product is worth, which often goes beyond its actual cost.

Take for instance luxury wristwatches. Customers, more often than not, are willing to pay premium prices for them even though the actual unit cost of the product is anything but premium. Why so? You know the answer, don’t you?

The question then is, how can you increase the perceived value of your products? Here are some tested and trusted techniques:

• Branding: A strong brand identity with professional visuals and storytelling builds trust and justifies higher prices. By all means, use branded packaging material for order fulfillment
• Packaging: High-quality or eco-friendly packaging can make your product feel premium.
• Unique Selling Proposition (USP): Highlight what makes your product unique, such as superior materials, exclusive features, or exceptional customer service.
• Customer Outcomes: Focus on the benefits or solutions your product provides, not just its features.

6. Economic Realities

It’s also important to consider current economic realities when trying to figure out how to price your products correctly. The reason is that during periods of abundance, consumers have substantial disposable income, and so more willing to purchase your product or service. However, it’s an entirely different story during economic downturns.

In the light of the above, keep a constant tab on economic trends and adjust your pricing strategy to fit well into it.

Common Pricing Strategies to Consider

Now that you know what a pricing strategy is all about and why it’s necessary, let’s quickly run through the different pricing strategies you should consider trying.

1. Cost-Based Pricing

Also known as cost-plus pricing or markup pricing, the cost-based pricing strategy is a straightforward pricing technique and also the easiest. In this model, the selling price of a product is calculated by simply adding the gross cost to the profit margin markup.

Mathematically speaking:

Selling Price = Unit gross cost + Profit Margin.

By unit gross cost, we mean every single cost that goes into putting the product at the doorstep of a customer. This includes labor, shipping, and packing costs, processing, platform and product sourcing fees.

Let’s say you dropship comfy footwear and calculate the unit gross cost of each product as $50. At a profit margin of 20%, the selling price will come out at $60.

Bear in mind that your profit margin mustn’t always be in percentage; you can opt for a fixed dollar markup. This involves adding a fixed amount to a product as profit.

For example, using the comfy footwear product, you can choose to add a fixed $20 markup on your product, bringing the selling price to $70.

2. Value-Based Pricing

Value-based pricing focuses on the perceived value of your product or service rather than its production cost. When implemented correctly, you can charge customers premium prices for your products, even though you sourced them at dirt cheap prices. However, customers must perceive a high value in your products for this to work.

For example, have a look at this wristwatch Sell The Trend’s product research tool picked up:

Even though it has a unit cost of $68, stores are selling it for over $168, which translates to $100 in profits. Although there’s nothing particularly fantastic about the watch, customers are will to pay premium prices for it because of the high value they perceive.

Contrary to popular belief, value-based pricing can work for any product, not just high-end luxury products like wristwatches, jewelry, etc. You just need to

For value-based pricing to work, you need to:

• Put a solid effort into branding your store and products.
• Use high-quality product images to caption buyers’ attention quickly
• Show markdowns. For example: Buy now for $280 $125
• Play on customers’ fear of missing out on a good deal. For instance, you could say “Just 2 left. Prices are going up next week”

The major advantage of value-based pricing strategy is that it gives you a chance to maximize your profits simply by aligning with consumers’ perception. However, it isn’t that easy to implement. Worse, you could end up scaring customers away.

Pricing strategy examples include selling jewelry products, high-end apparel goods, etc.

3. Penetration Pricing

Penetration pricing involves setting an initially low price to attract customers and gain market share quickly. Once you establish your position in the market, you gradually increase the price.

How It Works:

• Launch with a price lower than competitors.
• Increase the price as your product gains traction and demand grows.

For example, when launching your sportswear dropshipping store, you can price your products at $20, which is far below the average market price of $35. At first, you will incur losses, but sales will be good. Then as you start to gain ground in the market, you gradually increase prices until you start to turn a profit.

Penetration pricing is effective for capturing consumer demand quickly. On the flip side, it can erode profit and even sink your business into debt if not implemented properly.

4. Skimming Pricing

Skimming pricing is the opposite of penetration pricing. You start with a high price to target early adopters willing to pay a premium, then gradually lower the price over time to attract a wider audience.

This pricing strategy can work remarkably well on trending products that are high in demand.

5. Economy Pricing

The Economy pricing structure is similar to penetration pricing in that it involves using low prices to attract price-sensitive customers. However, unlike penetration pricing, prices are kept low for the longest possible time even when you’ve gained substantial market dominance.

Economy pricing works best for high-demand, low-cost and generic products.

6. Premium Pricing Strategy

Premium pricing is exactly what the name suggests: charging customers premium prices for your products. We know what you are thinking – this looks a lot like value-based pricing. Well, not exactly.

For value-based pricing, you charge customers based on the perception they have about your products, regardless of the actual value they deliver. But for premium pricing, you charge based on the actual value the products deliver.

Take for example ergonomic chairs: they help us stay comfortable and avoid backpains when working. As such, it’s safe to say that they deliver high value to users, regardless of their perception. Products like this command premium prices.

7. Competitive Pricing Model

Competition-based pricing involves setting prices based on what competitors are charging for similar products. This strategy ensures that your pricing remains attractive and relevant in the marketplace.

To apply this pricing method, first, you need to study market competition to figure out the baseline prices. Next, you decide if you want to go below, above or stay on the same line. Whichever direction you go depends on your ability to brand your business.

For example, if you are looking to get into the office supply niche and notice that competitors are selling a desk chair for $100, you could price yours at $95 to appeal to price-sensitive customers or $120 if it offers premium features.

8. Dynamic Pricing

Keeping product prices fixed at all times doesn’t always work, especially considering the fact several market forces play a role in determining product prices. These forces include inflation, changing market trends, seasons, government policies, and many more.

To stay agile and profitable in business and reach your target market, you need to adopt a dynamic pricing strategy.

For example, if you dropship jackets, you might have to discount your products heavily during summer to maintain a sizable sales volume. Conversely, you can increase prices during winter when demand for protective clothing is at its peak.

Besides the 8 pricing strategies we’ve reviewed here, you can also try your hands on freemium pricing and subscription pricing models.

How to Determine The Right Prices for Your Products

What’s the point of knowing all the pricing strategies but yet can’t figure out how to determine the right prices for your products to make maximum profits without scaring prospects away? Here are tactics to help you find the right balance between profitability and customer retention.

1. Know Your Costs, Avoid Guessworks

You must know the exact costs of the products you are dropshipping to be able to set their prices correctly. There should be no room for assumptions or guesswork.

You need to accurately know the cost of goods sold, shipping costs and customs duties, packaging costs, processing fees, and every other single cost that goes into delivering products to customers, no matter how minute they might look.

2. Know The Product You Are Selling

Next to knowing your product cost is understanding the product you are selling. Certain products are well suited for certain pricing strategies.

For instance, no matter how hard you try to brand your store, you will find it hard to attract value-seeking customers if you sell products like a computer mouse. In other words, the value-based pricing technique won’t work in this niche because the product doesn’t suit it.

3. Study Your Target Customers

Not every pricing strategy works for every dropshipping niche. Often, what works depends on who you are targeting. For instance, if you are targeting budget-conscious consumers, you are better off using the competitive or penetration pricing strategy.

On the other hand, if you have your eyes on value-seeking customers, you need to dropship products they are open to buying and also connect with them through the right channel.

4. Study Your Competitors

You don’t necessarily need to reinvent the wheels when figuring out the right pricing for your products. Sometimes, all you have to do is study your competitors to see their prices and then take a cue to set yours. It’s that simple!

How to Find Winning, Profitable Products to Dropship

The hardest part of dropshipping isn’t really determining product prices but actually figuring out the products to dropship for a decent profit. This is where dropshipping apps like Sell The Trend come in handy!

Sell The Trend makes it easy to find in-demand, profitable products quickly, thanks to its AI-powered product research tool.

In addition, it has a Store Intelligence feature that lets you spy on other stores to get a good idea of their pricing and marketing strategy.

Besides allowing you to find profitable products and spy on competitors, Sell The Trend is also excellent for finding winning ads you can use as inspiration for your ad campaigns.

There’s just so much you can do with Sell The Trend. Why not start a free trial to see things for yourself?

FAQ

What are the four types of pricing strategies?

While there are several types of pricing strategies, the four main ones are:

• Cost-plus pricing (requires adding a fixed percentage or amount as markup to a product)
• Skimming pricing strategy
• Penetration pricing
• Value-based pricing

The strategy you use depends on your target customers, economic trends, the profit margin you desire, etc.

What are the five product pricing strategies?

Product pricing strategies are many. If you ask us to list the top 5, we’d say value-based, premium, and penetration pricing strategy.

What is the product pricing strategy?

Put simply, product pricing strategy is the method you use to determine the optimal price to sell your products to make profits while at the same time keeping your customers happy. When calculating your product prices, you need to take into consideration factors like cost of goods sold (COGS), production costs, market demand, competitor pricing, and perceived value.

Conclusion

Pricing winning products for maximum profit is both a science and an art. By understanding your costs, evaluating competitors, and using strategic pricing models, you can ensure your products are not only profitable but also attractive to customers.