This is the second of a six-part series on the elements of a successful drop shipping operation. The intent of the series is to provide a framework, key considerations, and best practices for merchants who are looking to expand their offerings to include drop shipped items.
The series is broken up into the following chapters:
Part 2: Pricing
Now that you’ve identified which items to add to your selection, the critical next question is, “What is the best price for each item?” As much as we’d love to see everything sell at MSRP, it’s just not reasonable to think MSRP will result in any meaningful amount of sales.
So, where do you start? Pricing items is both science and art. Let’s start with the science (or facts, as it were).
Mind The Gap
The first place to start is documenting the facts -- guardrails and benchmarks such as
Somewhere in between these numbers is your “cost plus” pricing opportunity -- your wholesale cost plus all the other costs that build up to what you’d prefer to sell the item.
By “pricing benchmarks,” we mean the price items are selling elsewhere such as on Amazon or eBay. As we stated in our previous article, tools such as Terapeak make it easy to see what items are selling for on both marketplaces -- and give you a great input to the what you should expect the selling price to be.
With this information in hand, you can take your first stab at setting a price and understanding the gap between what you can sell an item for profitably and what it’s being sold at elsewhere.
Looking Over the Fence
Now for the art of pricing: prices can change (for better or for worse) over time. And by "over time" we mean in any given second. Thus is the power and scale of global e-commerce.
That means that for any given SKU, you could be marking up or down the price based on all sorts of dynamics such as supply, demand, channel velocity, ect -- a problem supremely suited to a technology solution. Companies such as PriceSpectre and Wiser provide real-time re-pricing services that monitor all the market dynamics that ensure you can get the sale at the best price possible, whether at a slightly lower price or a higher price than you thought.
You just provide the floor price and the rules, and they take care of the rest.
Beating MAP
Whereas there are creative ways merchants have maneuvered around MAP restrictions, we firmly believe that honoring MAP policies is a win for everybody: manufacturers, retailers, and customers.
The idea being that by maintaining MAP, both manufacturers and retailers get a slice of the pie (good for retailer and manufacturer) -- and there’s enough left over to drive continued product innovation (good for the retailer as they’ll have more to sell, good for the buyer as they get more products to buy).
That being said, it can seem hard to win a sale when you are constrained by MAP. However, we have found that retailers can employ several legitimate tactics that ultimately win the sale and still respect MAP policies. This includes:
This last option has the benefit of helping to subsidize the costs of the previous options.
The series is broken up into the following chapters:
- Part 1: Products -- What Can I Sell, What Should I Sell?
- Part 2: Pricing -- What's the Best Pricing to Sell?
- Part 3: Placement -- Where Should I Be Selling?
- Part 4: Promotion -- What are the Best Ways to Increase Awareness? Entice Purchase?
- Part 5: Policies -- What are the Business Policy Best Practices I Should Employ?
- Part 6: Procedures -- How Can I Operate at Scale?
Part 2: Pricing
Now that you’ve identified which items to add to your selection, the critical next question is, “What is the best price for each item?” As much as we’d love to see everything sell at MSRP, it’s just not reasonable to think MSRP will result in any meaningful amount of sales.
So, where do you start? Pricing items is both science and art. Let’s start with the science (or facts, as it were).
Mind The Gap
The first place to start is documenting the facts -- guardrails and benchmarks such as
- Wholesale cost
- Shipping costs
- Drop shipping fees
- Marketing fees & commissions (e.g. eBay Final Value Fees)
- Payment processing fees (e.g. PayPal or Visa)
- MAP
- Pricing benchmarks
- MSRP
Somewhere in between these numbers is your “cost plus” pricing opportunity -- your wholesale cost plus all the other costs that build up to what you’d prefer to sell the item.
By “pricing benchmarks,” we mean the price items are selling elsewhere such as on Amazon or eBay. As we stated in our previous article, tools such as Terapeak make it easy to see what items are selling for on both marketplaces -- and give you a great input to the what you should expect the selling price to be.
With this information in hand, you can take your first stab at setting a price and understanding the gap between what you can sell an item for profitably and what it’s being sold at elsewhere.
Looking Over the Fence
Now for the art of pricing: prices can change (for better or for worse) over time. And by "over time" we mean in any given second. Thus is the power and scale of global e-commerce.
That means that for any given SKU, you could be marking up or down the price based on all sorts of dynamics such as supply, demand, channel velocity, ect -- a problem supremely suited to a technology solution. Companies such as PriceSpectre and Wiser provide real-time re-pricing services that monitor all the market dynamics that ensure you can get the sale at the best price possible, whether at a slightly lower price or a higher price than you thought.
You just provide the floor price and the rules, and they take care of the rest.
Beating MAP
Whereas there are creative ways merchants have maneuvered around MAP restrictions, we firmly believe that honoring MAP policies is a win for everybody: manufacturers, retailers, and customers.
The idea being that by maintaining MAP, both manufacturers and retailers get a slice of the pie (good for retailer and manufacturer) -- and there’s enough left over to drive continued product innovation (good for the retailer as they’ll have more to sell, good for the buyer as they get more products to buy).
That being said, it can seem hard to win a sale when you are constrained by MAP. However, we have found that retailers can employ several legitimate tactics that ultimately win the sale and still respect MAP policies. This includes:
- Offering bundles, aggressively discounting value-add items without MAP restrictions to the core MAP-bound SKU.
- Using coupons to provide general discounts at the time of checkout.
- Selling refurbished and out-of-box items, which offer the same product at great savings
- Include upgraded free shipping, such as 2-day delivery
- Negotiate more aggressive wholesale costs based on volume discounts or temporary incentives to route orders to a competitive supplier.
This last option has the benefit of helping to subsidize the costs of the previous options.
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