HOW TO PRICE THE PRODUCTS ON YOUR STORE…MY SIMPLE FORMULA – Shopify Drop Shipping Tutorial
In this post, I’m going to talk about how to price your products for your e-commerce store. Continue reading or watch my video if you want to learn more.
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How To Price The Products On Your Store…My Simple Formula
Let’s say you’re drop shipping a product in Aliexpress and you don’t know exactly how much you should price your product on your Shopify store. That is a really common question so I’m going to explain step-by-step how I go about pricing my products. You are going to notice that I’m just following a really simple strategy. It is simple but you have to understand the numbers behind the strategy.
Selling price should be 3 to 5 times your total cost.
The first thing you have to keep in mind is that you should aim for 3 to 5 times the total cost you pay in Aliexpress. When talking about the total cost in Aliexpress, you have to consider these three things: COGS (Cost of Goods Sold), shipping, and processing fee.
Let’s say you want to sell a product and the price in Aliexpress is $8. Before shipping, your COGS is $8. Then, you need a good shipping option with a tracking number that ships fast. So you will have to pay for shipping also. Let’s say shipping costs $1 to $1.50 for ePacket. Then, you also need to pay the processing fee. It is just a small amount. It depends on who you’re sealing with – Stripe, PayPal, etc.. It is about 3% to 4%.
Let’s say the total amount when you add the COGS, shipping fee and processing fee is $10. Remember, you have to aim for 3 to 5 times the total cost. So, you should sell your product at least $30 and at most $50. If you will sell it lower than $30, it will be really hard for you to make money. In some cases, you might actually lose money. You will still make money from selling but it is not going to be a lot. Also, instead of earning, you’re losing money every time you sell the product.
Total cost should not be more than 30% of your selling price.
Another thing you have to remember is that your total cost (COGS + shipping + processing fee) should not be more than 30% of your selling price. That’s the framework that you should have. If your total cost is more than 30%, you’re really going to have a hard time making money and you might also lose some money.
If the total cost is about 30% of your selling price, it means that you are left with 70% to use for the ad cost before you break even. Let’s assume, though it doesn’t and shouldn’t happen, that 70% of your selling price is the cost of your Facebook ads, then you’re just breaking even. You’re not losing money, but you’re also not making any money. If you’re doing your Facebook ads correctly, then that’s not going to happen. On average, the ad cost is about 40% of the selling price. So this means, you’re going to be left with 30% gross profit.
Total cost (COGS + shipping + processing fee) = 30%
100% – 30% = 70% (for ad cost and profit)
Ad cost = 40% of the selling price
Profit = 70% – 40% = 30% of the selling price
Total cost = $10
Selling price (this should be 3 times the total cost) = $30
**In this example, your total cost is 30% of your selling price.
Selling price – total cost ($30 – $10) = $20
Ad cost ($30 x 40%) = $12
GROSS PROFIT ($20 – $12) = $8
So I said the gross profit is 30% of your selling price ($30 x 30%), so that should be $9. There is a $1 difference from our example. That’s normal because I just rounded off the percentage. The selling prices should actually be 33.33333% of the total cost, but I just rounded it off to 30%. As you can see, you make a good profit only by pricing 3 times your total cost.
Example #2. Let’s say that instead of selling the product for 3 times the total cost, you’re going to sell it for 2 times the total cost.
Total cost = $10
Selling price (2 times) = $20
**In this example, your total cost is 50% of you’re selling price.
Selling price – total cost ($20 – $10) = $10
Ad cost ($20 x 40%) = $8
GROSS PROFIT ($10 – $8) = $2
Having a profit if $2 is way too low. If you have a backend offer, you might be able to make it work. But usually, when you want to do the sales funnel kind-of stuff, you want to start with a free item + shipping offer. A lot of people will click your ad, then you can sell them stuff on the backend. But that’s not what you’re doing with example #2.
Here, you’re selling a retail offer product but you’re just not selling it high enough. That is not a really good strategy to make money. With our 2nd example, $2 profit is way too low. Then you have to pay for other charges like fulfillment, your virtual assistant, etc. Some people will ask for a refund and you have to calculate your time on it. That’s just not profitable enough.
Again, your product price should be 3 to 5 times the total cost in Aliexpress in order for you to make a good amount of profit.
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In the program, you get to see me create an E-commerce business from scratch. The program consists of over 45+ “over the shoulder” videos where you get to watch me do everything.
You will learn EVERYTHING you need to know to be successful with e-commerce/dropshipping in this program. I leave nothing out and I am 100% transparent! I share with you exactly what I do with my stores, and even how to scale this business by automating and outsourcing the whole process by hiring virtual assistants! You will learn how to pick a good niche, good products,how to do Facebook ads, Instagram ads, advanced promotions strategies and much much more. This is the exact system I used on all of my stores.
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Please leave a comment below or let me know any questions you have. I’d love to hear what you think!