When you’re drop shipping, you need to add a price markup on the wholesale products you’re selling in order to make a profit.
But how much should the price markup be?
If you’re running a free plus shipping offer you have less flexibility.
You should aim to sell items that have a wholesale price of less than $4 on AliExpress, and sell them for any shipping and handling fee of $5-$12. That means your product markup is going to be around two, three or four times the original price of the wholesale product.
It makes no sense to charge $20 or $30 for shipping.
In that sense, your product markup options for free plus shipping offers are rather limited. However, the benefit of free plus shipping is that your conversion rate will be higher and your ad costs lower.
For discount plus free shipping offers you have a lot more room to play with the price markup. You could sell an item that costs $4 on AliExpress for $30 or even $40 if the perceived value is there.
That means the price markup is X10 of the original price.
The downside is that you’ll have lower conversion rates and higher advertising costs for more expensive items. More price markup doesn’t automatically mean you’re going to make more profit.
Look at these two scenarios:
Let’s say you run a free plus shipping offer with a wholesale price of $2, you charge $10 for shipping and handling and it costs you $3 on average to acquire a new customer. So your profit is about $5.
Let’s say you sell a discount plus free shipping offer with a wholesale price of $5 and you charge $35 for the item. But because of the higher price conversion rates are lower and it may cost you $25 per purchase. So now you’re still only making $5 profit per sale.
More price markup doesn’t equal more profit.
You have to look at the big picture and do the math correctly. Take all expenses and conversion rates and costs in account and then assess if free plus shipping or discount plus free shipping is more profitable.
When you run a drop shipping business you need to know the math.
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