Do you know one of the HUGE MISTAKES most eCommerce beginners make? Not calculating their dropshipping profit margin.
As a dropshipping business expert, I want to ensure you SECURE your profits. This article lists everything about dropshipping profit margin. From its formula to the best tips to increase it. Never put your sales IN THE NEGATIVES ever again!
Keep scrolling to boost your profits!
What is Dropshipping Profit Margin?
Simply speaking, it’s HOW MUCH you make after each sale.
Calculating it is a WALK IN THE PARK. Simply DEDUCT all the dropshipping costs associated with your product from the revenue. These include product price, shipping fees, and other costs related to that sale.
But why is understanding your profit margin so important?
It TELLS YOU if you’re still making money. Or whether your business is still WORTH IT.
The best part? It helps you make smart decisions and CREATE a BETTER pricing strategy for your products.
What is a Good Profit Margin on Dropshipping?
20% – 30% of your total selling price. That’s considered a VERY HEALTHY profit margin for businesses.
Meaning for every product that I sell for $100, I should get a $20 – 30$ profit.
But here’s the kicker – these are just rough estimates.
Sometimes, the average profit margin of dropshippers only stays between 15% – 20%. Not exactly the best, I know. But this may still be a good profit margin for other store owners.
But if you wanna earn MORE MONEY, you should always opt for high-profit margins. Low-profit margin means less money.
How to Calculate Profit Margins for Your Dropshipping Store?
Calculating dropshipping profit margins is EASY. I always do this pricing strategy to ENSURE I only sell profitable products.
Wanna know the SECRETS to profit margin calculation?
Follow the steps below. They’re my online business’ proven steps to calculate dropshipping profit margins.
Step 1: Calculate your product’s net revenue
Simply speaking, this refers to your product’s price. A $100 toy has a $100 revenue. This step is a no-brainer. So, once you know your product’s price…
Step 2: Deduct the expenses from the revenue
By expenses, I mean everything.
Starting from the wholesale price of your product and its ad spend. Until its dropshipping fees. Calculate ALL your other expenses to know how MUCH you invested in that product.
Suppose I got a stuffed toy with an average order value of $100.
And it cost me $50 to pay for this product’s significant expense. That includes the:
- marketing efforts (Google Trends)
- shipping costs
- wholesale prices
- Unnecessary expenses
- Account setup fees
In this example, my expenses are $50.
Step 3: Calculate the profit margin
First, determine the NET INCOME. It’s as easy as subtracting the EXPENSES you got in step 2 from the value you got in step 1. After that, divide your net income by the revenue (value in step 1). Then, multiply the answer by 100.
For my stuff toy example, the profit margin formula is…
$50 divided by $100, multiplied by 100. So, my dropshipping products’ profit margin is 50%. It earns a spot in the SPAN of GOOD profit margins.
How to Increase Your Profit Margins?
Looking for some ways to increase your profit margins but have no idea how? Let me walk you through the path that I take.
Check out some of my GO-TO tips below. And skyrocket your profit in less than a week!
1. Negotiate with your supplier.
Don’t HESITATE to put your negotiation hat in front of your supplier. Based on experience. This is effective if you want a HIGH-PROFIT margin for your dropshipping store.
Ask your supplier for better terms and deals on your products. Who knows, they might drop their manufacturing prices for you. Especially if you bring value to their business.
Working with MULTIPLE suppliers is also worth considering. Allowing you to compare which one offers the BEST DEAL. You strike gold and bring major cash.
2. Reduce your shipping cost.
Shipping costs are significant expenses for a dropshipping business. But REDUCING it increases your net profit margins.
How? Well, It’s very easy.
Choose a CHEAPER shipping method than what you’re used to. However, cheaper shipping cost means slower delivery times. You also negotiate rates with your logistic service provider. They might offer you better rates.
The last option I recommend is to OFFER FREE SHIPPING. Customers love to buy from stores that offer this kind of promo. You attract more customers and expect MORE PROFIT.
3. Mark up your sales price.
LAST BUT THE EASIEST METHOD!
Increase the prices of your goods! Some may say this strategy SCARES away customers. But NO! Just shift your target market to THOSE who prefer luxurious products. Money is not an issue for some people. Don’t be afraid to STAY AWAY from using the same price.
You EARN HIGHER per item sold this way!
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FAQs about Dropshipping Profit Margin
How profitable is dropshipping?
Dropshipping stores are a HIGHLY profitable venture. It’s one of the fastest ways to have a successful online store. Less capital. No inventory costs. Just ensure YOU buy from a reputable dropshipping supplier. Money comes flooding in!
How much profit can you make from dropshipping?
It depends on MANY factors, including pricing strategies, market demand, and product quality. Some dropshipping businesses make millions monthly on their eCommerce store. Others only have LOW-PROFIT MARGINS with zero new customers. Causing them to have little to no profits. Dropshipping products is profitable, but YOU must put in the effort.
Is it easy to get rich off dropshipping?
Dropshipping can be profitable, but it’s NOT a get-rich-quick scheme. Just like other business models, it requires time and the right product offerings. Some drop shippers manage to get rich, while others don’t. So, it’s important to be dedicated and constantly improve your business.
Is a 6% profit margin good?
A 6% profit margin is part of the lower profit margin. Your average margin should be 10% or higher to be considered good. Improve your PRICING MODEL and sourcing strategy to secure more profits.
Profit margins are ESSENTIAL to securing your business’ success. The higher your profits, the MORE you earn. It’s easier to keep your eCommerce website going.
Need a sourcing agent that HELPS you maximize your profits?
Contact Leelinesourcing. We help increase your average dropshipping profit margin. Buy from the cheapest suppliers.
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