 In today's video, we're going to be talking about dropshipping profit margins. How do you calculate them? What do you need to take into consideration? And what is the optimum strategy for best profits? Well, all of that will be revealed in this video, so make sure you stick around all the way to the end to find out. What's going on everyone? Mario here with AutoDS. And if you haven't done so already, please make sure you hit that subscribe button and ring that little bell notification so you don't miss out on any future videos. On this channel, we cover anything and everything dropshipping related starting from some of the best products dropship all the way to some of the best tips and tricks to help you get started in the game. So if that's something that interests you, just make sure you hit that subscribe button. Now in order to make things a little bit easier for you and have it broken down just a little bit more than this video in the description below, I am going to have a link to a relevant article that explains everything that I'm talking about as well. So if you want some more information or if you want to just check this out in written format, then just check out the link in the description below. Now just so you all know, so you don't get a bit overwhelmed, there are going to be quite a bit of numbers that are going to be thrown out to you right now. But don't let that overwhelm you because at the end of the day, when broken down, this is all pretty simple information that's pretty easy to understand. My suggestion is if you get stuck with something, just go back maybe 10, 20, 30 seconds and just rewatch that part again. Rewatching some parts of this video will definitely help you out in understanding profit margins overall and how to calculate them. So the first thing that we need to do is we need to figure out our break even point. Now what is a break even point? Well, a break even point is pretty much where we break even with our profits. So if we spend $50 on a product right now, then technically we're negative $50. So we're under 50 bucks. And if we charge exactly $50 for the same product, then that is our break even point. We're going to be even. So we spent $50, but then we made $50 to make up for it. So we're right on point. Now everything that we go over, that's going to be simply our profit. Now there's one simple formula that's going to tell you what exactly your dropshipping profit margin is. And that's going to be this. Dropshipping profit margin equals your income minus your expenses divided by your income multiplied by 100. So let me give you a quick example of how that works with something like Shopify and having a monthly plan. Because this is where things can start to get a little bit complicated. A lot of people don't necessarily understand that they have to include all of their expenses, not just the cost of the product itself. You have to include what you're paying monthly for any subscriptions, like let's say your Shopify subscription, any credit card transaction fees or any marketing fees. All of this stuff needs to be taken into account because if you don't, then you could potentially be undercharging. And when you undercharge, you're one, not going to be making a lot of profits and two, you could potentially even be losing money. And all of us are not here to lose money. Of course, we're all here to make money. So make sure you include all of your expenses, no matter how small. So let's take, for example, Shopify. Let's say we have our own website running on Shopify, selling our products. Now for this monthly, we are going to be paying about $39. Of course, there are different plans. And if you decide to go for the yearly plan, the price per month does go down. But for this example, we're just going to go ahead and use the basic monthly plan, which a lot of the times it's what most people have. So we're going to go with $39. Now, because of the fact that we are running a Shopify store, we also have to think about our marketing. Now, remember that when you have your own website, people aren't going to know that your store is there and it's up to you to bring in traffic and get the name of your store out there. So because of that, you are going to have to take marketing into consideration. Now, when it comes to marketing, there are a few different options, which can vary wildly. So you can start off with pay per click ads or Facebook ads, which typically would cost around $5 to $50 every day. That really depends on what you're going for, what your marketing budget is. A lot of things are going to factor into this. But just as a general takeaway between $5 to $50 a day, aside from that, you can also try something like influencer marketing where you're going to reach out to an influencer on either TikTok, Instagram or YouTube and offer them a product in exchange for a review or a quick shout out or promotion. Now, in this case, of course, the cost is going to be a lot less because ultimately what you have to end up doing is just paying for the product itself and depending on the influencer, you might have to pay the influencer a couple of bucks as well. But again, these things are going to vary now with Shopify, you are going to have transaction fees in the form of credit card fees. Now, these credit card fees are going to be about 2.9% plus 30 cents. And that's also going to depend on the plan that you have. So let's say your customer buys a $50 product, then you're going to be charged by the credit card company $1.45 plus 30 cents. And one of the last fees that you need to take into consideration when you're selling on Shopify is going to be shipping fees. Now, the good thing about shipping is a lot of our suppliers are already going to be including shipping and their prices. And if they're not, then you probably should already be doing that. So what I do is whenever I find a product that costs $20 and it has a $10 shipping fee, to me, it's not $20 plus $10. It's going to be $30 flat out. Really, it just makes it a lot simpler to keep track of prices and expenses. So let's assume that we have a product that costs $100. After adding up all of our different fees, then it comes out to about $150. So these $150 are going to be our total expense. Now, how much are we going to sell it for? Let's say that we sell it for a 25% markup and we sell it for $200. Now, let's assume that we're going to end up selling this for about 200 bucks. So we're just going to do 200 minus 150 and our profit is going to be $50. Now, what is a good profit margin? What should you be aiming for whenever you're pricing your products? Well, that's really going to depend. That's going to depend on what your goals are, how much your expenses to roll out to monthly, but as a general rule of thumb, do not go less than 10%. Anything less than 10% is insufficient and unacceptable. You want to be making at a minimum over 10% profit margin. One thing that you also need to take into account is going to be the final price of your actual items. So if you have an item that sells for $1,000, 10% of that is going to be a lot more than let's say 20% of an item that costs $200. Now, ideally, what you really should be aiming for is anywhere between 15 to 60% profit margin. Now, I know 60% sounds like a lot, but it's totally doable. There's products out there that you can get for fairly cheap. And when they're trending, you can sell them for pretty high. But of course, that doesn't apply to every single product. So don't try to price all of your products at a 60% profit margin because it's just not going to work. This is something that you're going to have to experiment with and sometimes even vary by item. Now, let me give you a quick list of fees, eight of them in particular, that you should always keep in mind. Now, of course, these are going to range depending on the platform that you're selling on. So certain fees that apply for Shopify might not apply for eBay or Etsy and vice versa. So the first few that you always need to keep in mind is going to be your selling channel fee. Now, this for the most part is going to come in the form of subscription fees. And as I mentioned earlier on Shopify, it'll cost you about $39 per month starting whereas on a marketplace like eBay, if you have a personal account, then you can sell for free. Aside from your final value fee whenever an item actually sells. But that's beside the point. Now, on the other side, you can also apply for a business account. But when you have a business account on eBay, then you are going to have to pay a monthly fee, which typically starts at about $25 per month. That's not really necessary, especially if you're just starting off. If you are just starting off with dropshipping, then don't worry about paying for a monthly fee for eBay to get a business account store. You can start off with the free personal account. You'll be just fine. Another fee that you need to be mindful of is going to be your listing fee. If you're selling on a platform like Shopify or Wix or WooCommerce, pretty much your own website, you don't have to worry about listing fees because you're not going to get charged per product that you put up. Now, if you're selling on a platform like let's say Etsy, then you are going to have a listing fee. So what happens here is each time that you upload a product, you're going to get charged $0.20. Next up, we have selling fees. Now, selling fees are going to come in the form of a small percentage per transaction. For the most part though, these are going to be pretty much in any marketplace that you sell on, with the exception of a few. Now related to selling fees, you're also going to have international selling fees, which typically are going to be either a little bit more or they're going to be a separate fee all together. So let's say you're in the US and you make a sale in Europe, you're going to be charged about 1.30% as an international selling fee. Payment provider fees are also another fee that you're always going to have to be mindful for and these are going to come also in the form of small percentages. So every single time that you charge somebody or somebody pays you through a credit card or a debit card, then this is when that fee is going to apply. If somebody pays through let's say PayPal or Western Union or something like that, then this fee won't apply. Next up, we got chargeback fees and chargeback fees suck because a lot of the times a chargeback fee is going to happen whenever a customer complains to their bank and they say, I never received my item, then that's going to cause a chargeback. So on top of getting charged that chargeback fee, you're also going to have to end up refunding your customer for whatever product it is that they didn't receive. Shipping taxes and custom fees are next. Now these can technically all be bundled up together because this is going to depend on the location that you're shipping to or that you're shipping from or wherever it is that you're making the sale. So as I mentioned earlier, shipping fees for the most part, I like to include directly in the listing already. So I already have my shipping fees calculated into the final price of my product. Now taxes are also going to vary depending on where you're selling. So if you sell in the US or if you sell in Europe, taxes are going to vary. And with that being said, duties are also going to vary depending on what country you're shipping to. And last but not least, we have advertisement fees. Now advertisement fees are going to include things for pretty much your marketing. So things like influencer marketing or ads. Now how can you set the optimal pricing for each and every single product that you have to make the most out of it that you can? Well, first off, you need to take into consideration all of the different fees like we mentioned earlier. Now after you have all figured out, then you can start to implement different strategies. One of them being odd even pricing. Now this is pretty much a psychological trick that you can start to use to play with your customers minds. Now not in a crazy weird way, but in a way where you can get them to think about making the purchase right now. Remember, as I always say in almost every one of my videos, we're targeting impulse buyers. We're looking for people that want to make the purchase immediately. Now odd pricing is pretty much for those consumers that are looking to make a purchase at a budget friendly price. So they're looking for things that sometimes are out of discount. Now in order to target these customers, instead of pricing something for $10, we can price it simply for just $9.95. Honestly, what's five cents going to do to us, right? If we lose five cents, nothing's really going to happen. So remember, more than anything, this pricing method is going to be aimed towards budget conscious consumers. Now if you decide to price something at an even price, let's say $4, $40, $400, $400 and $44. Typically, this is used to show the completeness of a product. Typically, this pricing method is going to be used by luxury dropshippers. So people that sell more high-end products. I mean, seriously, when was the last time you saw a Gucci shirt on sale? Pretty much never. I mean, think about it. You're going to step into a high-end store, let's say, again, Gucci or any jewelry store. For the most part, you're not going to be finding products that are going to be priced at $9.95 or $999 with $0.95. It's going to be $1,000. Another strategy that you can use is take the price that you're actually going to sell it at. So let's say you decide to sell your product at $160 and mark it up to about $240, but say that it's on sale. So always be running a sale on this particular product and make sure that you can clearly see that the original price is the marked up $240 price. And right now you have it on sale. And another option that you have is simply going to be using automation. Now, if you're currently signed up to AutoDS, then this will be a breeze for you. And if you're not, then you can sign up right now for the trial period for just $1. Now, check this out. So for this, all you simply have to do is click on the product that you have in your store. So in this case, I have this hooded sweater blanket. And let's just go ahead and edit it. So here we have the different tabs. We have the product description, variants, images and item specifications. All we need to do here is simply go to variants. So on the variants tab, here is where you can change all of the pricing for all of your different variations for a particular product. Now you can either bulk edit, so you can go ahead and click on all of them and then click on the edit button over here. And then you can set your prices either based on a free percentage or profit dollar amount, a profit percentage or a sell price. So here you just set everything at $55 and all of your different variations will be priced at $55. Here it's going to be based on your chosen percentage and here it's going to be based on your chosen dollar amount. Now, another option that you have that is a bit more specific is going into each individual variation. So what I mean by that is simply click on the edit button over here. And now you can see a little bit more information. So as we can see, we have our fees set to about 50%, which gives us a profit percentage of about $43.76 for a total selling price of $50. Now what we can do here is let's say we want to target our budget-friendly consumers. We can set this simply to $49.95. Or to make things a little bit easier, we can just simply click on the round sense and switch it over here to, let's say, $0.95. And remember how I talked about making sure everything is on sale? In order to do that, we can do that simply from this same page. We can simply just click on compare price and we can do a percentage or we can do a dollar amount. I like to do a dollar amount because it keeps everything a bit more even. So we can do compare at price 65. And that's how you can calculate your dropshipping profit margin, along with setting adequate and optimal prices. Now, I know some of this stuff could have been a little bit confusing, but my suggestion to you again is just go back to the beginning, rewatch the whole thing, or if you don't have time to rewatch the entire thing, then just watch the bits and pieces that you need a bit more information on. Watching it a couple of different times will help you understand things a little bit better. Huge thank you to everyone for watching, especially if you made it this far, especially if you made it all the way to the end. As always, it truly means a lot that you watched the entire video. And if you want more information on your profit margins, then just check out the description down below. There's going to be a link to a relevant article there. Huge thank you once again to everyone for watching. My name is Mario with Out of the S and I'll catch you all next time.