20%, 50%, 100% or more? How much should you mark up your wholesale prices when drop shipping?
That's the question I'm going to answer in this video so you don't just do a bunch of sales and have a lot of top line revenue, but so that you're actually left with a real profit at the end of the day.
Hello everybody, Anton Kraly here, and welcome back to the eCommerce Lifestyle Podcast. If you have been around for awhile, you are probably aware that in my eCommerce businesses, we always aim to maintain at least a 30% net profit margin. Meaning if we sell a product for $1,000, that's what our customer pays us. We want to be able to keep at least $300 after all expenses. So does this mean if a supplier sends us a price list and says, "Here's your wholesale prices." We simply mark prices up by 30%? No, absolutely not.
We need to factor in all of our other expenses. So we have cost of goods sold. That's the product cost, the wholesale cost. We have shipping, because we offer free shipping to our customers, meaning we pay for that. We need to factor in our merchant fees to pay the credit card processors. We need to factor in our ad costs. So with all that being known, how much do we actually mark up our wholesale costs?
I'm going to tell you that in just a minute, but first it's important to note that we almost always sell at MAP. MAP stands for minimum advertised price, and this should have our markups already built into it. And these markups should always be at least 100%. So if your wholesale cost to your supplier for a product was $500, then MAP, minimum advertised price, the price you would sell it to your customers for, should be at least $1,000.
But then the question is, "Well, what if it's not?" Let's just say a supplier sent you their price list, and the wholesale cost was $700, and MAP, minimum advertised price, was $1,000. There's not much room there for you to make a profit after you pay all your expenses. So then the question becomes, "Can I just list these products for more than MAP? Can I sell them to my customers for more money than minimum advertised price?" The short answer is you can, but it's most likely going to make things a lot more difficult.
Let's just take a product for example that everybody knows and use, an iPhone. Now specifically, let's use the newer iPhone 12 Pro Max. This phone with the base level of storage, 128 gigabytes, that phone sells for $1099 on apple.com, on target.com, on amazon.com, and on bestbuy.com. $1099. that is the map price. That's what everybody's selling at, minimum advertised price. Now I have no idea what the markup is, but let's just say tomorrow Apple got really greedy and they said, "Guess what, retailers? Your wholesale cost is now $1,000." That would leave them with a $99 profit on $1,099 sale. And let's just say, Amazon said, "You know what? That is unacceptable. We are going to raise the price on our website to $2,000 because we want a 100% markup." Now they could do that, but are people going to spend $2,000 for a phone that's $1099 everywhere else? No, of course not.
So, yes, you can sell for more than MAP, but it's almost never worth it. Unless, there is a caveat here, unless you sell for a supplier with little to no brand recognition, meaning that for this brand you sell for, almost no one is searching for their products anyway, and that's an area what I have done, and what I'd recommend at least considering is creating your own brand name, and your own product names for that suppliers products, and private labeling them. Basically selling their products and drop shipping them, but turning them into your own product names so when people find them on your store, and eventually as a brand is built up around this, they are your products.
That way, if MAP is a $1000 and your wholesale cost is $700, it doesn't matter anymore because the products that you're selling under your private label brand, you can sell for $1500. You could sell for $2,000 because nobody's going to comparison shop. They are now your products, because you are private labeling them. I will say, just so you're aware, doing things this way is more work, but there is money to be made there. So something to consider.
So that's it for this episode, guys. As always, I hope you got value. Be sure to subscribe if you haven't already done so. And if you want a list of 237 profitable products to sell, as well as a special offer on my coaching program that was voted Best eCommerce Course by Shopify, be sure to go to dropshipwebinar.com. I will link that up in the description. So thank you everybody. I appreciate you. And I'll talk to you on Thursday for the next episode of the eCommerce Lifestyle Podcast. See you everybody.