One of the unspoken rules of business is that you should always keep track of your expenses, always change the prices of your products, and always keep an eye on the prices of your online competitors. After all, if you don’t keep a close eye on the money side of your dropshipping business, you open yourself up to a lot of risks and hassles that could easily spell the end of your store. To avoid these kinds of problems, it’s important to take the time to figure out the markup and margin of your products, since they have a big impact on your dropshipping store’s current and future incomes and can help you make more sales.
Even though the product markup and margin are used for the same purpose, they are two different business measurements. Many entrepreneurs, especially those who are new to retail, get them confused and don’t know what they are.
We’ve put together a comparison of these two terms to help you tell them apart. In the next few paragraphs, you’ll be able to read about full definitions, learn how to calculate, and find out why it’s important to set up your markups and margins for your products.
What does markup mean?
A product markup is the difference between the wholesale price (the price your wholesale supplier charges you for a product) and the profit you’ll make when you sell that product to your customers. By figuring out the markup on the items in your store, you’re always aware of how much money you’re making, which lets you keep your costs under control in a very effective way.
How do you figure out how much to charge for a product?
At first glance, figuring out the markup on your products may seem like a hard task, but it can be done with a simple formula:
Markup for a product = (Profit/Wholesale price) x 100
Let’s use the formula to show you what it means in a more concrete way. To give an example, let’s say you’ve opened an online clothing dropshipping store that sells high-end clothing from well-known brands. Your supplier, Dropship Corporation, which is one of the most well-known B2B fashion companies, lets you add markups to all of the categories you’ve imported into your store.
As an example, let’s figure out how much the price of this leather Michael Kors handbag has been marked up. A customer bought the bag, and the order was automatically sent to Dropship Corporation. You were charged €129, which is the wholesale price. The suggested price, on the other hand, is €398. When you subtract the wholesale price from the retail price, you end up with €269 in income. Then, we divide the profit by the price at retail, multiply the result by 100, and get a markup of 208%.
Why is it important to figure out your markup?
Marking up your product is an important business step that you shouldn’t skip. This is because if you know the markup on the items you sell, you’ll be able to see where your business is in terms of growth and figure out how profitable your future sales will be.
For example, selling luxury fashion items like the ones in the above example is thought to be a high-earning business that brings in a lot of money compared to other market segments. Still, there is a lot of competition here, which makes it hard for many businesses to get ahead. If you know your product markups and change them when you need to, you can keep your store from losing customers and sales.
What does it mean by margin?
The product margin is a way to measure how much money you make from each product. It shows how much money you’d make from each product you sold. This way, you could keep track of your income and the overall financial health of your store.
How do you figure out the margin on your product?
To keep a close eye on your product’s profit margins, all you have to do is figure out the difference between the retail price you set and the wholesale, or sourcing, price of the items, which is the cost you paid to get the items from your supplier. This math formula is used to figure out a profit margin:
Profit margin = (Retail price – Sourcing price) / Retail price x 100
To give you a more real-world example, let’s use the formula to figure out the profit margin of a real product. As an example, let’s go back to the idea of using Dropship Corporation to help you run an online dropshipping boutique. One of your customers just bought a pair of white and pink leather Dolce & Gabbana sneakers for €860, but the price you paid to get them was only €259. By taking the wholesale price away from the retail price again, you can see that the profit you’d make from that sale is €601. Also, we divide this income by the price at which we sold it and multiply by 100. This gives us a profit margin of 69%.
Why is it important to figure out your margin?
Many things in your business can be affected by the margins on your products. They not only give you accurate reports on how much money your store makes, but they also give you an idea of how much it will cost to keep selling products. This lets you keep an eye on your business’s finances. So, if product margins are calculated on demand, expenses can be controlled and even cut because you’ll know exactly how much each item will cost and how much money you’ll make from selling it.
The fact that products in the same niche have different margins is another thing that shows how important it is to set your own dropshipping profit margins. Since each item in your store probably brings in a different amount of money, it makes sense that they would all have different profit margins. So, figuring out the margin of each product you sell will let you see how profitable your products are and help you find the ones that sell the most.
The main differences between markup and margin
As you’ve already read, there are big differences between product markup and margin, both in terms of what they’re used for and how they’re calculated. To help you tell the difference between these two measurements, we’ve made a short and easy-to-read list of the main differences between them.
Dropship Corporation helps you keep track of your product’s markup and margin.
Finding the right supplier is one of the most important things to do when you want to open a store. You can’t just hire anyone. You must make sure that their products meet your standards. If they don’t, it will hurt the reputation of your business. When you work with a company like D, you can relax because the company sells high-quality, high-profit luxury clothing made by well-known fashion houses like Michael Kors, Versace, Swarowski, Dolce & Gabbana, and Jimmy Choo. On top of that, all products come with a guarantee of authenticity that says they are the real deal.
With Dropship Corporation, retailers have the chance to work with high product markups and earn large product margins of up to 250%. Dropship Corporation also has great dropshipping services. This supplier gives its customers suggested retail prices for each item, which they can use in their stores. Still, clients are free to set their own product margins and markups. Most of the time, the margins are set after the catalogues are imported, but the markups can be changed at any time. But to make sure that store owners make a lot of money, Dropship Corporation suggests putting a minimum markup of 150% on the wholesale prices of the products.
Now that you know the difference between markup and margin and how to figure them out, you can use what you’ve learned in your own dropshipping store. Considering how important these measurements are for your products, you know why you shouldn’t ignore them. Markup and margin on products are very important to the success of your business. This is because they help you make sure your store is financially stable and that its bills are paid on time.