Competitive Pricing Strategies: Mastering Markup and Margin Calculation to Maximize Profits in the Luxury Market

There’s only one way to build a sustainable business with long-term profitability – by setting up a competitive pricing strategy.

In this way, you have a clear plan of how to maximize your profits, understand what will attract and retain your customers, and stay ahead of market changes.

A key component in the process of creating a pricing strategy is calculating your products’ margins and markups. These numbers can show you how much profit you can earn off your products and help you set up and optimize your prices.

In this article, we’ll answer the most burning questions dropshippers have in terms of setting competitive retail prices:

• what’s the difference between margin and markup? 
• how to calculate product margin and markup?
• how to establish a competitive pricing strategy? 
• how does BrandsGateway provide you with competitive prices?

Although closely related, the terms markup and margin present two completely different things. Let’s take a look at their definitions and how each of them is calculated.

A product markup calculates how much you need to increase your product prices to determine the selling price. In simple terms, it measures how much more above the cost of the products you sell your products for. 

Calculating markups helps you make sure you’re pricing your products in a way that will maximize your profits as well as set competitive prices. 

Margin is the difference between the selling price and the cost price. It shows how much profit your clothing business earns from each product you sell.

Margins help you assess the profitability of individual products. By knowing your margins, you can even identify your best-selling products and, based on that, make the necessary adjustments in your pricing and marketing strategies.

Check out: How to set up your dropshipping profit margins?

A product markup is calculated by deducting the selling price of the products (otherwise known as the retail price) from the product costs (or the wholesale price charged by your dropshipping supplier). Divide the amount you receive by the product cost and you get your markup. Multiply by 100 to get a markup percentage.

Here’s the formula you can use:

Product markup = (retail price – wholesale price) / wholesale price x 100

Markup Example:

Let’s calculate the markup of one of BrandsGateway’s products, namely this pair of leather Jimmy Choo pumps.

• Retail price: €600
• Wholesale price: €240
• Product markup: (600-240) / 240 x 100 = 150%

A product margin is calculated by deducting the retail or selling price of your products from the wholesale price or product cost. You then divide the amount by the retail price and multiply by 100. 

This is the formula to use:

Profit margin = (retail price – wholesale price) / retail price x 100

Margin Example:

Let’s again calculate the margin of one of BrandsGateway’s products, this time we’ll take as an example this grey leather Michael Kors handbag.

• Retail price: €448
• Wholesale price: €80
• Product markup: (448 – 80) / 448 x 100 = 82%

A well-put-together pricing strategy is an essential part of your business plan as it allows you to have a deep understanding of how to set up competitive prices that will help you thrive in the market. 

Here’s how you can begin creating a competitive pricing strategy:

Step 1: Analyze your competitor’s prices. Examining your competitors’ prices can provide you with valuable insights into the current prices circulating in the fashion market. To start working with competitive prices, you need to study the pricing strategies and product offerings of your competitors as well as their target audience and store reputation.

Check out: Best price comparison websites

Step 2: Define your pricing objectives. Your pricing objectives are the ones that will dictate the pricing strategy of your clothing dropshipping store. Whether it’s maximizing your profits, penetrating new markets, or seeking a status quo, your business’s goals will shape most of your pricing strategy.

Step 3: Calculate your costs. Accurate cost analysis is essential to get an idea of how much profit you’d be earning. Consider all expenses, including product costs, shipping fees, marketing expenses, and other possible operating costs. 

Step 4: Observe and adjust when needed. Prices are never static and can easily change overnight. Regularly monitor market dynamics and be prepared to adjust your pricing strategy as needed.

BrandsGateway doesn’t only make it possible for dropshippers to sell products of high value and demand but also supports you in the process of creating a competitive pricing strategy.

Here’s how we do it:

BrandsGateway offers dropshippers a catalog of over 20,000 designer items, allowing you to set your fashion store apart from others. 

Categories available include clothing, shoes, bags, jewelry, sunglasses, watches, and accessories stocked with products designed by world-renowned brands such as Dolce & Gabbana, Versace, Gucci, Prada, Jimmy Choo, Michael Kors, Tory Burch, Swarovski, Coach, Roberto Cavalli and many more.

Because of the products’ high market value, with BrandsGateway you can work with profit margins that reach up to 250% per order.

What’s more, to ensure substantial profits for dropshipping partners, BrandsGateway has established a minimum markup requirement of 150% on wholesale prices which can be changed by dropshippers at any time.

BrandsGateway assists dropshippers in setting a retail price for each of their products by providing suggested prices. 

Dropshippers are not obligated to use the exact prices. These offer a practical starting point to help you determine your final selling prices.

Establishing a pricing strategy and understanding how to calculate the margin and markup of your products is essential for setting up prices that will attract customers.  

With BrandsGateway as your dropshipping partner, you can sell winning dropshipping fashion products and get access to suggested retail prices. 

So, make the initiative today and book a free demo call with BrandsGateway’s support team to start building competitive pricing for your products.