Pricing & Margins
Dropshipping pricing and margins
Set a dropshipping price from full order costs, calculate contribution margin and check how delivery, discounts and remedies affect the result.
Set a dropshipping price from retained revenue and whole-order costs. The supplier's item price is only one input. Delivery, payment charges, marketing, support and remedies can change the result.
Set pricing goals and research the market
Business.gov.au sets out five pricing steps: set pricing goals, research your market, choose a pricing strategy, set your prices and check your pricing follows the law. Goals can include profit, market leadership, market share, brand reputation or higher demand.
Check market prices and trends regularly. Treat competitor prices as a guide, not an exact copy. Compare features, quality and service as well as price; ensure the price covers costs and reflects the offer's full value.
Market testing shows the offer to a sample of customers. Ask what they want, which features matter, what they spend on similar products and how many they may buy, then test different price options. Price sensitivity means demand for some products can change sharply if the price moves by a few dollars.
Five pricing steps from business.gov.au
- Set pricing goalsChoose goals such as profit, market leadership, market share, brand reputation or higher demand
- Research your marketCheck market prices and trends regularly; treat competitor prices as a guide, not an exact copy
- Choose a pricing strategySelect the method that fits the offer and market
- Set your pricesEnsure the price covers costs and reflects the offer's full value
- Check your pricing follows the lawConfirm price display and consumer law obligations
Price a defined offer
Choose an exact product, variant and Australian delivery route. Obtain the supplier's current item, packing, handling and freight charges for that combination. Model the basket a customer is likely to buy. Two items from different suppliers may still require two shipments.
Record the customer's product and delivery payments separately from the supplier's charges. “Free delivery” removes a customer charge; it does not remove the store's freight bill. If costs vary by destination, check the routes you intend to serve.
Use a consistent GST basis. A GST-registered business generally accounts for GST on applicable sales and may claim credits for GST included in eligible purchases. The treatment of a particular supply or imported purchase needs its own check. Do not remove GST from revenue while leaving recoverable GST in costs.
GST is 10% on most goods, services and other items sold or consumed in Australia. A GST-registered business collects one-eleventh of the sale price and pays it to the Australian Taxation Office (ATO) when due.
Registration is mandatory once GST turnover reaches $75,000, or $150,000 for a non-profit. Taxi, limousine and ride-sourcing services must register regardless of turnover, as must businesses claiming fuel tax credits. A new business expecting to reach $75,000 in its first year should register within 21 days of becoming aware it will exceed the threshold.
GST rate and registration thresholds
- GST rate on most goods, services and other items sold or consumed in Australia
- 10%
- GST turnover threshold for registration
- $75,000
- GST turnover threshold for non-profit
- $150,000
- Register within
- 21 days of becoming aware you will exceed the threshold
- Taxi, limousine and ride-sourcing services
- Must register regardless of turnover
- Businesses claiming fuel tax credits
- Must register
- GST collected by a GST-registered business
- One-eleventh of the sale price
Choose a pricing method
FMOC (fixed margin on cost) adds a set profit margin to each product, usually as a percentage.
Dynamic pricing adjusts prices to current demand. It can move slow inventory, raise top sellers, meet or undercut competitors and follow seasonal changes. Dynamic pricing has no set calculation, and dropshipping margins can be tight, so use several calculations to reach a final figure.
Calculate contribution and margin
Order contribution = retained order revenue − variable costs of obtaining, taking, fulfilling and supporting that order. Include applicable supplier, payment, acquisition, support and expected remedy costs. Contribution helps cover fixed costs; it is not net profit.
Contribution margin = order contribution ÷ retained order revenue. Mark-up uses cost as its denominator. For example, if an item costs $100 and sells for $150, that is a 50% mark-up and a 33.3% margin before other costs. These figures illustrate arithmetic, not a market price.
For each candidate price, recalculate charges that change with the amount paid, such as percentage payment fees. Check whether the remaining contribution can cover an appropriate share of fixed costs and the intended profit at a plausible order volume. That gives a planning threshold, not proof that customers will accept the price.
Calculate order contribution and contribution margin
- Start with retained order revenue
- Subtract variable costs of obtaining, taking, fulfilling and supporting that orderInclude applicable supplier, payment, acquisition, support and expected remedy costs
- ResultOrder contribution
- Divide order contribution by retained order revenueThis gives contribution margin
- NoteContribution helps cover fixed costs; it is not net profit
Mark-up and margin example
- $100Item cost
- $150Selling price
- 50%Mark-up
- 33.3%Margin before other costs
Test the price against changes
| Change | Recalculate |
|---|---|
| Supplier raises a charge | Item, handling and freight cost for the affected SKU and route |
| Customer uses a discount | Revenue retained and any price-based fee |
| Order ships in two parcels | Both freight bills and the customer delivery charge |
| More orders need remedies | Refunds, replacements, return costs and supportable recoveries |
| Advertising becomes dearer | Acquisition cost per completed order under a stated method |
Keep each assumption beside the result. One favourable basket or destination should not represent every order.
Shipping single parcels from overseas into Australia creates compounding hidden expenses. International courier fees on single items can quickly erode margin, and multi-week delivery times or chaotic return logistics can damage customer goodwill.
Test the price against changes
- Supplier raises a chargeRecalculate item, handling and freight cost for the affected SKU and route
- Customer uses a discountRecalculate revenue retained and any price-based fee
- Order ships in two parcelsRecalculate both freight bills and the customer delivery charge
- More orders need remediesRecalculate refunds, replacements, return costs and supportable recoveries
- Advertising becomes dearerRecalculate acquisition cost per completed order under a stated method
- Keep each assumption beside the resultDo not let one favourable basket or destination represent every order
Check the customer-facing price
Check what the customer actually sees and pays: the product price, any delivery charge and any unavoidable fee added later. Make sure the total cost is clear before checkout, and that 'free delivery' still reflects the freight cost in your margin. Show unavoidable charges clearly rather than relying on a low headline price.
Compare the proposed total with the value of the exact offer and relevant alternatives. Competitor prices are a guide; they do not show that your costs match. If the required price seems implausible, revisit the supplier, delivery route or offer.
The Australian Competition and Consumer Commission (ACCC) educates consumers and businesses about price display rights and responsibilities. It accepts reports and can investigate if a business breaks the law about displaying prices, with possible compliance or enforcement action. It does not give legal advice on price displays or resolve individual disputes about them.
Customer-facing price checks
- Show the product price
- Show any delivery charge
- Show any unavoidable fee added later
- Make the total cost clear before checkout
- Show unavoidable charges clearly rather than relying on a low headline price
ACCC role on price displays
- ACCC doesEducates consumers and businesses about price display rights and responsibilities; accepts reports; can investigate if a business breaks the law about displaying prices; may take compliance or enforcement action
- ACCC does notGive legal advice on price displays; resolve individual disputes about them
Review the result
Reconcile completed orders against supplier invoices, payment charges, advertising spend and later support or remedy costs. Review contribution by SKU, destination and order shape. Separate estimates from observed costs, including refunds that arrive after the sale period.
Check cash timing as well: supplier and advertising payments may fall due before proceeds or a supplier credit arrive. Reprice or pause an offer when current costs and a realistic order mix no longer support the intended contribution.
Suppliers are often willing to offer lower prices for regular or bulk orders, so negotiate with clear sales volume and projections. Tiered pricing gives discounts for bulk purchases and can increase average order value.
Under consumer law, customers have rights to a repair, replacement or refund for a faulty product or service. The ACCC can investigate misleading conduct about those rights but does not resolve individual disputes or give legal advice about them.
Consumer remedies for faulty products or services
- Repair
- Replacement
- Refund
In this guide
- Calculating profit after supplier, payment and support costsReconcile completed orders after supplier, payment and support costs, then distinguish contribution from the result after fixed costs.
- Allowing for refunds in a dropshipping margin modelEstimate refund and remedy losses by outcome, avoid double counting and keep supplier recoveries separate from customer remedies.
- Comparing bundled offers with single-product salesCompare bundle and single-product contribution using fair basket alternatives, actual fulfilment costs and substantiated saving claims.
