How to price products on shopify?
In dropshipping with shopify, before launching your ads on Facebook you must be able to set the price of your products in order to make a good margin.
To do this you will need to understand two key metrics. The break-even point and the minimum ROAS.
Calculate your break-even point on shopify.
The break-even point is also called the “gross margin“. Its calculation method is simple.
The break-even point is calculated as follows: Selling price – product cost = Break-even point.
Example: This jewelry stand costs you 5€ on aliexpress, and you want to resell it for 20€. To calculate your break-even point, you have to use the formula: Selling price – product cost = Break-even point. This gives us 20$ – 5$ = 15$.
For this product your break-even point is 15$. If you sell 5 units your gross margin will be 75$. (20$ – 5$) x 5 = 75$
Understanding the ROAS to price products on shopify.
ROAS means ” Return on advertising spend “.
Facebook defines ROAS as the conversion value of your purchases divided by the advertising budget spent.
Simply put, ROAS is : Revenue / Advertising Expenses = ROAS.
To take the example of the jewelry stand. You sold 5 units for 20€.
20$ x 5 = 100$ . Your turnover is 100$.
However you spent 25$ of advertising to get your 5 sales. The ROAS takes into account this ads spend.
To calculate your ROAS you have to do this calculation: Turnover / advertising expenses = ROAS
In this example 100 / 25 = 4.
The ROAS of your day will therefore be 4.
The higher your ROAS, the more profitable you will be. I will now teach you how to determine your minimum ROAS to price products on shopify.
Determine the minimum ROAS.
Determining the minimum ROAS allows you to know from which ROAS you are profitable when you advertise to sell your products on Facebook.
If you don’t calculate it, it’s like going out blindfolded without even knowing if you are profitable or not.
How to price products on shopify by using minimum ROAS formula.
You can calculate your minimum ROAS using the following formula:
Sales price/break-even point = minimum ROAS.
In our example of the stand, your sales price is 20$ and your break-even point is 15$, so your minimum ROAS is calculated as follows:
20 / 15 = 1.33
Applying the minimum ROAS.
Now that you have determined your minimum ROAS you are able to see if your campaign or ad set is profitable at a glance. Indeed If your ROAS is 1.33 or less you are not profitable.
With this information you will be able to cut out ad sets that have a ROAS of less than 1.33.
I advise you to write down the formulas I have presented in this article and learn them by heart.
In a nutshell, the break-even point is calculated as follows: Selling price – product cost = Break-even point.
Your minimum ROAS is calculated using the following formula:
Selling price/break-even point = Minimum ROAS.