Pricing and Profit Margins Flashcards
6 cards from real Dropshipping practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Pricing and Profit Margins flashcards as text
What does 'average order value' (AOV) mean and why is increasing it important for dropshipping profitability?
Answer: The average revenue per order — increasing it spreads fixed costs over more revenue per transaction
Higher AOV means more revenue per transaction without increasing customer acquisition cost, directly improving profitability since many costs (ads, payment fees) are per order.
Which pricing tactic effectively increases AOV in a dropshipping store?
Answer: Product bundling — offering a discounted package of related items together
Bundling complementary products at a slight discount encourages customers to spend more in a single transaction, increasing AOV while maintaining strong overall margins.
Why is 'lifetime customer value' (LTV) a critical metric even for dropshipping stores that focus on one-time buyers?
Answer: LTV determines how much you can profitably spend on acquiring a customer
Knowing a customer's LTV lets you calculate the maximum CAC you can afford — if a customer buys multiple times, you can spend more upfront to acquire them.
What is 'price anchoring' and how is it used on dropshipping product pages?
Answer: Showing a higher original price crossed out next to the sale price to make the deal seem bigger
Price anchoring displays a reference price (crossed-out 'compare at' price) next to the sale price, making the actual price appear more attractive by comparison.
How does charging in USD specifically benefit a US-based dropshipping store targeting American consumers?
Answer: It eliminates currency conversion confusion and builds trust with domestic buyers
Pricing in USD removes currency conversion friction for American shoppers, presenting familiar pricing that doesn't fluctuate with exchange rates.
What is the risk of setting product prices too low in a dropshipping store to attract budget shoppers?
Answer: Insufficient margin to cover ad spend, fees, and returns, making the business unsustainable
Prices set too low fail to cover advertising costs, platform fees, supplier price changes, and return handling, resulting in a money-losing operation despite strong sales volume.