Every day, thousands of new Amazon Sellers find out the hard way that the “great” product they had envisioned selling on Amazon:
- doesn’t sell for the price they thought it would
- doesn’t sell fast enough for the amount of inventory that was purchased
- is poorly reviewed by customers
- receives too many returns from customers
- has been taken off Amazon as a hazardous or counterfeit item
- sells so well that Amazon.com decides to sell the product itself, thereby basically wiping out the seller’s sales opportunity on this listing overnight
Through all of these challenges, every Amazon seller must remember that consistently acquiring fast selling, high margin product is the backbone of one’s Amazon seller business.
In this chapter, we will discuss the product research you need to conduct for both Branded goods and your own manufactured products. Then we explain the additional product development you will need should you choose to sell your own goods.
Reseller Vs Manufacturer
First, let’s discuss the tradeoffs of Reselling someone else’s brands vs. Manufacturing your own products: which is better?
- Brands will sell to many other customers that are your potential competitors
- Your supplier will typically run out of inventory during high demand seasons, like the 4th quarter
- As a reseller, even if you have a sophisticated method for product evaluation, your main difficulty is usually procuring enough product to avoid expensive stockouts
- As the manufacturer of your own products, you usually can scale up to purchase whatever amount you want, so instead of worrying about whether your supplier will give you enough product, your main concern will be figuring out ways to sell more product so that you can put in a purchase order for more
- As the manufacturer of your own product, you typically have much more control over product pricing and brand positioning
It turns out, both approaches can work. We work with resellers who gross over $50 million per year.
Granted their margins are less than a seller that manufactures its own product, but these resellers have found an incredibly successful, lasting supply and distribution model.
We also work with Brands (manufacturers) and distributors who sell up to $30 million per year. As you will see, a strong case can be made for either method.
Criteria For Determining Good Products To Sell On Amazon
Now, let us change gears a little: No matter whether you choose to resell someone else’s products, or you choose to find products to manufacture under your own brands, you will need to establish some criteria for determining good products to sell on Amazon.
The Amazon Best Sellers calculation, otherwise known as Sales Rank, is based on a product’s overall unit sales volume and is updated hourly to reflect recent and historical sales of every item sold on Amazon.com. Simply put, it’s a ranking system for all of the products within a category. Each product listing is ranked according to the number of sales it receives compared to other product listings in the same category.
As the sales rank number is a blended average of the Amazon sales over the past 7 and 30 days, a rank of #1 means that product has either recently sold more than any other product in that category or it has sold extremely well in the past. If a product has been cross-merchandised so that it’s listed in multiple categories, the rank in one category for that product will almost certainly be different than the rank in other Amazon categories where the product also appears.
Recent sales alone are not all that’s taken into account. Amazon also has predictive features built into the Bestsellers Rank, which are likely to be based on historical data of a product. This is how a newly released iPhone case can have a higher ranking than an iPhone case released three years ago, even when the latter has more cumulative sales.
Many sellers use general rules of thumb to assess the sales rank component in their product research:
- Some resellers and sellers who manufacture their own product look at Amazon’s bestsellers list for products which have a bestseller ranking less than 500.
- Others calculate the top 1%, 5%, and 15% in sales rank for each category, and then label those as comfort zones like risk tolerant or risk adverse. For them, the top 1% is safe territory in any category. They determine what numerical rank places a product within their risk tolerance for each category and then they “buy with comfort knowing it will almost certainly sell.”
- And other resellers use these criteria, plus additional screening of whether these top sales ranked items are sold by Amazon.com or other FBA sellers.
While these approaches are somewhat data driven and will certainly help the seller to make a better procurement or manufacturing decision, the unit volume associated with a sales rank number in one category may be vastly different than what you would find in another category. For example, because there are so many book listings in the book a category, a book with sales rank of 50 on Amazon could be selling 500-2,000 copies per day; however, a pack of protein bars ranked 50 could be selling 50-200 units a day. Simply stated, the same sales rank in different categories, produces different sales volumes.
This also applies to sales rank percentage, but usually in the opposite direction. Because there are so many listings in the book category, a listing just inside the top 0.1% of books sold on Amazon might only average 15 copies per day. Where as in the Health & Personal care category, a listing just inside the top 0.1% bracket might average 50 units per day.
To make sense of how a given sales rank relates to unit sales per day, you can look at the free website, FBAtoolkit.com. You can enter in a sales rank number into each category to see the predicted volume of daily unit sales. This tool is far from being accurate though, as it usually underestimates (by quite a lot sometimes). Based on our comparisons of its estimates with actual client sales, the lower the sales rank, the greater the gap between its estimation and the actual unit sales associated with a sales rank number.
Another popular method for items that aren’t yet on Amazon is to count how many are sold in a given week on eBay. This can be done by going onto ebay.com, then filtering your search to see only “Completed listings.” This also allows you take note of the ratio of sold vs unsold listings for those products.
There is a debate about how much sales rank should factor into a buying decision. On one end, those who say that the only thing that matters is your profit margin, meaning if a widget costs 25¢ and it’s going for $25 on Amazon, they’re buying it — even if the sales rank indicates it sells one unit per year.
On the other end are those who need solid proof that their widget is in heavy demand before they’re spending one cent, no matter what price it sells for.
While we lean toward the mindset of those requiring sales rank proof to show that a customer will even buy it, we also recognize that many listings are in essence abandoned, and through careful improvement to the marketing of your listings, you may be able to resurrect those listings’ potential by driving sales through product ads, and enhancing conversion rates by improving the listing’s content and images.
Sales rank is important, but look at ALL of the criteria for a product to make a determination as to the potential for an item to (eventually) sell.
Sales Rank Secret
How DO sellers find the sales rank information for the products they are interested in purchasing to resell or interested to research so they can produce similar products themselves? Time for some secret sauce:
Some sellers will themselves use the supplier’s product information to search Amazon, and manually pull back the product’s Sales rank information on the product detail page
It’s the same process as above to collect the information. But the job is tasked to individuals or teams overseas who data-mine the Amazon site – the seller sends over a document or spreadsheet with the product titles, brand names, and manufacturing part numbers, and the outsourced team provides the sales rank data.
This is actually against Amazon’s terms and may be illegal in certain states, yet many sellers have hired or built robotic programs (called “bots”) to crawl Amazon’s site and scrape the information they need by brand, keyword, or manufacturing part number.
Amazon Product API
The quickest and best method is to collect information via Amazon’s Product API. This API was originally intended for Amazon affiliates to use to automatically promote the type of products that fit their criteria. Sellers have adapted this to product research so they can collect the necessary information they need to make informed purchase decisions.
In the Additional Resources section below, we have provided a link to a free tool we are pleased to offer you – this will allow you to research products of interest, by keyword, ASIN, or UPC. A video demonstration is also provided to help you get comfortable with this tool.
Sellers Rank History
Because of the huge swings that sales rank can undergo due to a sudden change in customer demand, looking at a single data point can’t tell you how well an item has been selling over the past few months. A low sales rank, can trick you into thinking an item is a longtime popular seller, when actually, that item was just sold.
To make accurate predictions about how fast an item is really selling, you need to look at multiple data points and see how an item’s sales rank trends over a longer period of time.
One useful site to do this is http://camelcamelcamel.com
Normally when accessing product information via API, to abide by Amazon’s terms, a user must not store product data to build a database of historical sales history.
We believe that the owners of this Camelcamelcamel site have worked out some sort of special arrangement with Amazon to store the sales rank and buy box price information for millions of products long term. Just type in your ASIN or even search for products by name to find them and see how the product’s sales rank has trended over time.
This will help you to see if the current sales rank is an anomaly or if it presents an accurate representation of the product’s sales over time. This can be a tedious process, entering in ASIN numbers one by one and clicking through to assessing graphical results.
One effective alternative to camelcamelcamel.com is the tool keepa.com – this is a simple app to add to your browser, embedding historical sales history right on the Amazon product detail page of the specific items of interest to you. (It’s also a nifty tool to use if you are simply shopping on Amazon as a consumer).
More Criteria for determining good products to sell on Amazon
The next factor that you need to look at is how many reviews a product has received. Sellers who are looking to manufacture their own products can use reviews on other like products as a barometer as to how competitive the like product is and how long that product has been for sale on the channel.
If you see a type of product that has thousands of reviews for each competing product, that particular market niche is probably mature, meaning the products have been on site for a while and there are enough competing products on site that you’ll probably want to find a different type of product.
Resellers, however, take the opposite approach. More reviews mean more product sales with a tenured history of sales, so it can be a positive signal for you to consider pursuing that product’s brand (assuming the pricing and list of current competitors still leave opportunity for you to enter as another reseller).
Are there thresholds for reviews?
- Not for resellers. Although it’s an okay barometer, we’ve seen thousands of listings that have only a handful of reviews but are top sellers in their category. Don’t overlook a great selling item because it lacks many reviews.
- For Sellers who manufacture their product, some do have arbitrary cutoffs like at least 200 reviews but under a 100 reviews. Although a lot of reviews may be a sign of competition, it’s probably best to more heavily weight the number of sellers competing for the buy box and the number of similar competing products within the category
Is The Product Sold By Amazon?
It’s important for us to restate the difficulty in competing directly with Amazon. If a seller has almost perfect customer metrics, or a very low landed price, we sometimes see them share Buy Box rotation with Amazon.
If their price is low enough below Amazon’s current price, they do win dramatically more share of the Buy Box from Amazon. But be careful: Amazon reprices reactively and every few minutes. If you lower your price, Amazon will lower its price often to the point of losing money.
Amazon also seems to possess an uncanny knowledge of the buy box algorithm, as it will lower its price to a few dollars more than yours, recognizing the contribution of its perfect seller performance metrics, so it still maintains buy box share. Put differently, if you, as a very high performing seller, have an FBA offer competing directly with an Amazon Retail offer, Amazon Retail doesn’t need to match your low price in order to win the buybox ahead of you.
And remember that for media sellers, Amazon will always win the Buy Box, if it has the product in stock. Don’t lose money by purchasing and competing with Amazon on products for which you are not likely to win the buy box.
Are there other Sellers which have FBA offers on the product?
You’ll want to gauge how many total offers there are and how many are fulfilled by Amazon. In estimating the price they can sell the product at, we’ve seen sellers mistakenly assume that they just need to list their product for a few dollars less than their competitors.
For example, you’re researching a folding camping chair and find that right now although there’s 12 competitors (3 of them FBA), the product’s buy box price is an 85% markup from your cost on that item, and it’s sales rank number gives you an estimated 10 unit sales per day.
When making your buying assessment don’t assume that you can list the product for five dollars less than your competition and snag 100% of the buy box share. That may happen sometimes, but usually we see competitors reprice, and we even see some that either have an extremely low cost or their repricing rules are setup to win the buy box at all costs, literally. What’s the point here? You’ll have to develop a process, whether that’s a general rule or a complex formula, for estimating the price you can sell your item at to win decent buy box share and estimate your unit sales off that proportionate SHARE of the buy box so you don’t purchase too much product.
And if the current competitors on a product are mostly similarly-priced FBA sellers, keep in mind that if you enter as an FBA seller, you are likely going to get slight more or less than your “fair share of the pie” which would be 1/n the number of FBA sellers on the item. The size of the pie rarely grows with more FBA sellers, so you are all just stealing sales from each other.
Is the product sold at Wal-Mart or Costco?
If you are thinking about a product that is being sold by Big Box retailers, you have probably missed a few points.
Our goals are either to improve the quality of on an existing high-selling, niche product and create a unique value proposition to propel our version of the product or to find a niche item with consistent buyers that we can undercut the current selling prices on.
In order to do both you can’t have exorbitant competition, and that usually includes Big Box retailers. Don’t let a little competition eliminate all products from consideration but be smart about staying away from saturated markets.
Amazon Category Commission
As we’ve previously stated, sellers pay a referral fee on each item sold. This can range from 6% for personal computers or 8% for other electronic categories to 15% for most of the other categories. Items in several categories also have a per-item minimum referral fee as (i.e., sellers pay the greater of the referral fee percentage or the per-item minimum referral fee).
Whether you’re deciding on products to purchase for resale or to manufacture, you’ll need to factor category commission into your profitability estimation.
For both resellers and manufacturer-sellers to consider, the bigger and heavier your item is, the more shipping will cost from your supplier to you, then onto Amazon for FBA, or to the customer for merchant fulfilled product.
Bigger items also take up more room in your warehouse and have higher return shipping costs or likewise incur greater FBA storage fees.
Specific Or Niche Products
For resellers, it doesn’t matter how plain OR eclectic your item is as long as the data indicates that it sells well, and at the price you need it to sell at.
So when we say specific products, we mean assess individual products rather than product lines.
While a specific supplier’s catalog may look interesting to you because of a number of different SKUs, you should evaluate each SKU separately, as rarely are all SKUs from the same supplier equally interesting.
Instead of ordering a few SKUs from an entire offering, we want to order only the SKUs that our product research data indicate sell at a profitable price. And only order the amount that will sell according to that SKU’s sales velocity (which we estimate from the sales rank).
We’ve seen resellers struggle when they begin purchasing product. They lose money because they make the common mistake of purchasing too many different items and TRUSTING that the brand’s products will all sell well and profitably. In other words, they discover that, on Amazon rarely are there profitable product lines per se, but many profitable products.
For seller-manufacturers, we’ve also seen many of them spread themselves too thin as well. Every “niche” they try to exploit ends up with a negative income. This happens because as they find products that are profitable and sell well, they add additional products in varying sizes and colors or as accessories without thoroughly testing them. And because they’re trying so many new products, sample costs start to add up as well. The ones who figure it out, typically find that only buying the select products which sell consistently well becomes their strategy.
Even for those who want to create their own brand, it’s best to start with your single most profitable product or a few top products, and then increase the number of items in your product line as you thoroughly vet their potential sales volume and profitability.
Additionally, unless you’ve found a niche which is overly priced on Amazon and you’re going to disrupt the market solely by price, it’s difficult to launch generic products.
Usually generic products which sell well on the channel are already priced out of your reach to make a significant profit, or they have a brand name behind them asserting higher product quality.
As you research, create, and develop your products, you should produce something that fills a demand void. Usually that’s a very specific type of item like a Craftsman style, sage colored lamp shade with a cherry blossom print, rather than just a lamp shade or even a craftsman style lamp shade.
Or consider finding product that sells well on the channel and adding additional features or improving the quality of your product so it has a unique value proposition as compared to competing products. Check out this #1 selling apron by Chef Works. It’s small, light, sells for more than $10 and has almost 500 reviews and it has a sales rank in the top 300 for the Home Improvement Category.
Now check out these reviews and notice the pattern:
These customers all want an adjustable neck tie, and if you go through more reviews, you’ll find more like them. This would potentially be a good item to “replicate” (of course changing it up so as not to infringe on any copyright or trademark protection the item has) and then to add the crucial missing feature – an adjustable neck strap, or neck ties. Also consider producing a tweaked version of a popular selling item in additional colors or sizes if they don’t already have variations.
If you’re manufacturing your own product, is it too closely related to another product so that you are in violation of copyright or trademark law? Does your product put you at high risk for law suits based on its intended use – meaning could someone easily sue you if they got hurt using your product?
How Complex Or Fragile Is The Product
If you’re manufacturing your own product, we would recommend against fragile products like vases or complex, mechanical products like chain saws or air compressors. Not only are these heavy and your customers could get hurt using them, but they are usually intensely mechanical and demand high quality standards, as well as warranties that get expensive to offer.
Even More Criteria for determining good products to sell on Amazon
Price Ceilings and Floors
The next piece of criteria to consider is your price range. Products with low prices (less than $8-10) need to be sold in massive quantities and shipping costs consume your profit margin. The higher the price of the item, the less that fixed fulfillment cost becomes as a percentage of your margin.
There needs to be some balance here though. Much higher priced items will cost more for you to purchase, putting more strain on your finances. Consumers also take much less thoughtful concern about products which are less than $50.
You will lose some of your impulse buyers when a product is more than $50. If you look on Amazon, most of the top selling products are $50 and under.
An important note for resellers: other than factoring your potential profit margins, and if your products are already listed on Amazon, then what you are really evaluating is how fast your inventory will turn, given the constraint of whatever inventory capital you have available. In other words, it doesn’t matter if the product is $20 or $2,000, as long as you’ve verified the metrics appropriately to ensure that you make the profit you need to and that the sales rank is sufficient to move the amount you purchase within your predetermined time frame.
For sellers choosing to produce their own products, many have come up with price ranges for evaluating the products they mimic (and improve) or produce creatively from scratch. Some sellers recommend a $7-$40 range to be a good sweet spot for picking products.
Other sellers keep it in a wider $10-$200 range. We don’t believe there’s any magic price range as we’ve seen sellers experience success at many different price points. I’ve personally sold hundreds of thousands of units in both ranges and we’ve managed clients who’ve sold millions of units in both ranges.
However, we don’t recommend that sellers purchase or manufacture product to be sold for less than $10. And we advise new sellers to be careful purchasing inventory which sells for a high price (anything over $300).
Consider these points about stepping outside those ranges:
- The fixed cost of FBA or merchant fulfilled shipping is incredibly high proportionately as an expense for an item priced below the $10 price limit
- Your inventory purchases become capital intensive and much riskier if you are selling items higher than the $300 price limit
- Higher ticket items are usually harder to ship, require higher quality control, and really magnify your mistakes when first starting out
- Higher ticket items for new brands, which are trying to gather credibility, sell much slower as customers are more cautious when purchasing items over $50
Some sellers, with superior financial resources, or dropshipping capabilities aim specifically for products that are over $300. They do this primarily for two reasons:
Zero Fee Fulfillment
For items sold via FBA, Standard-Size units that sell for $300 or more on Amazon are eligible for Zero-Fee Fulfillment.
You pay nothing for Order Fulfillment fees, which includes Order Handling, Pick & Pack, and Weight Handling.
Other fees such as Inventory Storage, optional services, and Selling on Amazon fees still apply and oversize units and Multi-Channel Fulfillment orders are not eligible for Zero-Fee Fulfillment.
Gross Profit Dollars
They are concerned with the gross amount of profit they generate from each sale.
If they optimize a listing and get it to sell 1 unit per week instead of 1 unit per month, and that product sells for $3000, depending on their margin and the product category, they could make anywhere from $300 to $900.
If you compare that to selling a light weight, standard size $10 product in most Amazon categories, you’ll find that after fees, your best case scenario for post-fees gross revenue is somewhere between $4 and $6.
Now when you factor in your product’s cost from your supplier, it better be superb. Let’s say you’ve found a manufacturer which gets the product made and shipped to you at a landed cost of $2/unit.
So you are looking at a net profit range of $2-$4. To hit $300 per week like your high ticket item friend, you’re going to have to sell 75-150 units.
To hit $900 per week, you’ll have to sell 225-450 units. That’s the best case scenario and why some sellers aim high, and why we don’t recommend going below $10.
Last point about Pricing: consider Price HISTORY. Don’t assume the current buy box price for an item is the usual Buy Box price. Every product sees some seasonal changes and many see dramatic changes when different sellers enter the market.
Here’s where Camel Camel Camel and Keepa each come in handy enough. Just type in your ASIN or even search for products by name to find them and see how the product’s Buy Box price has trended over time.
This will help you to see if the current Buy Box price is an anomaly or if it presents an accurate representation of the product’s price on Amazon over time. This can, again, be a tedious process, entering in ASIN numbers one by one and clicking through to assess graphical results.
Specific to resellers, do the brands which sell the products you’ve researched have a Minimum Advertised Price policy?
If they do, and they enforce it, you’ll likely find yourself hiding unethically behind a faux Display Name, and anxiously awaiting that call from your supplier when they’ve finally nailed down that you’re the one violating their MAP and driving down the price on their items.
Or, if you abide by MAP, you’ll find your products selling occasionally only when your competing sellers run out of inventory so you and the other MAP boy scouts finally get some buy box share.
Some sellers have used MAP to a get a foot in the door with Brands. They offer MAP violation reporting and policing services to brands they are trying to court and it sometimes works.
Perhaps these sellers are helping to bring the manufacturers online directly for the first time or they just want someone else to deal with their distributor pricing mess on Amazon, but we’ve seen sellers acquire exclusive distribution deals for brand equity building.
No online sales/Product Warranties
Another question is whether the brands that manufacture your researched products forbid marketplace sales. For years, sellers have received letters from a Brand’s “legal department” indicating that it has come to Brand’s attention that the seller is offering the brand’s products for sale on Amazon.
The Brand has not granted the seller permission to do so, and the Brand demands that the seller cease selling the product on Amazon. They also reference that any product not sold by authorized resellers through authorized channels is not covered by the Brand’s product warranties, and that it can’t validate the authenticity of product not sold by approved retailers through authorized channels.
Let’s break down this legal mumbo jumbo for gray market resellers:
- Legally, the first sale doctrine enables you to “sell or otherwise dispose” of your product as you see fit, subject to some conditions and exceptions.
- Some Brands believe that your agreement with Amazon negates that right, as Amazon requires items being sold new to be “New” in every way — meaning still in original packaging, all parts and pieces included, any manuals or instructions included, and most importantly, all original manufacturer’s warranties to be intact and accessible by the customer.
- They are ALMOST entirely correct. Your problem as a 3rd party reseller is that the Brand does not recognize you as an authorized retailer.
- If an Amazon customer purchases an item from you, they would either not honor the warranty, or they would only honor the remaining warranty which began when you purchased the product from the authorized retailer.
- Your options include becoming an authorized retailer, offering the items for sale as “used”, or removing your product offers for that brand.
- If the manufacturer contacts Amazon and states infringement (counterfeit) and they have proof they are the manufacturer and you do not have any proof you are an authorized reseller, if you claim to offer the manufacturer’s warranty, you will end up with a violation and possibly suspended.
So, where are these sellers missing the boat? They haven’t understood Amazon’s terms, conditions, and seller requirements.
Sellers can offer the manufacturer warranty on a product but are not required to do so. They can offer their own product warranty which can be as little as 30 days, matching Amazon’s minimum-day return policy.
Other, larger and more powerful brands have gone a step further.
A few good examples are Fossil Group, the watch and fashion accessories parent company of Brands like Michael Kors, DKNY, Diesel, Skagen, etc. and Asics, the shoe company.
Both of them worked out an agreement with Amazon to gate their brands on the channel. Only Amazon Retail or authorized distributors of their product lines (with written authorization from the brands to sell specifically on Amazon) can create product offerings against the product listings for those brands.
All of the other sellers previously selling their products on the channel, and no other future unapproved sellers can list them.
This type of gating rarely happens, as it’s not usually in Amazon’s or the customer’s best interest to see popular product lines only sold by Amazon Retail at full MSRP.
For whatever reasons led to this, Amazon is no longer the low price leader for those products and may be losing significant market share.
You will want to assess both the sales rank of your item for seasonality changes to compare how well it sells against other products in the same category throughout the year and understand the overall lift seasonally on Amazon.
An item’s sales rank could increase only marginally within a category yet sales could double, quadruple, or increase twenty fold during because the overall category has such a lift during that time of year.
For products you manufacture, you want to find items that either have a consistent base of buyers or have a reasonably predictable nature.
Overly seasonal items like Christmas ornaments or winter clothes need to be assessed properly so you don’t over-purchase and then have to discount to liquidation prices to move your product before the season ends or, just as worse, sit on inventory until the next season.
There are different categories of seasonal items:
- Constant rotation: many successful apparel sellers who consistent rotate through different seasonal items
- Seasonal items which sell well throughout the year but have a huge spike during the holidays or their respective “season”
- Items which only sell well during their respective season (costumes in September and October before Halloween)
- Product versions: You probably want something that is going to sell consistently foreseeable future. Realize that if you purchase older models of a product, like iPhone 5S cases, that product will have a continually dwindling customer base.
Margin Opportunity / Profitability Calculation
We discuss item profitability at length in the profitability chapter. Besides assessing your historical profitability correctly using the right data, you’ll need to be able to estimate potential profitability on the items you PLAN to sell.
To estimate profitability, you’ll be using a lot of formulaic calculations and some data from the criteria we’ve already discussed, including: the Price Range (Buy Box Price) and Product Attributes (Weight & Dimensions).
We’ve provided our Amazon Profit Matrix sheet and video demo in our Additional Resources section for you to quickly assess how much profit margin you can expect from any particular item.
Let’s go over this sheet quickly:
For resellers, you’ll take the average historical buy box for your item, and plug in all of the required information to get your estimated profit.
This will indicate which products fall above or below the profit margin you’ve established, whether that’s 10, 20 or 50%. Keep in mind that this sheet doesn’t factor in the costs of product returns.
That could be a negligible cost or it could be significant, so don’t overlook it and experiment with smaller quantities in your initial orders until you get establish average return and recovery rates for your inventory.
Over time as they build up history and a better understanding of inherent risks, some resellers sell products so that their net margin is only 10-15%.
They purchase products with strong brand equity and rely on those products to turn every 30-60 days. Tight margins like these leave little room for error – you need to find products that don’t get returned often.
For sellers manufacturing and bringing to market their own products, there are so many “unknown factors” including the inherent risk that your product won’t sell quickly, or that you’ll experience unusually high return rates.
As a result of such risks, seller-manufacturers shouldn’t be settling for products that generate less than a 50% gross margin.
Let’s piece all of these criteria together, and talk about the types of Product Research we recommend done by Resellers & Sellers Manufacturing their own product.
Product Research for Resellers
So how do we research products to re-sell?
Resellers have it somewhat easy compared to the seller-manufacturers. As you follow the supplier identification steps in the Finding a Supplier chapter, you will request and receive product lists from your approved suppliers.
You will take that information and use our ASIN lookup tool to acquire the appropriate product criteria data points which can be used to determine which products to purchase from your suppliers.
As reminder your general product criteria for assessing if you should purchase a product are:
- Sales Rank (& Sales History)
- Product Reviews
- Product Attributes
- Price Ceilings & Floor
- Product Restrictions
- Profit Margin
Our ASIN lookup tool pulls 4 of the 8 measures including Sales Rank, Product Reviews, Buy Box price and competitors; and in combination with the cost information you enter into the Amazon Profit Matrix, you receive a fifth criterion Profit Margin.
Now it’s time to determine Seasonality, Product Restrictions, and Product Attributes. With this information in hand, you can assess if this is the right product for you to purchase.
As you identify Brands and obtain their price lists, you can submit your UPCs using the ASIN lookup tool. This information is presented in downloadable format so you can enter it into the Amazon Profit Matrix along with your COGS and determine profitability.
This makes it much easier to evaluate the product lists you obtain from your Brands, Distributors, or Gray market suppliers. This is also an additional reason why we don’t recommend Retail Arbitrage for most sellers. You won’t be able to use this efficient method for evaluating product.
With Retail Arbitrage, you’re forced to evaluate SKUs one by one as you scan each product into your app. It’s analogous to manually entering product information from a supplier list one-by-one into Amazon’s search toolbar.
More secret sauce for you around sourcing: if you can obtain lists of the brands attending tradeshows, take those lists and search for their product by keyword as the brand name.
This will pull the top 50 listings ranking for the keyword of their Brand Name. You can assess this information to see how many of their products are currently sold by Amazon and average sales rank across their SKUs.
This may dramatically change the way in which you go about your tradeshow business. Instead of attending a dozen shows a year, that will drop to the few that only these brands attend.
And when you go to the show, you only need to fly in for one day to visit just these brands, instead of wasting your time walking the floor and visiting with several dozen different brands.
Call those brands ahead of time to schedule appointments with reps at the show so you know you’ll have time to meet with them.
Or better yet, if you only find a few of the brands that meet your criteria at any particular show, consider not attending and visiting with those brands directly to get their business.
Product Research for Seller-Manufacturers
You’ll actually be looking at most of the same information as the resellers:
- Sales Rank (& Sales History),
- Product Reviews
- Product Attributes
- Buy Box Price (& Price History)
- Competitors (Amazon, FBA, & FBM),
- Profit Margin
But you’ll be using this information as a guide to find what products to produce, so your research method works backwards from Resellers.
Whereas resellers get a list of product and its cost from a supplier and then gather information about those products to see if they match their performance criteria, you won’t know the product cost ahead-of-time.
You’ll be searching for products which meet most of the criteria and which you’ve determined will sell well so you can submit requests to your manufacturer-suppliers to see how much they will charge you and if there’s enough profit involved to be worth the risk of producing the product to see how well it sells.
So how do we research products to manufacture?
The easiest and most widely used method is to look at what’s currently selling on major marketplace sites. You can do this three ways:
Some Sellers choose to enter keywords into various marketplaces, including Amazon’s search toolbar and look at the top displayed results. That requires certain level of creativity, general industry knowledge and luck.
Thinking of items that are have been trending up in recent years, or eclectic impulse buys while knowing what is already heavily saturated with imported products versus not will take some time to learn.
You’ll have to become familiar with the typical cost of most products from a manufacturer. It may surprise you how much or how little margin there are in everyday products.
- Amazon – No easier place to start than Amazon itself. Some sellers click around the categories, enter search terms of products they’re considering and drill down the results to find things they consider to lack an appropriate level of representation on the site.
- Alibaba – You can look around AliBaba to see what items are being promoted while checking Amazon, eBay, and the other sites below to see what sort of margins you can achieve based on the average selling price on those sites.
- eBay – Many sellers use the completed listings on eBay to see what kind of prices you can consistently sell items for. Sellers also use eBay auction descriptions to gain some knowledge on a product. Prices and percentage of listed to sold are the considerations here though, you get a decent indicator of demand and the price customers are willing to pay.
- Etsy – We have never sold on Etsy, but sellers have expressed to us that even though it technically violates the site’s product qualifications to be listed, many Etsy sellers utilize Alibaba to purchase products, and then sell them for twice as much on Etsy. This may be a good place to do some initial research but the correlation to Amazon demand is in question.
- Comparison or Review Sites – These should give you some ideas away from the typical products people usually try and promote on Amazon. Not only are most quite niche but they also have high price points and sell well too.
- Review Sites: Sites like http://www.consumersearch.com/ rank extremely well in the search engines’ results pages and they are usually affiliates so it’s in their interest to promote high selling product.
- Comparison Sites: Comparison sites like confused.com, gocompare.com, moneysavingexpert.com and many more have forever ranked highly in Google and they are also affiliates who promote high selling product.
Although we don’t recommend against the manual approach, it does take a level of creative and analytical intuition that you may not have or don’t want to acquire.
It’s also analogous to manually entering SKU information into Amazon’s search toolbar to obtain SKU-level information.
For those two reasons, many sellers also use the following lists to more efficiently browse best-selling products:
- Amazon’s Movers & Shakers List: http://www.amazon.com/gp/movers-and-shakers
- Amazon’s Best Sellers List: Displays Amazon’s top 100 items for each category. Almost all of these are sold by Amazon.
- Amazon Selling Coach: We’ve included this as a list method because amazon does provide a list of recommended SKUs to you – look at their recommendations for products you can emulate
- mySimon Top Searches
- Shopzilla Top Searches
- Kaboodle Hot Picks
Well you can do it manually or semi-automated by utilizing lists, but both of those methods take significant time and there’s still no guarantee you’ll find any worthwhile products.
Or you can take automation a step further and use software applications like:
- Terapeak.com allows you to pull robust Amazon and eBay SKU data.
- While this is a paid service, it can be well worth the investment if you are serious about building your own brands, leveraging sales history of other similar brands to gauge the likely customer interest of your own brands.
- Google Adwords Keyword Planner tool is a nifty tool used for SEO and Pay per click keyword research.
- You can also use it to get an initial sense of online search traffic for different types of products.
- If you were considering, say, making private label flip flops vs. private label cookware, you could see which was more interesting among Google searching users. You need a free Google account to sign into this tool.
- There are also a variety of other sites that come and go that offer ability to pull certain ASIN data:
- http://download.cnet.com/Amazon-Scraper/3000-2379_4-75965326.html (go to cnet.com, and search for “Amazon Scraper”)
What Are You Looking For?
You’re looking for products that meet your criteria:
Sales Rank (& Sales History)
Although some sellers only look at products in the top 500 in each category, the sales rank value in each category reflects a different monthly unit volume because of the difference in customer bases visiting each category and the number of listings within each category. Don’t lose out on potentially great product ideas by using a standard rule of thumb that doesn’t follow sound logic. Instead determine what type of volume you want to sell and then research the product categories on Amazon and determine what your general cutoff is. Maybe it’s top 1,000 in Sports & Outdoors but only top 300 in Pet Supplies.
Resellers are looking for products with lots of reviews and a high average score. You definitely don’t want a lot of returns so a high rating is crucial where as the number of reviews doesn’t matter too much as long as the sales volume is there. If anything, a high number of reviews for a lot of similar products means that type of product has been in the market for a while and you will have a harder time penetrating into the top tier.
Weight, size, category, complexity, durability, and how niche your product. Those qualities respectively determine its functionality for shipping, storage, warranty needs, customer expectation levels and level of competition. That’s a lot to digest, but it’s important.
Buy Box Price (& Price History)
Does it fit within a price range where customers will purchase readily without emptying their bank account? Are the selling prices too low for you generate a profit based on the quotes you received from your supplier(s)? Is the selling price so low that shipping & fulfillment fees eat up your profit?
Competitors (Amazon, FBA, & FBM)
In tandem with review count, how many competitors are selling this product? Is Amazon selling it? You won’t be competing with them directly for the buy box, but they will be competing for traffic to their product detail page?
Will your product be purchased consistently year round? Will you have to plan for additional inventory to arrive before the holiday season because you expect a sales bump? Will you run into a sales drought during certain times of the year so that you need to sell through all of your inventory by a certain date? Will your product become antiquated with the advent of additional or improved technology? If you’re planning on creating a cell phone case, plan on an ever decreasing base of customers once new phone models with different sizes come out.
Looking at your product attributes to estimate logistical costs and product cost estimates from your suppliers, will the anticipated sale price on Amazon, make you profit, and how much? Many sellers who manufacture product want at least a 50% margin (100% markup).
Once you have a few product ideas, ask yourself:
- Will your product have a high refund rate?
- Will it be expensive to ship?
- Will it only be bought a few months of the year?
- Will people expect it to work flawless for years on end?
- Will people expect great customer support and education?
These are probably things you’ll either want to avoid or be sure you can deliver on.
Additional Points and Summary
Variations And Sizes
Let’s say run across some exercise apparel that seems to sell well and is priced well enough that you’re considering manufacturing your own version. Unfortunately, apparel usually isn’t the best bet for smaller companies. You want products that don’t have alternate sizes. This adds a dimension of complexity to your initial product development and to your selling mechanism on the channel. You will have to maintain adequate stock in each size and figure out what that level of stock is relative to every size option. Apparel and shoes also tend to have very high return rates because products don’t fit a customer’s size the way the customer expected it to.
What products sell well without being branded?
You’ll have to determine for which types of product people don’t readily recognize or care about a brand name. Both remote control helicopters and original equipment manufacturer (OEM) replacement parts for home appliances are good examples of products where customers don’t recognize the brand and instead RELY on the customer reviews, price, and product features to determine if they will purchase it.
Test Your Product Before You Purchase And Sell In Bulk
Once you finally receive your samples, thoroughly examine them by asking these questions:
- Is the quality really at the level you expected?
- Does anything look odd or cheap about the product?
- Does it include every part and component?
- If it requires instructions, are they easy to understand?
- Does it work the way it should?
- How does it hold up to rigorous or heavy use?
- How does the packaging look?
- Does your packaging contain any necessary warnings, liability labels, or warranty information?
- Would you feel comfortable giving this product as a gift to someone who wanted the competitor’s product off of which you got your idea?
- Is there anything at all that would cause a customer to not be happy with this product after they order it?
- How can you make this product clearly your own from an Amazon perspective? Is there space on the packaging for your own brand name or your UPCs? Both are very useful for differentiating your products on Amazon to customers, as well as locking down your brand in Amazon’s Brand Registry
If it meets your quality standards, try selling your samples online.
In my first business making kitchen aprons, we thought that we had hit it big by going with a new factory that would produce our aprons at much lower cost. At that time, it had never occurred to me to test the product out first by selling the samples. We placed a large order with our supplier and a few months later received thousands of aprons.
After a month of solid sales, we received customer emails and phones calls that some of the aprons had shrunk, others bled in the washing machine staining peoples clothes, and others came out of the wash looking like they had been run through a few hundred cycles. It didn’t break our business, but we were already dealing with growing pains, and this was another element that squeezed the business checking account in the form of refunds and chargebacks.
So list your product samples on Amazon or eBay and wait to hear feedback from your customers. If you receive negative feedback due to product issues or if you had to drop your price considerable from what you planned to sell at, you probably need to reevaluate the products you’ll be manufacturing. If you don’t receive any feedback or receive positive feedback, you may be on to something…now it’s time to place a larger order and test things out on larger scale.
Let’s review the approaches to product planning and sourcing
Poor Product Planning
Developing your business plan around a specific product because you personally use it; you BELIEVE it will sell well; the item “was on sale.”
Another poor reason we here sellers explain for purchasing an item that lost them money was that as they did their product research, an item “looked like it would be fun to sell.”
Average Product Planning (often confused with superior level planning because you’re incorporating some level of numerical research)
Identifying a SKU set with a low sales rank and finding a supplier that provides those SKUs with sufficient margin.
This approach seems reasonable, even savvy, but lacks the complexity to plan comprehensively for consistent success.
Superior Product Planning
- Creating a distribution model to understand the competition level of your product (# of competitors and inventory depth), the product’s historical sales rank trend (rather than capturing their sales rank just at one point in time), and pricing trend.
- Finding suppliers that offer more generous terms than wire or cash up front.
- Finding multiple suppliers for the product (direct with the Brand, authorized distributors, gray market suppliers, etc.) to allow for diversification in case a supplier runs out of stock (temporarily or permanently) or raises prices.
- Developing a purchasing model to keep the product in-stock without carrying too much overhead while remaining nimble enough to exit SKUs that become too competitive, are priced too low, are sold by Amazon, develop uncontrollably negative reviews or high return rates.
- Maintaining good relationships with suppliers to get access to close out deals and to secure 4th quarter inventory well in advance.
Finally, keep in mind that for every product you research, likely no more than 10% will actually be successful on Amazon…
So pull the right product, analyze it, refresh it regularly, and continually compare different options carefully.
To see you be successful and profitable, we want you to fall in love with a product’s numbers and analytics, rather than you falling in love with the product.