For those looking to start selling on Amazon, the first thing is to decide on a product. Many may tend to pick products they like, but it requires more than preference to make an informed decision. How should you choose your products, how should you price them, and sell them? These are questions that we’ll consider and more in finding a suitable product for Amazon.
HOW DO I CALCULATE PROFITABILITY?
To evaluate if a product can be profitable, we’ll have to consider the total cost of sourcing, shipping, and selling on Amazon, as well as how much you can price your products.
The total costs would generally consist of the following:
- Landed Cost: The cost of manufacturing and shipping your product to Amazon
- Cost of goods
- Any preparation fees
- Amazon’s Fees: The various fees Amazon charges for selling on the platform
- Referral fee; a percentage of your selling price, typically 15% for most categories
- Fulfillment fee; a fee Amazon charges for picking and packing your product every time a customer places an order
- Storage fees; costs for storing your product in Amazon’s warehouses
- Selling plan fees; $39.99 for the professional plan and $0.99 per item sold for the individual plan
To be profitable, you have to mark up your products from their marginal costs. First, you’ll want to find a benchmark price by looking at competing products with similar specifications. Once you set a target price, subtract your costs from your revenue to calculate profitability. Ensure you have enough ROI to price competitively.
HOW TO ESTIMATE PRODUCT DEMAND?
When you’re wondering what you can sell on Amazon, demand is a crucial component to consider. Whether people are searching for and buying similar products gives you a better picture of whether a product is in demand.
Amazon awards a best seller rank (BSR) to almost all its products within its catalog once it has sold at least 1 item. The higher a product’s ranking, the better its sales. Hence, the BSR is a good indicator of how well a product is selling within its category. When you collect the BSRs of a collective of similar products, you can very well estimate the current sales trend of this product.
Where can you find a product’s BSR?
The BSR is located in the product information section on the product detail page. Scroll down on a product detail page until you find this section.
How can you translate BSR into actual sales numbers, you ask? Well, there are many sales estimator tools available at your disposal with a simple search. Some plugins display each product’s BSR on the product search results page to give you a birds-eye view of current sales trends.
If you are brand registered on Amazon, the brand analytics tool reveals search terms sorted by rank providing sellers with a good idea of which products are in demand.
HOW TO ESTIMATE COMPETITION
The next component to evaluate is competition. To gauge competition, we look at how saturated the market is with similar products and check if the market can accommodate newcomers.
All Amazon products compete for limited real-estate on the search results page. The higher a product ranks organically (not to be confused with best sellers rank) on the search results page, the more visibility it receives from customers, which naturally means more sales. Amazon’s algorithm factors in conversion, sales history, and keyword relevancy, among others, to determine which products appear on top of the page and which after.
When a shopper shops on Amazon, they usually search for products via the search bar leading them to the search results page. The search results page displays each product’s image, name, price, ratings (out of 5 stars), and rating tally. These are the information the shoppers rely on to make a purchase decision. When all else being equal, more often than not, shoppers will rely on social proof (product ratings) to make a purchase decision.
The shoppers’ behavior described above tells us that market saturation, product ratings, and rating tally are good predictors of competition. Fewer similar products and quality ratings indicate lower competition and vice versa.
We’ll use Ailumia’s Market Research results containing machine learning processed data to explore these metrics and find winning products with the trifecta of high demand, low competition, and profitability.
PRODUCT RESEARCH GUIDELINES
To start your product research, gather a list of potential products to analyze. You may do this by scouring Amazon’s Bestsellers, Hot New Releases, Movers, and Shakers or download Ailumia’s Machine Learning processed Market Research results.
SAFETY & COMPLIANCE CHECK
Amazon, at times, require select product types in some categories to produce compliance documents to ensure products sold by third-party sellers are compliant with national standard, regulations, and requirements. Depending on the regulation, Amazon may request specific test reports and certificates.
- CPSIA compliance requests require sellers to submit CPSC accepted lab-tested results and a Children’s Product Certificate (CPC) in the US. Usually applicable to products within the Toys & Games category.
- REACH compliance is an EU regulation restricting chemicals and heavy metals in consumer products. This compliance applies to all consumer products sold in the EU and may be triggered at any time. When triggered, Amazon will request sellers to submit a REACh lab test report, issued by a third party.
It is worth noting that Amazon will suspend the product shortly after compliance documents are requested, and a product may be subjected long after it has been sold. Hence, make sure you understand the compliance required for the products you plan to sell and have the required documents on hand before selling.
By selling on Amazon, you’re participating in commerce and, therefore, will have to abide by commerce law, particularly when it comes to intellectual property (IP). Amazon takes claims of IP infringement seriously regardless of whether sellers unknowingly violate them. Selling counterfeit products and infringing on trademarks may result in your account being suspended, so make sure you do your due diligence in finding the right products to sell.
There are 3 main types of IP rights listed below:
- Patents: exclusive rights granted for a process, design, or invention. If a product is already patented by someone else within a specific country, you can’t sell products within that marketplace.
- Trademarks: Trademarks are any word, phrase, symbol, design or a combination of all the above used to identify goods or services. Do not include someone else’s trademark on your product, product packaging, product listing. This may sound easy but you’d be surprised to find that some generic-sounding nouns we use everyday are actually registered trademarks (i.e. Styrofoam, Ziploc etc.).
- Copyright: Copyright is a type of intellectual property that protects authors of “original works of authorship”such as literary works, music, movies, or software.
To understand if a product has already been patented or contains trademarked or copyrighted elements, you can either hire a lawyer or research on your own by following the steps below:
- Search “patent” or “trademark” + [your product idea/ brand/ product name] in a search engine.
- Check listings on Amazon or brand websites for any mention of patents.
- Sweep through the databases of intellectual property offices for your target marketplace (i.e USPTO for the US, EUIPO for Europe, the Intellectual Property Office of the UK).
Disclaimer: We are not lawyers, so be sure to seek legal counsel for any specific questions or concerns you may have.
Consider ease and practicality of sourcing.
Especially for your first product, you want to find something that will be rather simple to produce and ship. Keep these variables in mind when narrowing down your product ideas:
- Sourcing: Look for a product that will require simple changes — this means you’ll have fewer details to work out with a supplier and will have more supplier options to choose from.
- Shipping: Smaller, lighter products are easier to ship, and you want sturdy material to survive the shipping process. You don’t want a product that is easily broken.
- Importing: Unless you’re producing and selling a product in the same country (not very common for FBA sellers today), you’ll need to import products to the appropriate marketplace. Every country has certain regulations on what you can and can’t import. You can work with a freight forwarder (for free) for information regarding importing your products (more on this below).
Your product idea doesn’t have to meet every criterion mentioned. As long as you let the data guide or validate a product idea, it’s important to keep your momentum. Don’t get stuck in analysis paralysis. Start getting samples of products and continue powering through the process!
In the next segment, we look at how to find manufacturers for your product ideas.