We recently took an in-depth look into how to decide what to sell based on your lifestyle and interests, and we also talked about selling niche items.

Today it's all about how to research supply and demand as we show you how you can determine whether the niche items you have come up with will be successful!

Then we put all our number crunching to good use by adding up all the figures and finding out how much profit you can expect to make.  

These steps are absolutely crucial to your market research; without these figures, it is difficult to make informed decisions on what to buy for resale. Sellers who skip this step could wind up with a bulk lot of a product that just will not sell. So read carefully!

What Is Demand?

Demand essentially measures how much an item is desired by buyers in a particular market. On eBay for example, there is a high demand for iPods.  We will talk more about how to find this information soon.

What Is Supply?

Supply refers to the amount of items that are available. This has a strong influence on the value of an item - how much buyers are willing to pay. In any market, a high supply results in a lower resale price.

Likewise, when supply decreases, value tends to increase. Interestingly, when this situation occurs, demand usually increases at a steady rate as more and more consumers want to buy the item. But, more often than not, supply will increase at an even faster rate than demand!

This is because all the opportunists out there (like us!) see the demand as a huge money-making prospect, prompting a gold rush.  

Researching Demand

1. For eBay selling

eBay sellers have a couple of options for finding out whether an item is in demand. You can use  eBay's Completed Listings data which shows you all the listings that completed in the past 14 days, and which ones sold, and which ones didn't.

To search eBay's Completed Listings go to eBay.com and click Advanced Search which is located next to the search tool bar on any page.

Enter in keywords describing the item you are researching, select a category, then check the box which says Completed Listings.

Click Search and eBay will instantly give you all data from the past two weeks showing you which listings sold (represented with price listed in green) and which did not (represented with price listed in red).

Scan these pages and count up the results. If you find that at least 60% of the total listings sold, you can be fairly certain that there is a sufficient demand for the item. Make sure that you take note of the average selling price, and also pay attention to any items that sold for a significantly lower or higher price than the others.

If you are unsure of how to find the average, click here.

2. For selling on your own website

A great way to find out what the general online demand is for a product is to use the Google AdWords Keyword Tool. The Google AdWords tool allows you to enter keywords related to the item you are researching.  Google then tells you how often the search term is entered each month by Google users.

It also suggests some other related keywords and provides both local and global searches to help you decide whether to market your item locally or globally.

To use Google AdWord's Keyword Tool, visit: https://adwords.google.com/select/KeywordToolExternal and enter keywords or phrases that best describe your product, or what you think buyers are most likely to enter into Google when they try to find it.

Google AdWords will then pull live data telling you how many searches were performed by Google users in the past month. As a very general rule, if there are more than 10,000 searches for the product each month, you can be fairly sure that there is potential market for your item.

However, keep in mind that that some searchers will be looking for information, and are not necessarily looking to buy the item.

Also remember that although there may be a demand for your item, whether buyers will actually find your site is another question! Up to 80% of Google users start their research by clicking the first website in their search results. If they don't find what they are looking for there, they may select another site from the results, but they rarely go beyond the first page. Getting your site ranking well in the search engines is an ongoing challenge for all web site owners.

Google AdWords Advertisements

Another great tip for people wanting to create their own ecommerce web site is to check out the number of Google AdWords advertisements for a product search term.

For example, when I type 'sunglasses' into Google, I can see a number of Sponsored Links on the right hand side of the search results. These are Google AdWords advertisements.

Because there are lots of advertisements, I can tell right away that sunglasses must be a profitable item to sell, as quite a lot of advertisers are willing to pay to have their products promoted. Keep in mind, however, that a large number of advertisements also means a lot of competitors. It's important to strike a balance.

Researching Supply

Researching supply is the second important step involved in market research. If you've just taken a look at the number of Google advertisers for the product you want to sell, then you'll already have some idea of what the competition might be like. For website owners, this means that it will likely be more costly to drive traffic to your website using Google ads. And if there are a lot of websites ranking for this item in the regular search results, then you'll need to have a really good search engine optimization strategy in place to get yourself listed on the first page. 

eBay sellers can fairly easily check out demand by going to eBay.com and searching for an accurate description of the product they would like to sell. The number of listings eBay pulls up are essentially the number of your competitors. Make sure you refine this search by using good keywords and using the Refine Search options on the left-hand side of the page though, otherwise you might get listings in the results that aren't related to what you are going to sell.

For example, typing in 'mandolin' will bring back results for books, kitchenware, clothing, musical instruments and DVDs, and you probably won't be competing against them all! So it's important to be precise.

Research Supply and Demand with SaleHoo's Research Labs

One of the best ways to pin down both supply and demand is with a market research tool such as the SaleHoo Research Labs.  

Our Research Labs makes all your essential market research and analysis an absolute breeze and allows you to find money-grabbing niches in no time.

Here is how it works:

You log in to SaleHoo.com and click Research Labs. Then click 'Create a new research project'. Next enter a few keywords which best describe the item you are searching for.

Click 'Analyze' and the Labs will then instantly gather real time data, such as the number of items sold, the total revenue and average revenue per item.

You will also get super valuable information like the average sale price, average start price for bid auctions, sell-through rate (very important for determining whether an oversupply exists!) and much more including what time of day to end your listing for maximum profit.

Terapeak

Another market research tool is Terapeak.com. Terapeak analyzes up to 90 days of eBay data and shows you when to sell and how to maximize your profits. 

Like the SaleHoo Research Labs, you simply enter keywords describing the item you are researching and Terapeak will generate all the information you need to determine whether the item you are selling has an oversupply or not.  

As a general rule, when using the SaleHoo Research Lab or Terapeak, if you find an item which has a sell-through rate of 60% or higher, you can be fairly certain that the supply and demand are well balanced enough for you to enter the market.

Doing The Numbers: How Much Profit Can You Make?

Now for the most important question - how much money can you make? In order to determine how much profit you can make from any given item you need to know the following:

• How much the item currently sells for on average, on eBay or your chosen selling platform
• The fees you will incur from selling the item. Most platforms charge both a listing fee and a success fee.
• If you have your own ecommerce store, find the cost of hosting your site, as well as any PPC or other marketing costs you have incurred.
• The cost of receiving the payment from your buyer. Most payment providers such as PayPal and Money Bookers charge a percentage of whatever your buyer pays you.
• The cost of shipping the item to your buyer. Most of the time it is customary for the buyer to pay for shipping, but sometimes there are some packaging or handling costs that can't easily be passed on, especially if other sellers are offering a more competitive shipping rate. Some sellers, however, chose to offer free shipping in order to entice buyers. You should test free shipping versus charging for shipping to see what works best for you.
• The wholesale price per unit of the items. This is how much you pay your supplier to get the items to your doorstep. It not only includes the wholesale cost of the individual items, but also the cost of shipping from the supplier, including any importing costs such as import tax if you are sourcing from abroad. In order to know this cost, you need to visit potential supplier's websites and check out their prices. Remember though that their advertised prices are not always their best prices, and usually don't take into account bulk discounts. Email or call them to get a more accurate idea of what you will be paying per item.

Once you have these costs, all it takes is a simple equation to determine how much profit you can expect to make. To do this, follow these 2 steps:

Step 1: Calculate the cost of selling the item. This will include listing and success fees for your chosen platform, PayPal or other payment processor fees, shipping costs and the costs of buying the item from your supplier.

To accurately and quickly calculate your eBay fees, go to this handy eBay fee Calculator. 

Total up all these individual costs. The sum equals the cost of selling your item.

Step 2: From the predicted price at which you can sell the items, take away the cost of selling your item. You will get the predicted price from using either eBay Completed Listings or one of the market research tools - Terapeak or the SaleHoo Research Lab.

Here's an example to help illustrate how to do this calculation:

If I were to sell cell phone charger car kits on eBay my costs would be roughly as follows:

eBay fees: $1.85

PayPal Fees: $0.50

Shipping to buyer: $0 (buyer pays)

Cost of wholesale item from supplier: $2.19

Total Cost of Selling $4.54

Total Predicted Sale Price: $9.29

Total Predicted Profit: $9.29 (predicted sale price minus) -$4.54 (total cost of selling) = $4.75 profit

Therefore, according to my calculations, I will earn $4.75 on each sale I make. Not a bad return on an investment of $4.54 - that's over 100%!

You can use this formula yourself to test possible niche items.

Quick Recap:

In order to determine whether there is a market for the product you wish to sell, you need to find the supply and demand.

• Supply refers to the amount of items that are available
• Demand measures how much an item is desired by buyers in a particular market
• To research demand, use eBay Completed Listings data and the Google Keyword Tool
• To research supply, use either the SaleHoo Research Lab or Terapeak. These not only tell you information on supply, but also demand and current sell-through rates and the predicted sale price.
• Once you have collected all the data, calculate the cost of selling the item then subtract this from the predicted sale price to find the profit you will make on each sale.

Wow! We covered a lot today! All that number crunching certainly gets your brain working overtime.

In the next newsletters we'll be diving into shipping options. Do you need to offer free shipping, as eBay recommends? What shipping companies are the cheapest? These answers and more - next time.