Everyone remembers the first thing they learned in high school economics right? You know, the old supply-and-demand curve? Supply and demand is a relatively simple economic principle that states the price for a given product is determined by the number of products available (the supply) and that value is inversely proportional to the public's desire for that item (the demand). In other words, scarcity of a product or commodity will increase the price of said item as well as the demand, whereas an overabundance of said product/commodity will reduce both the price and the demand.
Understanding this basic principle can be incredibly helpful in determining how profitable selling your specific products online actually ends up being. In fact, a comprehensive grasp of the way supply and demand works is an important cornerstone of effective market research.
Today, I'll teach you how to determine the supply and demand of a given product, which will in turn allow you to estimate that product's profitability.
How to research demand
The first thing you need to understand is that market research begins and ends with knowing and providing for what your customer most desires. Determining public demand is therefore pivotal to finding your product's overall profitability.
Let's examine the differing methods for ascertaining public demand in different formats.
Determining demand on eBay
You can estimate public demand on eBay by using the "completed listings" setting in the advanced search options. Just follow these simple steps:
- Click "Advanced Search" on the eBay homepage.
- Enter keywords describing your item.
- Choose a category.
- Check the box titled "Completed Listings."
- Click "Search."
- Examine your results, counting the number of sold listings versus unsold listings. You can differentiate between the two by color. Green means a listed item was sold, while red means that the item was never purchased.
- Tally up the results for both sold and unsold listings. If the average of sold-versus-unsold items is greater than 60 percent, you can conclude that there is viable demand for your chosen product.
Determining Demand with Traffic Travis
There are two important points to consider when estimating the demand for a product you are selling on your own ecommerce site:
- The amount of search traffic your products and related keywords are producing.
- Whether your product pages are keyword optimized to take advantage of high search volumes.
Traffic Travis is an excellent tool to help you find out both pieces of information. Conveniently, this software is available in the form of a free download. Once you've downloaded the program, you can follow these simple steps to determine both the market demand for your product and the efficacy of your website's Search Engine Optimization strategy:
- If you don't already have one, start a Google AdWords account.
- Run Traffic Travis.
- Click the "File" menu, and then select "Program options."
- Enter the email address and password for your AdWords account and then click "Save."
- Next, click the Research tab, it should take you to a screen that looks like this:
- Enter your products, associated keywords or keyword phrases in the "Keyword" box. (You can also search for relevant keywords on a landing page or within a product category, but it isn't strictly necessary for determining keyword search volume, which is roughly equivalent to the public demand for information concerning a product.)
- Click "Fetch."
This will show you the average global and national monthly search volumes for your chosen terms as well as a list of related keywords that you may choose to optimize your website with in order to boost organic search traffic.
If your product has more than 10,000 monthly searches you can be assured that market demand is decently high. However, you should be aware that not every searcher is looking to purchase said product. They may only be looking for information about it.
Searching for supply
There are a few methods for seeking out the overall supply of products in the market.
You can Google search your products and count the number of paid advertisements that appear at the top and on the right side of your results page. This is a good indicator of both competition and overall supply.
You can also conduct a more precise search of your products on eBay. Use exact keyword and filters to refine your search and eliminate irrelevant listings. The number of listings in the results is essentially your market's supply.
Seeking out supply using the SaleHoo Research Lab
The SaleHoo Research Lab (SRL) is a resource only available to members of the SaleHoo Directory, but it is an invaluable tool that I've put in place to help members better understand their niche markets.
To utilize the SRL for this purpose, you can enter in the keywords that best describe your product and click "Analyze." The analysis of your keywords will result in informative metrics concerning your product, such as:
- The number of listings containing your keyword that were sold.
- Total revenue per item.
- Average revenue per item.
- Average sale price.
- Average start price for bid auctions.
- Sell-through rate (this is very important for determining whether an oversupply exists).
- The best time of day to end your listing for maximum profit.
Try to look for a sell-through rate of 60 percent or higher. This is indicative of balanced supply and demand within your chosen market.
Deriving profitability from supply and demand
Now it's time to take all of what you've learned and put it together in order to find out how profitable your intended products can be to sell.
In order to determine profitability, you must first calculate your total costs, including the following:
- The fees you will incur from selling the item: most platforms will charge both a listing fee and a success fee. If you're selling on eBay, use the eBay fee calculator to determine how much this will be.
- If you have your own ecommerce store, you'll need to include the cost of hosting your website as well as any PPC and marketing costs you've incurred.
- The cost of receiving the payment from buyers. Most payment providers will charge you a percentage of whatever a buyer pays.
- The cost of shipping your items. Most of the time it's customary for the buyer to pay for shipping, but sometimes the packaging/handling costs are too high to pass on to the customer, especially if other sellers are offering more competitive shipping rates. You can offer free shipping to entice buyers as well, if you mark up your prices to absorb that cost. Experiment with both options to see which works best for you.
- The wholesale cost per unit of each item. This is how much you pay your suppliers to get the items to your doorstep. It not only includes the wholesale cost of individual items but also the cost of shipping from the supplier, including any import taxes you may have to pay if you're sourcing from abroad. In order to ascertain this cost, you'll need to visit potential supplier's websites and check out their prices. Remember, though, that the prices advertised aren't always the best that you can get. They usually don't account for bulk discounts. Email or call the supplier to get a more accurate idea of what you'll be paying per item.
- Consider drop shipping your items, which circumvents the shipping costs entirely, as the supplier ships directly to the buyer.
Once you've calculated your costs, subtract that total from the average selling price of your item. Recall that you can get the average selling price of an item from SRL or from completed eBay listings.
The resulting difference is your product's profitability.
For example, if you wanted to sell a snow shovel on eBay, you would have to pay:
- $3.82 in eBay fees
- $1.79 in PayPal fees
- $8.46 in shipping
- $9 to purchase the item wholesale
The sum of your costs: $23.07
Subtract that from the average selling price of a snow shovel: $51.50
Your estimated total profit from each sale: $28.43
Yikes! That's nearly half your sale in overhead. You might want to charge your customers for shipping.
Despite it being such a simple concept at first glance, supply and demand can be pretty complicated to fully comprehend in real world applications. If you follow these guidelines, however, you'll be able to determine the profitability of your chosen products through in-depth research and good old-fashioned hard work.
Make your research tasks fast and easy with the SaleHoo Market Research Lab. Get instant access to the Research Lab when you join SaleHoo.
Get instant access to the Research Lab when you join SaleHoo
