It took me awhile to realize it, but having a good product with a healthy profit margin that sells well is the basis of 70% to 80% of online success. A great sales strategy, excellent customer service, and a good looking website are worthless if you have a lousy product or something with a low profit margin.
Learning what to sell and what not to sell is actually the secret of retail success. The only reliable way to learn this skill is to actually start selling because there is no substitute for experience.
However, there are some benchmarks that can help you tell the profitable products from the duds.
Before we jump into the meat of this section, I'd like to tell you about one of the most powerful research tools for sellers - the SaleHoo Market Research Lab that comes free with your SaleHoo membership.
The beauty of this tool is two-fold:
First, with a few clicks you can retrieve so much useful information, such as:
But that's not all. You can also use the Market Research Lab as a risk management tool. In other words - you can find out what doesn't sell.
For example, in the following list you can see that 'cigars' and 'shoes' don't fare so well compared with the other products:
The Market Research Lab should be in your toolbox as a seller.
Here are some of the characteristics of products that you can actually make money by selling. These factors should serve as benchmarks for anything you decide to add to your inventory.
Healthy Profit Margins In the world of retail, profit margin is everything. The profit margin is the amount of money you end up with at the end of the transaction after you've paid the expenses: PayPal fees, website, credit card, advertising, shipping, drop-shipping, etc.
The minimum profit margin the average seller can tolerate is 15%. That means you should have $15 left over after a $100 transaction. Determining the profit is simple; all you have to do is subtract all the expenses from the initial sale price of an item.
And the only way to determine your profit margin is to actually sell something. I've found that you have to make several sales before you can make a realistic assessment of the profit margin on most products. That means if you want to know the profit margin, do the maths for each transaction.
Takeaway Point: If you want to make money, simply eliminate products with a profit margin under 15% from your inventory. Successful sellers are ruthless about eliminating unprofitable products and are always on the lookout for alternatives.
Click here if you want to learn more about boosting your profit margin.
High Quality Higher quality equals a higher profit margin. If you sell lower quality products, you will have to discount, which means that you will have to charge lower prices. Lower prices mean a lower profit margin.
The only way you can make money with a low profit margin is to sell a high volume of products. Discounters like Amazon.com can get away with that because they have huge cash flows that can absorb the losses. Individual sellers do not have this luxury.
Higher quality products also appeal to people that have the money. Think of the difference between a person that shops for a Honda and a person who shops for a Mercedes. Mercedes appeals to executives, entrepreneurs, and other individuals with high incomes. Honda appeals to those with limited resources.
Takeaway Point: Emphasizing higher quality products is the best way for a small seller to increase profit margins.
Look for Niche Products A niche product is an item that appeals to a limited number of people. A niche product might be an item that is custom designed for a specific industry or a product that appeals to hobbyists or enthusiasts, such as an expensive fishing fly.
Some more examples of niche products include:
The key point here is that these products are somewhat less common in their respective industries. Therefore there is a greater chance that this segment of the market is untapped.
The advantages to niche products include:
The best way to find niche products is to leverage your own knowledge and experiences. Think of the hobbies you enjoy or your career or business experiences. Then think of the products you used in those activities that you had a hard time finding. Chances are those are niche products.
Takeaway Point: Niche markets are easier to get into and make more money in than mass markets.
Scarcity A basic law of economics is that if something is in limited supply, you can charge more for it. The reverse is also true: if something is common, the only way you might be able to make money at it is through deep discounting and volume sales.
The way to identify scarce products is to run a search for the item and see how many people are selling it versus how many are searching for it. If only a few people are selling an item and demand is high, it is scarce.
Scarce products include niche items, collectibles, and new products that are just entering the market. Unfashionable and unpopular items can also be scarce.
Takeaway Point: Scarcity is the major factor that raises profit margins.
Look for Hungry Markets hungry market equals high profit margins.
Finding hungry markets can be hard, but it is not impossible. One way to spot hungry markets is to watch what people are searching for. Trending searches and sales can sometimes indicate hungry markets, but not always.
One excellent way to spots trends is to use Google Trends. It is fairly straightforward - enter the product you are interested in and retrieve the data. For example, this is what you see when you type in 'Shampoo for pets':
This information is invaluable when you are in the research phase.
Another way to find hungry markets is to visit online hobby forums and question and answer sites such as Yahoo! Answers or Quora. If you see a lot of people asking where to find something, you might have just spotted a hungry market.
As always, you will need to check the profit margin before selling. One reason the item might be scarce is that the profit margin associated with it is too low for anybody to make money selling it.
Takeaway Point: A hungry market is the easiest place to make money because profit margins will be high.
Upsell Opportunity Upselling simply means selling more goods or services to existing customers. Ideally, this means more expensive goods or services or an upgrade. Think of a happy customer coming back to buy a more expensive model.
The best way to create upselling opportunities is to offer great customer service and create a wonderful shopping experience. If the customers like you and have fun buying from you, they will be more likely to buy from you again.
Leverage customer service by adding complementary products to your inventory, such as more upscale versions of products, accessories, books or apps about the products, and similar or related items. For example, if you are selling fishing flies, you could add cases for the flies, books on fly fishing, and fishing poles to your inventory.
Takeaway Point: Upselling is the best way to encourage repeat business. Repeat customers are the basis of any successful business.
Trending Products A trending product generates a lot of interest online. Trending can be an indication of other attributes of a potentially good product, such as a niche market or scarcity.
The best way to spot trending products is to take a look at the 'trending now' feature on sales websites and blogs. A trend can indicate that a lot of people are searching for something.
Watching trends can help you spot a fad or a craze and can help you get into a market early when products are scarce and profit margins are high. The problem with trending is that others will see it too. You will have to move fast to take advantage of trends.
Takeaway Point: Make sure you evaluate other basic sales factors such as profit margin, scarcity, and the number of competitors before jumping on a trend. Just because something is popular does not mean you can make money selling it.
Knowledge and Expertise Existing knowledge of a market or customer base is invaluable, and the good news is that you already have such knowledge.
If you go over your experiences, you can probably identify niche markets and scarcity. Sit down and think about your hobbies and business activities. Then try to identify any products related to those that you had a hard time finding or paid a lot for. You might have identified a niche market that you can take advantage of.
Having additional knowledge will make it easier to upsell because you will be more familiar with upselling opportunities. You will also be more likely to know which upselling products will actually sell and which will not.
Takeaway Point: Your knowledge and experience can be one of the best sources of market research around. It is market research you already possess, and it is free!
Sell Products You Like My experience is that you will make more money and have an easier time selling products that you like and enjoy using. When you sell products you like, you will have more passion and a higher energy level.
You will also be more likely to commit the time and energy needed to make the sales successful. If you don't like the products, your sales business will become a chore you want to avoid.
Another advantage to selling what you like is that you will have more knowledge and be in a better position to provide good customer service. That could lead to even more upselling opportunities and higher profit margins.
Takeaway Point: Selling products you don't like or don't care about is likely to lead to poor customer service and low profit margins. A good rule of thumb is that if you don't look forward to filling orders or answering customer questions, don't sell that item.
If you need some specific information on a certain industry, perhaps we can help. Listed below are three market guides to industries that are very popular with sellers:
As you can see, deciding what to sell is not a simple affair! So remember to pay careful attention to the products that you add to your inventory. Offering the wrong products leads to lousy sales, poor customer service, and low profit product margins.
But now that you know what to sell, you're going to have to find a trusted supplier to work with.