Sourcing: How to Find a Product to Sell on Amazon (Follow the Data Ep. 10)

Follow the Data Episode 10: Sourcing: How to Find a Product to Sell on Amazon

In order to take advantage of the incredible gold rush happening on Amazon, you need a great product to sell. And in order to find a great product, you need a rock solid sourcing strategy. This episode is all about the what a successful sourcing process looks like and how to find a product to sell on Amazon.


 

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Follow the Data Show Notes

  • The first thing you need to do before you begin your search for profitable products is set your goals. Look at a few products whose performance you want to emulate, and look at the calculated upfront cost using our FBA Calculator to determine what is realistic for you and your budget. 
  • Can’t think of any good product ideas? Look for inspiration online, browsing sites like Pinterest, Fancy, or Wanelo, or use a tool like Product Discovery that will do the heavy lifting for you and save you time. 
  • Make sure you do your due diligence and perform some market research before committing to a product. Our market research tool, Market Intelligence provides up to 2 years of historical data so you can look at sales, price, and review trends.

Podcast Transcript

CASEY GAUSS:

Hey, guys.  Just to give a heads up, this episode is targeted to our more beginner-level sellers.  In order to take advantage of the incredible gold rush happening on Amazon, you need a great product to sell.

CAMERON YODER:

But sourcing the wrong product can be worse for your business than not selling at all.  In order to turn a profit you need a rock-solid sourcing strategy.  I’m Cameron Yoder.

CASEY GAUSS:

And I’m Casey Gauss, your host for Follow the Data: Your Journey to Amazon FBA Success. In this show we leverage the data we’ve accumulated at Viral Launch from over 25,000 product launches and our experience working with 6500 brands to help you understand the big picture when it comes to Amazon and, more importantly, the best practices for success as an Amazon seller.

CAMERON YODER:

We’re embarking on a brand-new series about sourcing, a pillar of success for any Amazon business.  In order to compete with growing competition you need a high-opportunity market and a quality product at the right price.  This specific episode is a little more geared towards beginners.  However, our next couple episodes dive deeper into mid- to high-level content.

CASEY GAUSS:

On today’s episode we’ll talk about how to set realistic goals based on the capital you have to invest, how together a wide variety of potential product ideas, how to ensure that your product is in a good market and finally, how to determine which products are right for you and your business.

CAMERON YODER:

Casey, I love topics like this because even though it’s so simple, I – and even though this is geared towards beginners, I think there is value in this for anybody to, again, just take a seat, think about where you are, where you were and where you want to be and to think about and write out your goals for where you want to go.

CASEY GAUSS:

Yeah, you know, I imagine we’ve said this before, but probably the number one reason we see sellers fail is because they are jumping into the wrong product markets, or they make bad sourcing decisions.  And so kind of the intention with this series is to help steer people away from that. 

So yeah, so let’s jump in.  First we want to talk about setting your goals.  First, let’s talk about kind of where people go wrong here.  So I think the easiest place to, or the easiest way to identify it is, you know, really at the end of the day people would just go and see, hey, I know people are making money with this product.  I am going to source it.  End of the story.  You know, they’re not taking into account, okay, how much money do I have to invest?  How much money am I hoping to make?  How arduous is that process going to be of taking my product from conception to getting to that level of success that I’m seeing other people get?  You know, they’re not asking all these questions, and these questions are absolutely vital to having success, or at least having the expectations set appropriately so that you, you’re able to achieve them. 

So you know, our lead developer, he always says that reality is your expectations versus what really happens, and so if you get into a market expecting to make $50,000 a month because you see other people doing it but you only make $10,000 a month, well, you’re probably not going to be very happy.  But had you have expected to make, you know, $8,000-$10,000 a month and you’re making $10,000, well you’re going to be really excited about that.

CAMERON YODER:

You kind of outlined the goalsetting aspect, right?  One of those first questions that really helps people along the right path is how much money do you have to invest?  Really you’re taking a seat and you’re looking at okay, if I’m looking to get into fidget spinners, do I have enough money to get into this market? 

CASEY GAUSS:

Yeah, so too often we see, you know, sellers are trying to buy as much – they’re maxing out their budget for this Amazon business in their inventory.  And so basically – and this is a big problem, right?  So let’s say you have a $5,000 budget.  Well, these – a lot of sellers will go and spend up to $5,000 on inventory and getting it into Amazon.  What they don’t account for is well, now that’s just, you know, a tenth of the battle.  That’s the easy part of the battle I’d like to think.  The rest is how do I – or I’m going to have to spend money on marketing materials, you know, a la product photography, getting your listing written, keyword research, some software tools around helping you get up and going and optimized, and then marketing to get that product ranking.  You’re going to have to, at the very least, be spending money on sponsored ads or some form of marketing to get your product, you know, in front of people. 

And so if you’re spending all of your budget or close to, you’re going to have a very difficult time getting that up and going.  So you know if you have a $5,000 budget, and you need to be very honest with yourself about this, but yeah, let’s say you have a $5,000 budget.  You need to be allotting a lot of that budget to marketing expenses.  And so maybe spend half of your available capital on inventory.  You really need to look at the numbers.  You need to look at the market and be honest.  You know, what is the barrier to entry?  How much does each widget cost?  What are the fees associated with each sale?  And you know, how many units do I need to purchase in order to be able to be somewhat aggressive in order to have enough stock?  Let’s assume things go well and you’re selling 1000 units a month, and it takes at least 60 days from the time I placed an order until the time it’s in FBA.  Are you going to be able to have enough inventory to pay for, you know, 70 days of sales?  These are all questions that you need to, you know, be asking yourself.

CAMERON YODER:

Casey, let’s say – let’s say someone’s coming in with $5,000.

CASEY GAUSS:

Yeah.

CAMERON YODER:

What qualities should they be looking for in a market if they’re just getting into a market for the first time and they have like that $5,000?  What should they be looking for?

CASEY GAUSS:

So don’t be looking at those markets, or at least not right now, don’t look at those markets where you know you’re hoping to make $50,000 a month because, you know, you’re going to need $20,000 of inventory.  You know, you’re going to need a significant amount of money to invest, right, or at least, you know, significant in this example.  Anyways, so you know, look for those markets where your potential is $5,000 to $10,000 a month, maybe a little bit more.  But you really need to make sure that the barrier to entry is low because with $5,000 you don’t have a ton of budget for marketing.  So again, if you spend $3,000 on inventory, well, that allots you $2,000 to get some professional photos done, maybe get a keyword tool or two to help maybe have you write the listing.  And then you have to have a good budget for sponsored ads.  You have to have a good budget for marketing for running giveaways or however you’re planning on getting this product ranking.  But that’s even for a small market where the opportunity is $5,000 to $10,000. 

And a lot of people like to kind of steer away from these markets because it’s not as sexy.  Everyone wants to get into the markets where, you know, I can make $100,000 a month, or you know, these guys are just making insane amount of money on this one product.  But you know, in reality those are very vicious markets.  If it’s not vicious yet it will be very soon.  So I am actually a big fan of these, you know, unsexy markets where I’m only making $5,000, $10,000 a month but you just go really wide and you get into 10 of those markets.  The barrier to entry is generally low, or make sure that it is.  You’re not spending a lot of time or resources fighting competition.  You just get in, you dominate pretty easily and you just move on to the next one, and you know, you line up 10 of those markets, and now you’re doing $100,000 a month.  Now you have a million-dollar business.

CAMERON YODER:

As you said before, expectation versus reality.  It’s really easy to look at those, to watch those YouTube videos or those articles that talk about oh, hey, I made $1 million on Amazon with X product and think oh, this guy is making $1 million a year selling one thing, where I mean that’s, that shouldn’t necessarily be your expectation going into Amazon selling.

CASEY GAUSS:

Yeah.  Cool, so yeah, next, looking – you need to set realistic expectations for how much money you’re hoping to make.  Again, make sure you’re considering the net as well because it’s very easy to not pay attention to margin and get into a product where, you know, you’re selling a lot of inventory but you’re doing it at a very low cost just to drive traffic and you’re not actually making any money to reinvest.  And so that is very important.  Make sure you’re paying attention to margins.  You know, a lot of people like to kind of throw out these numbers around you should look for this margin versus this margin.  You know, as long as you’re thinking of the long-term strategy I’m actually an advocate of being open to any kind of margin.  If you’re excited about $0.10 on the product but you’re doing just an insane amount of volume, or this is helping you play into some bigger narrative around, you know, I’m using my Amazon traffic to fund my, I don’t know, outside business – I don’t know, but anyways, I think there are scenarios in which case all margins work so long as you’re being very cognizant of what is going on.  If you’re not aware that $0.10 of margin per unit sold is not very good, well now you’re in trouble.  So a really take a look at that.  You know the nice thing here is that you kind of get to control everything here, so if you are looking for a product where the margin is X, those markets exist.  You just have to be willing to put in the time to find it.  And we’ll talk a little bit more about that later.

CAMERON YODER:

This is if – if step one in setting your goals is asking yourself the question how much money do I have to invest, then this would be a comparable step two in asking yourself okay, now that I’ve established how much money I have to invest, now how much money do I hope to make, right?  And with this you’re looking at the long-term market, the long-term market trends, I guess, that really help paint that picture.  You’re also asking yourself in this, in the question of how much money do I hope to make, you’re asking yourself okay, are my goals realistic based on the amount of money that I have to invest?

CASEY GAUSS:

You also need to look at kind of what the end goal is here, right?  So am I just trying to cash flow and make a bunch, you know, as much money as possible as easily as possible?  Well, the answer there is you may want to just go and pick out all these great diamonds in the rough, all these opportunities.  So hey, this product in beauty, I could profit $10,000 a month if I get into it pretty easily.  Competition isn’t very high, so I’ll source this.  And then next thing you know there’s something in pets where you can do the same, and then in health and household, and then in automotive. 

And so I’ve seen people be really successful here.  I’ve not seen a successful exit of a product line like this.  Part of the reason being is not because people are not interested in them.  It’s because I don’t know as many lines that are doing this.  But you know the biggest seller that I know doing this, they’re doing around $30 million a year, and they’re just sourcing everything that has high opportunity for them.  And so it’s working very well from a total revenue perspective.  Could they easily sell?  To the right, you know, private equity firm, for sure.  But I think it’s not as easy, and your multiple will be lower.  The areas where I’ve seen the highest multiples on brands that sell, let’s say that, you know, this is your end goal.  Well, then you want to build a cohesive line of products, in which case you need to not just be looking at one particular product, but you should probably go line up at least a few that you know have good opportunity for you to get in there, the barrier to entry is not too high, competition is not, you know, insane, and you can go start with product one and then go to product two, product three.  You have a decent kind of roadmap ahead of you.  And this will really, again, kind of dictate where you get started as well as where you are going.

And then kind of the last thing is how much time are you looking to invest?  You know, do you have another job?  Is this a side hustle, just something you’re just, you know, doing on the weekends or whatever?  Or are you looking to replace your full-time job and dive all the way into this?  Or are you full-time here, in which case that will kind of dictate, you know, the products that you get into.  And you know, ideally just because opportunity cost is so high, meaning that, you know, for every dollar you’re investing right now in your Amazon business you’re getting $10 back, you know, let’s just say, versus, you know, in some other market, some other opportunity you’re investing a dollar, and maybe you’re getting two, three dollars back.  The opportunity is just so high in Amazon that spending time doing other things or wasting time doing this is just not worth it.  And so you should always be looking for those products where the 80/20 rule easily applies.  So what’s 20% of the work that’s going to get me 80% of the results?  Move on, you know?  Go to the next product.  Do the 20% of work, get 80% of the results, and then, you know, move on to that.

CAMERON YODER:

It’s also really important to ask yourself how much risk you’re willing to take or you’re able to take right now.  Like if you have a family or if you have other people to take care of, then how much time can you put into this, and how much time are you willing to invest?  And how much risk are you willing to take?  Those are all super important questions.

CASEY GAUSS:

Just because you have $1 million of free cash laying around – one, hit me up.  No, I’m just kidding.  But you know, you shouldn’t just dive all the way in.  I think that you should dip your toe into the water, understand kind of the marketplace, how everything works, what are market dynamics, and then start to iterate from there.  Once you really figure it out, okay now let’s start investing more money.

CAMERON YODER:

So we talked about setting goals, the question of how much money do you have to invest, how much money you do you hope to make, building a product, a cohesive product line, and how much time you’re looking to invest.  Now we’re going to dive into specifically finding product ideas.

CASEY GAUSS:

Yeah, so this is something that we’re becoming more and more passionate about.  I think a great place to start, although I have a counterpoint to this, is just looking at products that you’re passionate about, right?  Like you understand those markets better than anybody.  You can stay on top of trends, which are great opportunities to really build a business.  But yeah, look at markets or, you know, products that you’re very familiar with.  I will say that counter to that, generally we see the people that are the most successful are people that are actually not very passionate about the markets that they’re in, and the reason being is a lot of the time the people that are passionate about this, they make emotional decisions.  And so it’s the emotional decisions that can, you know, sometimes lead to bad decisions or less profitable decisions.  The guys that have the most success or, you know, the individuals, men or women, that have the most success are those that are not particularly passionate about their products.  They just really understand how to identify great market opportunities.  They know how to pull the levers to success when it comes to Amazon, and they’re just able to, you know, really, really push forward.

CAMERON YODER:

I think I can offer a unique perspective on this actually.  So back in high school I did something called retail arbitrage, okay?  So I would, back then I would go to Goodwill or just other stores in general, buy something for super low and then flip it on eBay, of all places.  EBay and Amazon, actually.  And during this time when I was getting started developing this a little bit more it really just helped pay for some stuff in high school and helped pay a little bit my way through college, but I got some really good advice as I was just starting to get into everything with flipping online, and it was someone who had been doing it for a little while, doing retail arbitrage, and he told me hey, Cam, just as you’re starting out look into the things that you’re passionate about.  They might not be the best things to sell, but because you’re passionate about them you will be more interested and will not lose your interest as quickly as you might be if you’re not as passionate about it. 

And so, Casey, everything you said I 100% agree with.  I do think, though, that there is something that holds your attention more about if you’re just looking into markets and you’re looking at what it means to sell on Amazon or if you’re looking into products that you might want to source, looking into categories that you are passionate about or is going to help really get you in.  Now it’s important to understand then what makes a good market, what separates a good market from a bad one because if you’re passionate about a market it doesn’t necessarily mean that it’s going to be a healthy one to get into or one that’s going to really help you make a lot of money if that’s what you’re wanting to do.

CASEY GAUSS:

Yeah, no, I think that’s a good point.  Cool, so, and you know another way is if you have a manufacturer or are aware of manufacturers, or you can go find manufacturers on sites like Alibaba, hit these guys up.  Ask them for their product catalog and just see what they offer.

CAMERON YODER:

You can find their product catalog online.  You could just to go to their product page and look through their whole list of what they offer.

CASEY GAUSS:

Oh, well there you go.  So and this is not necessarily a plug for Viral Launch, but whatever.  One great way to kind of just sift through those catalogs really easily is you can do it yourself or have a virtual assistant.  Just go take those product ideas, plug them into Market Intelligence, which is, you know, our market analytics tool, and you can see oh, this is a four-star idea, five-star idea, one-star idea.  If you have a great rating okay, now I know that I need to look more into this market or those stats.  You can just really cruise through and amass, you know, a good potential products idea pretty quickly.

CAMERON YODER:

Literally, so browsing other internet sites, like if you just even check Pinterest, or if you check Instagram, basically keeping your mind’s eye open to okay, when I see a product look it up on Amazon.  Look it up on a research market tool, Market Intelligence, right?  So even if you’re walking through the store, just be in a mentality, a mentality mode of hey, I’m going to write down this list of products that I never thought would be successful to sell on Amazon, and I’m going to check out the market just to see what it’s like.  That’s just helping you expand your mindset on what is even possible to sell on Amazon.

CASEY GAUSS:

Yeah, and another thing, there’s other tools.  You know we have one launching here really soon.  Again, not so much a plug, but just an opportunity.  We have a tool called Product Discovery.  Jungle Scout also has a tool that allows you – you know, we’re tracking tens of millions of products, both of us, and basically you’re able to filter these, you know, massive Amazon product catalogs based on, you know, what you’re looking for.  So you know, I’m looking for a product that is doing at least $20,000 a month in this category and is fulfilled by Amazon, or merchants or whatever.  Yeah, and then we’ll just show you.  Hey, here are thousands, or tens of thousands, or maybe 20 products that all fit your criteria.  Hey, you know here’s maybe the starting.  You can look further into this.  Basically it’s just a shortcut to kind of sifting through Amazon data to understand what’s working and what’s not.  Is it always the best?  No, I think that there is no necessarily best answer.  Just whatever works best for you is kind of that answer.  I think it’s worth, you know, trying out pretty much all of these just to, again, to get a taste for yourself, and depending on what market you’re looking to get into or are already into, the more opportunity to find something good.

CAMERON YODER:

So we’re talking about, again, this whole series is about sourcing in general, and we’ve gone through goals.  We talked through finding a product idea.  The next comparable step would be to look further into those markets, to narrow down your product ideas.

CASEY GAUSS:

Yeah, so we call this the validation stage.

CAMERON YODER:

Right, right, yeah, validation.  Casey, what should people look for when they’re looking to narrow down their search in this way?

CASEY GAUSS:

Yeah, you know, I think we’ve kind of talked on some of these points a little bit in other podcasts, but really –

CAMERON YODER:

Just like a broad, I guess –

CASEY GAUSS:

Yeah, yeah, so just a quick overview.  You know, we want to look at market potential.  So don’t look at any one particular ASIN in a market and expect to replicate that ASIN’s success.  You should be looking, you know, at the averages or high averages of a particular market.  And when I mean market I’m talking about a, you know, the products that are ranking for a particular keyword.  So let’s take grill brush as an example.  Please do not source grill brushes.

CAMERON YODER:

Don’t do it.

CASEY GAUSS:

Terrible idea.

CAMERON YODER:

Wintertime, huh?

CASEY GAUSS:

Yeah, I know.  Anyways, so search grill brush.  Of the top, you know, 20-some products, fifty products or whatever, preferably you know really page one to be honest, but anyways, what are the average monthly sales?  And those of the kinds of numbers that you should be expecting, not what is the top seller or the highest volume seller doing?  Don’t expect that.  Again, it’s all expectations versus reality, and we want to help you set your expectations appropriately.  Next is kind of the barrier to entry, and we think of reviews as kind of being that barrier to entry, like we’ve talked about before, so really we look at this thing.  Should be called reviews to sales ratio.  We call it sales to review ratio because it kind of flows a little bit better, but anyways, really what this is is a calculation of potential versus, you know, how much work am I going to have to put in to get there?  So you know, on average let’s just say on page one if all the sellers were selling 1000 units a month but they had 1000 reviews, that would be a sales to review ratio of one, meaning like that’s not that great, but it’s not too bad, versus a market where everybody had 100 reviews and they’re selling 1000 units a month.  That’s a sales review ratio of 10, and that just means like you don’t need to gain as many reviews in order to sell at market potential, which you know, is more opportunity for you to get in quicker, hit market potential, easier and kind of move on to the next product.

CAMERON YODER:

What about red flags?  What should people – what are some red flags that really pop up?

CASEY GAUSS:

Yeah, so if Amazon is kind of dominating the market, so you know if, you know, 40%, 50% to 70% of the listings are all sold by Amazon, generally that could be a red flag, meaning it’s going to be more difficult to compete against these listings, or there’s a reason why Amazon is selling them.  Again, looking at brand names so it doesn’t matter who is selling them, but again, if a significant share of the market is held by these brand-name players then there’s probably a reason for that, meaning that there’s a chance that people are buying these products for a particular reason from brands.  So there are products where – maybe it’s diapers or whatever, bottles or I don’t know, something where people want these brand names to be their manufacturer.

CAMERON YODER:

So okay, we talked about goals.  We talked about finding a product idea, validating your product idea.  Another aspect is contacting – and the next step, I guess, would be contacting a manufacturer, right?  And so finding a manufacturer is actually a huge aspect of sourcing.  We’re going to have a full episode for you next week all about it.  I go in depth with a very high-level seller about his experience with manufacturers from finding a good partner to negotiating from low-level strategy to high-level strategy.  No matter where you are, no matter where you’re at in the process I think you’ll find something useful in our conversation. 

Well, that is all that we have for this week.  Thank you so much for joining us on Follow the Data.  Join us next week for that manufacturing episode.  For more insight and reliable strategies for taking your Amazon business to the next level, subscribe to the podcast and check out the Viral Launch blog at viral-launch.com.

CASEY GAUSS:

Don’t forget to leave us a review on iTunes.  Your feedback helps us reach new listeners and is super helpful as we develop the show.  Huge thanks to those who have already written reviews, as well as called in and left us a voicemail.  It’s super exciting to see your enthusiasm for what we’re doing, and we can’t wait to bring you more valuable content.

CAMERON YODER:

Thank you again so much for listening.  And if you want to be featured on the show feel free to leave us a voicemail and tell us your thoughts on today’s episode, or ask us your Amazon questions.  Our number is 317-721-6590.  Until next time, remember, the data is out there.

 

About the Amazon FBA Seller Podcast:

Viral Launch CEO, Casey Gauss, and Amazon Seller Coach Cameron Yoder bring data-driven insights to the Seller community in their weekly discussions.

On the show you’ll get the latest Amazon selling strategies and best practices based on the company’s experience launching over 22,000 products and working with over 5,500 brands. Casey and Cam will bring you up to speed on the latest Amazon news, share stories of success and failure, explore the difficulties of entrepreneurship, and discuss the way Amazon is changing retail.

At the center of the show is the Viral Launch commitment to offering reliable information to today’s entrepreneurs.

Amazon Product Research: Interpreting and Analyzing Market Data

“Amazon Product Research: Interpreting and Analyzing Market Data” is an excerpt from Viral Launch’s Ultimate Guide to Sourcing Private Label Gold Mines ebook. Download the full ebook at the bottom of this post.

Interpreting and Analyzing Market Data

Sourcing tools provide A LOT of information! Having more data, assuming it is accurate and relevant, is always going to help sellers make better sourcing decisions as they’re researching products on Amazon. However, that is assuming those sellers know how to interpret and leverage that information to inform their decisions. Here we will do our best to highlight all of the available data, what it means, and how it should influence your sourcing behavior.

Doing Amazon product research using Market Intelligence begins when you run a search for the product you have in mind. We highly recommend that you search the product’s most relevant yet basic term. For example, if you are searching for a vitamin c serum, don’t search “Vitamin C,” which is too broad, or “Vitamin C Serum for Women,” which is too specific. Simply search for “Vitamin C Serum.”

 

Identify what customers are purchasing for this search term

Knowing what is selling for a search term and/or product market is crucial. Imagine you wanted to sell some gloves to cover your hands while grilling, and you had a product like this in mind:

Well, when you search “grill gloves” or “grilling gloves”, you’ll find that more customers are actually looking for a five finger glove made of either silicone or another heat resistant material.

Sourcing the wrong type of widget for the search term you’re researching can have major implications. Sure, you can still sell the widget with different positioning that is more relevant to what is actually selling (in this case you would need to position your “grilling gloves” as oven mitts), but the market landscape for oven mitts may be completely different than for grill gloves.

You may have to sell at a completely different price point in a market that could be far more competitive. We’ve seen instances, much worse than this example, of sellers not knowing what is already selling when trying to enter a market. Most of the time, it ends with a much lower ROI than anticipated.

In conclusion, know the proper positioning of your widget, and sell a product that is very similar to what the market is already purchasing.

 

Identify Outliers

When it comes to analyzing a market, you may come across a listing that has abnormally high or low sales and/or reviews. Generally, in your market considerations, we suggest dismissing those listings as outliers. In our experience, these listings are not worth taking into account when performing your analysis as they are not representative of the market or what you should expect for your product. As you can see in the image above, the highlighted row has an astronomically high number of sales relative to those listings around it. Market Intelligence will automatically flag those outliers for you when you display data in the Filtered View.

 

Product Category

When it comes to Amazon product research, knowing the product category is crucial for estimating sales. Sales are estimated based on a product’s Best Seller Rank within its respective top-level category (ex. Home & Kitchen). Knowing the product’s category may also help you understand how other sellers are positioning the product. Finally, you’ll want to make sure that you know the requirements for certain categories and products requiring approval. Sourcing a product in a gated category without proper preparation will set you up for a headache down the road.

 

BSR (Amazon’s Best Sellers Rank)

What is it?

The Amazon Best Sellers Rank is a metric of a product’s sales relative to the rest of the market within a particular category. The top selling beauty product would have a BSR of 1. The second best seller would have a BSR of 2. This is very important for sourcing. Amazon product research tools use this metric to estimate a product’s sales by leveraging a proprietary algorithm that translates BSR to estimated sales. Market Intelligence shows a sparkline of BSR over the last 30 days to help give a quick view of how sales have trended for that product over the last 30 days.

Clicking into the BSR 30 sparkline will present a popup that shows how the Best Seller Rank has trended over the last 3-4 months for the product.

Source Smarter

Looking at how BSR has trended for a particular product can help explain certain scenarios. For example, a sudden drop in BSR could indicate a promotional giveaway. In combination with the price trends, you may be able to explain fluctuations in BSR with fluctuations in price.

 

Monthly Revenue

What is it?

The purpose of this metric is pretty obvious. Monthly revenue is calculated simply by multiplying the monthly sales metric by the current price point. Knowing what other sellers are grossing in the market is important for knowing what the top line revenue potential is for the market.

Source Smarter

We strongly suggest not basing your expected sales on what the top 1 or 2 sellers in the market are selling. This suggestion goes back to not basing your expected results on any particular ASIN. We suggest taking an average monthly revenue from a few of the listings you feel confident you could compete with on ranking position, price, reviews, etc.

For example, I would expect to start-off selling around $10k/month in gross revenue based on this screenshot versus the $100k+ the top two sellers are selling at because they have very high review quantities.

Underestimating monthly revenue will do you much better than overestimating when calculating sales projections. It’s great to be optimistic, but this is an area where practicality will serve you well.

 

Price

Price is an important metric for informing your sourcing decision in two ways: 1) If you have a revenue/profit goal in mind, knowing how much you can charge per unit will help you know how many units you will need to sell each month. 2) Price will allow you to determine your product’s unit margin.

While some markets are more price sensitive than others, price can be a major lever in increasing/decreasing traffic, but can also have a major impact on profitability. We’ve seen so many sellers source “higher quality” products which forces them to charge much more than the average market price. There is certainly a time, place, and strategy for doing this. However, from our observations, this tends to end up being a mistake, and the product struggles to match projected sales volume.

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Make sure you can match the average market price with plenty of margin!

 

Unit Margin

What is it?

Unit Margin is the amount of money Amazon will pay out for each product purchased (considering no returns and promotions). The unit margin takes into account Amazon’s marketplace referral fee (Amazon’s fee for selling on their platform), the short term inventory storage fee (charged based on the product’s dimensions), Amazon FBA order handling fee (calculated based on the product’s weight and dimensions). You also have the option to input your landed unit cost to get an accurate representation of associated variable costs. The bottom line “Margin” figure offers a glimpse into what you can expect to be paid out by Amazon per unit. Tip: Changing the landed unit cost for one product will apply the landed unit cost to all products shown in the “Top Sellers View” for your convenience.

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Pay close attention to this field. For example, having the potential to drive top line revenue of $100k per month is fantastic, but let’s say the unit margin is close to $0, then that $100k top line figure is worthless as it won’t actually contribute to your bottom line. Another factor to be cognizant of is that the margin across markets can decline over time. If you find a market and product that allows you to have a comfortable margin, you will essentially have insurance for a profitable future.

 

Monthly Sales

What Is It?

Estimated monthly sales is an estimation of the number of orders a product has had over the last 30 days. Based on an enormous amount of aggregated market data, both historical and current, we’ve created a custom sales estimation algorithm that is updated and improved nightly. By observing a product’s Amazon Best Sellers Rank within a top level category, we are able to estimate the number of orders a product has seen. Part of our superior accuracy is our Composite Estimate. Looking at historical data, we provide estimated sales volume per day for the last three to four months.

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Knowing how other sellers in the market are performing is critical to identifying the sales potential. Sales volume is the largest indicator for success in a market. Products with high sales volume are performing well, those with low sales volume are not performing well. Estimated sales act as an indicator for many scenarios:

Product Type: By being able to observe how each individual ASIN is performing in estimated sales volume, allows you to identify which types of products are performing well. For example, looking at a Fish Oil, observing which pill counts have higher estimated sales will help inform you which pill counts you should consider sourcing and which you should avoid.

Sales Potential: Let’s say the top 10 sellers are driving less than 100 estimated sales per month, is this a market worth getting into? Yeah, maybe if each unit is selling at $100 per unit ($100 * 100 = $10,000), but if you can only charge $20 per unit with a top line revenue of only $2,000 it’s likely not worth getting into.

Inversely, let’s say that the top 20 sellers are averaging over 1,000 sales per month (excluding other factors). That means there is high potential and considering other factors, this could be a great product to get into so long as you can cashflow the inventory.

 

Review Quantity

What Is It?

Review quantity is one of the largest barriers to entry for a market. You must definitely pay attention to the review quantities of top performers. We’ve observed plenty of instances in which sellers enter a market due to high sales potential, but do not take into account the significance of the competition, and struggle to ever hit that sales potential.

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Pay close attention to how review quantity impacts sales.

Do all top sellers have a high relative review quantity? If so, this is an indicator that you will need a comparative number of reviews in order to sell at the same volume.

Are there plenty of ASINs with low relative review quantity that are selling at a high volume? If so, you may have the opportunity to sell at a decent volume with a low review quantity. This is generally a great thing, but you want to be careful to know this definitively.

Are there only one or two ASINs that are selling well with a low relative review quantity? A warning to the wise, we would identify those listings as outliers, and would suggest not taking their performance into account. If you want help identifying outliers, we suggest clicking on the “Filtered View” where we attempt to programmatically identify outliers for you.

 

Average Rating

What Is It?

This metric displays the average review rating for a product.

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While it is important to source a high quality product, knowing how other products are performing is an opportunity to know how your product needs to perform in order to stay competitive. For example, finding a product market with a low average review quantity (ex. Market average of 3.5 stars) could be an opportunity to source a higher quality product that customers are going to be satisfied with.

The savvy sellers will be sure to click in and read the reviews of many products in the market to learn what customers do/don’t like about current offerings as well as potential deficits and opportunities to provide a better experience. With that said, be mindful that your product updates/alterations do not cost too much on a per unit basis so as to drastically diminish your unit margins.

 

Who Owns the Buy Box

What Is It?

Here we denote what fulfillment method is being used, or identify if the product is shipped and sold by Amazon.

Smart Sourcer?

At the time of writing this piece, we feel that this metric should not have much of an impact in sourcing decisions. There are benefits to knowing what the competition is doing, for example, if many listings are fulfilling via FBM, are not Prime eligible, and economically it makes sense for you to fulfill via FBA, this may be an opportunity as shoppers and keyword ranking favor Prime eligible listings. There are also some concerns with trying to enter markets that are dominated by products sold by Amazon directly. These ASINs typically perform well and can be a bit more difficult to compete with.

 

Sales to Reviews Ratio

What Is It?

This is a simple ratio calculation of estimated monthly sales divided by current review quantity. We call this the “ROI Ratio”. We explain the importance of this metric later in extensive detail.

 

Net Profit

What Is It?

The Net Profit is an estimation of the payout the product produced over the last 30 days based on the calculation of estimated sales multiplied by the unit margin. (ex. $5.50 per unit *100 units sold = $550)

 

Download the Complete Guide

Did you enjoy learning about Amazon Product Research and how to interpret and analyze market data effectively? To get other golden nuggets on sourcing your next home run, download the Ultimate Guide to Sourcing Private Label Gold Mines.

Contents include:

  • Crucial concepts
  • Product data vs. market data
  • Interpreting and analyzing market data
  • The key metric to ROI
  • Plotting your course for success

And more…

Fill out the form below to receive the guide and start sourcing gold mines:

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Amazon Product Research: Interpreting and Analyzing Market Data

Related:

The ROI Metric: Identify the Best Products to Sell on Amazon

Generate Amazon Product Ideas: 3 Creative Methods for Sellers

The ROI Metric: Identify the Best Products to Sell on Amazon

“The ROI Metric: Identify the Best Products to Sell on Amazon” is an excerpt from Viral Launch’s Ultimate Guide to Sourcing Private Label Gold Mines ebook. Download the full ebook at the bottom of this post.

The Key Metric to ROI: ROI Ratio

Finding the best products to sell on Amazon includes identifying and sourcing high ROI product markets.

Generally, the largest barrier to achieving sales potential in a given market is relative review quantity. We have overwhelming data showing us the relation of organic sales to relative review quantity. For example, let’s say that the majority of listings on page 1 for search “xyz” have over 1,000 reviews, but one listing has only 130 reviews. Relative to the rest of the listings, 130 reviews is quite few.  

Based on what we have observed, the product with 130 reviews will struggle to sell at a similar volume compared to it’s competitors with ample social proof at 1,000+ reviews. Review quantity is a major determinant considering all else is approximately equal (price, review rating, etc.). There are certainly exceptions, but this seems to essentially be the rule. This has been observed nearly daily in our experience helping newer products achieve keyword ranking among more mature listings.

While there are certainly ways to supplement a high review quantity to drive a relatively high volume of sales with other forms of social proof (ex. Best Seller badge, Amazon’s Choice badge, superior aesthetics, etc.), reviews are generally the product market’s “economic moat”. Overcoming competitors’ economic moat (reviews), is a function of time multiplied by your review rate. The faster you are able to achieve reviews, the quicker you will be able to overcome that competitive moat. This translates to: as a product achieves a relatively similar review quantity to its competitors, organic sales volume will increase.

For this reason, we identify the market’s comparative review threshold to be the amount of “investment” necessary to reach a market’s sales potential.

 

ROI Ratio = Monthly Sales Potential ÷ Review Quantity

Example of high ROI Ratio: 1000 units/month / 100 reviews = ROI Ratio of 10!

Example of low/bad ROI Ratio: 1000 units/month / 1000 reviews = ROI Ratio of 1

We generally suggest looking for product markets where the average ratio is somewhere above 2-3, as these are typically some of the best products to sell on Amazon. Conversely, stay away from markets where that ratio is less than 1. The higher the ROI Ratio, the more likely it is a good market to get into (it is still important to analyze the rest of the market metrics).

 

An Example of Sales to Review Ratio (AKA the ROI Ratio)

Imagine the average top seller in a market was driving 1,000 sales per month with an average review quantity of 45. The sales to review ratio would be (1000 / 45 =) 22! That is incredible. Driving just 45 reviews is a very simple feat (depending on the product as some products naturally are harder to obtain reviews for). So the amount of investment, time and money spent achieving just 45 reviews, is very low considering the sales potential of ~1,000 sales per month. We would consider this a very favorable market to get into – a great product to sell on Amazon.

Conversely, here is an example of a product market where the ROI Ratio (sales/review ratio) is approximately 1 or less. The amount of investment (time and money) needed to obtain a competitive number of reviews (1,000) in order to reach the sales potential (~1,000 units/month) is far too high for our liking. There are obvious exceptions: maybe you have the money to bully your way to the top, perhaps you have a dramatically superior product (very RARELY is this a viable excuse), maybe you are okay with a low sales volume for this product as it’s a natural extension of your brand, among others.

 

The Psychology of Review Quantity

Here is a brief rundown of our assumptions into the customer psychology of this phenomenon. Review quantity stands as the most evident form of popularity to the consumer among the products shown in the search results (while Amazon provides BSR to provide an indicator of popularity, a simple survey of Amazon buyers will quickly reveal this is not a well known metric nor is it shown in the search results). Which product do you think has sold more units?

As consumers we want a “safe bet” when it comes to making a purchase. We want to be sure that whichever widget we purchase will completely satisfy our needs and will not break within an unreasonable time. Consumers also fall subject to the bandwagon effect in which they buy the item because it is “popular”, which in turn, increases its popularity. “Many others are purchasing/not purchasing this widget for a reason, so I will take the safe bet and follow suit.”

Download the Complete Guide

Did you enjoy discovering the key metric to identifying the best products to sell on Amazon? To get other golden nuggets on sourcing your next home run, download the Ultimate Guide to Sourcing Private Label Gold Mines.

Contents include:

  • Crucial concepts
  • Product data vs. market data
  • Interpreting and analyzing market data
  • The key metric to ROI
  • Plotting your course for success

And more…

Fill out the form below to receive the guide and start sourcing gold mines:

[activecampaign form=6]

 

The ROI Metric: Identify the Best Products to Sell on Amazon

Related:

Generate Amazon Product Ideas: 3 Creative Methods for Sellers

Understanding the Amazon Best Sellers Rank (BSR) – The Definitive Guide