Product Research 101: Find Winning Products to Sell on Amazon and Beyond by Renae Clark

Author:Renae Clark [Clark, Renae]
Language: eng
Format: mobi
Publisher: Dilettante Living Press
Published: 2015-10-24T16:00:00+00:00

Chapter 4: Sourcing

Goal: Identify sources for your products and determine the cost to acquire them

The final step in product validation is determining the cost that you can acquire the goods for. Million dollar seller Jose Calero once said the profit is in the buying price, not the selling price. This can be tricky as a small business because when you are purchasing in smaller quantities you will get the least favorable wholesale price. You will also get discouraged when you discover that your wholesale cost is pretty close to what large sellers are retailing it for.

One strategy can be to order a small quantity first to test the market knowing that you may only break even. You can place a larger order to get a price break once you know the product can sell as well as how quickly it sells.

You can also try to order in quantities large enough to get free freight. Some suppliers will have a dollar threshold for free shipping, while others may have special offers from time to time. Make sure you are on your supplier’s email list to get notifications of special offers. Remember, the profit is in reducing your cost of your goods.

What is a reasonable profit margin? Sellers vary as to what level of return they expect but averages are:

For wholesale: 15-35% with 20% typical

For private label: 30-50% with 40% typical

How to calculate profit margin

Step 1: Selling price-Amazon fees (including shipping to the warehouse)-Product cost (including shipping to you) = net profit.

Step 2: Net profit/selling price=percent margi n

Example: Selling price is $20. Your cost to ship to Amazon’s warehouse, seller’s fees and FBA fees are roughly $6.50. Your net from Amazon is 13.50. The product cost you $9. $13.50 - $9= $4.50. This is your net profit. Your profit margin is net profit divided by selling price: 4.50/20=.225 or 22.5%

As a general rule of thumb look for a product that you can purchase for roughly 1/3 the retail price. That is, you want to be able to list it for three times (3X) your purchase price. Fees and shipping will eat up roughly 1/3 and the other 1/3 is your profit. The higher the selling price of the item, the more you can afford 2X markup (i.e. where the wholesale cost is half of the retail price) instead of 3X as certain fulfillment fees are fixed. On a lower priced item, for example $10, at least $3-4 will be fees so on a product that costs you $3 you may only make $3. On a $50 item your fees may be $11 so if your product cost is $25 you can still profit $14.

Heavy or oversized items may incur more fees so leave yourself room and always start with a small test order to see what your net profit actually is before investing in more inventory. Until you actually sell one, you won’t know the actual cost to sell, just an estimate.

Tip: When estimating Amazon fees use the FBA revenue calculator. If your exact item is in the Amazon catalog, use that to get a good estimate of fees.

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