Determining the potential of a product a seller intends to sell on Amazon's e-commerce platform requires understanding a multifaceted market and a clear grasp of costs.
In addition to calculating the entire financial picture, including Amazon fees, production costs, shipping, etc., sellers must also thoroughly research the competition within their niche in such a large marketplace.
Generally, a product with potential on Amazon will meet the following criteria:
- The product has a sufficiently large demand
- The level of competition is not high
- The profit margin is large enough to support in-platform marketing campaigns
Assessing the Competition Level of a Niche
Before delving into product-specific aspects, sellers must analyze the market, the product niche, evaluate the level of competition, and understand BSR (Best Seller Rank).
Market Analysis
Sellers should review existing businesses and sellers in their field by analyzing Amazon search results comprehensively, including marketing strategies, product profitability, and how they stand out from competitors (USP).
A thorough market analysis will help businesses find a unique direction for their brand, the brand story they want to convey, and a distinctive concept for their product.
Analyzing the Level of Competition
Overall, the competition on Amazon's e-commerce platform is high due to the abundant traffic it generates and the presence of numerous large brands dominating the market in popular niches (e.g., shampoo, serums, etc.).
Additionally, products often face direct competition from similar items offered by Chinese sellers.
Sellers should evaluate pricing, customer reviews, and the quality of competitors' products to effectively position their own products. High competition may require a greater financial investment in marketing or the development of a competitive advantage (USP) to capture market share.
Demand Analysis
Amazon Best Seller Rank (BSR) is a metric provided by Amazon itself, indicating the number of units sold per day as well as the sales performance of a product within its main category. A lower BSR signifies higher sales performance (i.e., more units sold) compared to other products in the same category. Sellers should monitor the BSR of their products and their competitors’ products to assess demand and sales trends in the Amazon marketplace.
Evaluating Potential Products
After understanding the market niche regarding demand and competition, the next step is to assess whether the business's product truly fits the niche.
Key factors sellers should consider when evaluating whether a product has potential include:
- Sales volume
- Pricing history and pricing strategy of competitors
- Customer reviews
Sales performance
An important metric in evaluating a product’s success on Amazon is its sales volume and historical sales data.
A high and stable sales volume over an extended period indicates consistent demand for the product.
Analyzing historical sales helps identify seasonal factors or market trends that may affect profitability. This allows for strategic planning in stocking and production to enter the market most effectively.
Pricing and profit margin
A winning product is one that is priced correctly, has a large average profit margin, and can still provide long-term profitability.
The product needs to be priced to cover all costs associated with selling on Amazon's e-commerce platform and generate a sufficient profit margin, typically at least 40% gross profit margin after accounting for Amazon fees and product costs (including cost of goods and shipping costs both domestically and internationally).
Calculating the profit margin by dividing net profit by the listed price on Amazon will give sellers a clearer view of the product's financial viability.
Reviews and Rating
The simplest formula for success that every seller can apply is to improve on the weaknesses of competitor products and enhance their own offerings compared to competitors. To achieve this, customer reviews and ratings are essential.
High ratings and positive reviews can lead to increased consumer trust and higher sales volumes, while a large number of negative reviews may indicate issues with the product that could affect profitability.
Continuously monitoring and addressing feedback on both your products and those of competitors is crucial.
Calculating Costs When Selling on Amazon
A potential product is one that can be profitable. To determine the profitability of a product after customizing it to fit the market, sellers must accurately calculate various types of costs.
These calculations are essential for pricing the product competitively while ensuring the most appropriate profit margin.
Types of Costs on Amazon's Platform
Amazon’s fee system can be extensive and complex, requiring careful research from sellers before deciding to sell on the platform. Fees depend on the sales plan, referral fees based on the category, and additional fees for fulfillment if using FBA (Fulfillment by Amazon).
These fees may include:
- Monthly Subscription Fee: Professional sellers pay $39.99 per month, while individual sellers pay $0.99 per item sold.
- Referral Fee: Typically ranges from 6% to 45% of the product's sale price, with most products on Amazon currently having a 15% referral fee.
- FBA Fee: Based on the size and weight of the product, these fees cover packaging, shipping, customer service, and handling returns.
Additionally, Amazon has recently introduced a series of new fees in 2024 that sellers need to be aware of.
Amazon provides a dedicated tool, the Revenue Calculator, which allows new sellers to preview all types of fees when considering selling a specific product line. This tool helps sellers easily estimate the remaining profit margin after accounting for all Amazon fees.
Sellers can access the tool at: Amazon Revenue Calculator
Shipping and Fulfillment Costs
- Shipping to Amazon Warehouse: Costs associated with moving goods from the origin point and storing them at Amazon’s warehouse for sellers using FBA.
- Fulfillment Costs: For FBM (Fulfillment by Merchant), sellers need to calculate their own packaging, shipping, and handling costs.
Shipping costs can vary by carrier. To get precise figures, work with your logistics provider. For new product planning, you can estimate around $220 per CBM for sea shipping and triple that rate for air shipping.
Return Fees
For sellers using Amazon's FBA service, if returns occur due to seller errors, Amazon will charge additional fees for processing the returned items.
To estimate these potential costs:
- Return Rate: The average percentage of sales that result in returns, which varies by category.
- Return Processing Fees: If using FBA, Amazon charges specific fees for processing returns depending on the product category.
Decision-Making on Stocking Products
To make the decision to stock a product or determine if it is a potential product that will bring profit to the business, sellers should rely on specific data and evaluate the long-term sustainability of the product line being considered.
Carefully review the actual data.
Data is a crucial factor in confirming the profitability of a product.
Sellers should analyze various metrics, particularly the key indicators listed above: BSR (Best Seller Rank), profit margin, and customer demand.
Ensure that the profit margin is sufficiently large to support marketing campaigns according to the planned strategy; a standard rule is to aim for at least a 40% profit margin.
Long-Term Vision
Sellers should assess the product lifecycle, market trends, and potential customer base (Return Rate) when entering a market. It’s crucial to target evergreen niches rather than trendy or seasonal ones.
One of the most useful tools for checking if your target niche is an evergreen market that can be sold year-round is Helium 10, with its long-term keyword analysis feature.
Ensure that the keyword search trends or the BSR (Best Seller Rank) charts for competitor products show stable patterns without significant fluctuations.
Conclusion
Evaluating potential products for sale on Amazon is not only a crucial step in your business strategy but also determines your success on this e-commerce platform. By applying effective evaluation methods—ranging from market demand and competitor analysis to considering factors like customer reviews and pricing competitiveness—you can identify high-potential products and optimize your chances of success.
Thorough research and in-depth understanding of the product will help you make informed decisions, minimize risks, and increase profitability. By combining analytical tools, market research, and performance metrics, you can choose products that align with customer needs and current market trends.
Ultimately, flexibility and the ability to adjust strategies based on evaluation results are key to sustaining and growing your business on Amazon. Always stay updated with the latest information and trends, adjust your evaluation methods as needed, and continuously optimize your strategy to achieve sustainable success in this competitive e-commerce landscape.
