Demand—the amount of shoppers who want to buy her product.
The most perfect Amazon FBA product in the world will not succeed if there is no consumer demand for that product.
You don’t want to end up like Lucy.
Today, I will give you four steps to determine if your Amazon FBA product idea has strong demand to ensure you’ll see sales when you launch.
1. Find a product with high ROE.
Well, what’s ROE?
ROE stands for return on energy. It’s a term that we at Just One Dime devised to mimic return on investment…but for energy. Essentially, ROE is the amount of energy you’ll invest into a product versus how much that product produces for you in return.
Sure, a product may yield you a high profit margin, but if it takes a ton more work on the backend, time, and hoops to jump through, you might be better off to put that energy towards launching three products that require less energy from you.
And what does this have to do with demand?
If a product or product idea’s demand is low, that product will likely not sell well, which means that the energy (and money) you’ve put into its manufacturing was not well spent. Ergo, low demand equates to low product ROE.
On the flip side, if a product has high demand and will likely sell quickly, then the energy (and money, still) you’ve put into the product, research, manufacturing, building supplier relationships, designing packaging, building the Amazon listing, etc., is well spent.
The ideal is scenario number two. You want a high product ROE, and you can increase the chances for a high product ROE by carefully assessing a product idea’s potential return.
2. Find a product that yields a high return.
Here, high return refers to profit. You can achieve high profits by either selling a lot of a low dollar profit product or fewer of a high dollar profit product.
Dollar profit is how much profit (not margin—percentage—but dollars) you make per sale.
As a baseline, we teach our students to find a product market in which at least three of the top ten organic products (organic refers to non-sponsored listings) generate $5,000+ in revenue a month at or around your goal sell price.
For example, if you want to sell your prospective product for $30, you (and for research purposes, your future competitors) would need to sell at least 167 units a month ($5,000 revenue ÷ $30/sale ≈ 167). However, if your product is priced at $100, you’d only need to sell 50 units a month ($5,000 ÷ $100 = 50).
That said, what truly matters (yes, even more than prospective monthly revenue) is prospective profits. For example, if you do $5,000 in revenue each month at 5% profit margin, you’ve only accrued $250, whereas if you do $3,000 in revenue each month at 50% profit margin, you’ve accrued $1,500. It’s all about perspective.
We teach our students to find products where the potential profit margin is at least 40%. However, that’s not a hard and fast rule.
Yes, your profit margin percentage matters—especially if you haven’t begun to think about advertising spend—but so does your dollar profit. So while 40% as a general rule is a good strategy (especially for newer sellers), selling a more expensive product (if you can afford to), with lower profit margins but significant actual profits, is a potentially viable strategy.
For example, let’s say your product sells for $250 per unit at 25% profit margin. 25% is not ideal, however 25% of $250 is still $62.50 in profits per sale. If you do three sales a day for a month, you’ve accrued $5,625 in profit each month ($62.50 profit/item x 3 sales/day x 30 days/month = $5,625).
Now consider you have a product that sells for $30 per unit. You accrue 50% of your revenue in profit…but 50% of $30 is only $15. At three sales per day for a month, you’re up to $1,350 in profit ($15 x 3 x 30 = $1,350).
I’d go with the former.
The difference between $5,625 and $1,350 each month (on average) amounts to $67,500 and $16,200 per year.
But here’s the rub: to pull off this type of business model—higher cost, lower profit margin, but higher profit-per-sale—you need a lot more upfront capital to invest in your products, just to make a single inventory run.
If you make $62.50 off of each $250 product sale, that means you already spent $187.50 to manufacture and ship each unit (plus Amazon fees) ($250 sell price/unit - $62.50 profit/unit = $187.50). If you ordered 90 units for your initial batch of inventory, you’ve already had to spend $16,875 total ($187.50 to make each unit x 90 units = $16,875).
However, if you make $15 off of each $30 product sale, that means you only spent $15 to manufacture and ship each unit ($30 - $15 = $15). At 90 units per inventory order, you’ve only had to spend $1,350 upfront ($15 x 90 = $1,350).
Essentially, the more capital you have the option to invest upfront, the more money you can make over time. If you can afford the higher upfront investment strategy, you’ll have more capital from your product to later invest in another, better, even more expensive product that you can sell for even more money, which will allow you to make more margin later on.
Just One Dime can help you find high potential product ideas, vet suppliers to bring those ideas to life, and even strategize what types of products you will launch (and how you’ll launch them) in your Amazon FBA store. Visit JOD.com/freedom to learn all the ways in which we can support you along your entrepreneurial journey and help you make your goals a reality.
3. Find a product with low brand loyalty.
A product might have insanely high demand…but if that demand is for a particular brand, steer clear of that market. In fact, avoid any market with established brand loyalty, where customers buy because of a brand, rather than the product (and its functionality), itself. For example, you wouldn’t want to go up against Nike to sell running shoes, or Mead for ballpoint pens.
There are three tests you can use to evaluate brand loyalty within a product market:
Brand name spread
Ideally, you will find a market where all of the top products have different brand names. That said, one where less than half of the top competitors are the same brand will do just fine.
Big brand names
Avoid markets with any large or household brand names such as Bose, Sony, Panasonic, etc.
Even if there are multiple brands in the top few products and no big brand names, you still should ensure that the sales are spread evenly across those several, not huge brand names.
For instance, if the top product by brand A sees 90% of the sales, then that means the remaining 10% are split across the rest of that market. Not great. Instead, aim to find markets where the top several products do similar amounts of revenue each month.
A strong indicator of a fairly even sales spread (that we teach in our membership) is three different brands each selling 300+ units/month.
4. Find a product with low seasonality.
Let’s recap: you want a product with high ROE, high yield returns, and low brand loyalty…so that’s it?
You must still consider seasonality.
You see, when you evaluate demand data (specifically revenue data), that data might be skewed depending on the time of year.
Some products are seasonal, which means they sell well in specific bursts and then lay dormant the rest of the year. So if you pull data on fake Christmas trees in November, it’s going to look like the top sellers are straight up booming all the time…when in reality they’re just booming at that moment and might run dry on sales by the New Year.
You must assess any prospective market’s historical data—across an entire year—to determine if a product is seasonal or if it has year-round demand.
A product’s best sellers rank (BSR) is a strong indicator of how well a product is selling. BSR measures how quickly that product sells compared to others in its category. A Sports & Outdoors product selling 500 units per month might have a BSR of 18,000, but when it starts to sell 900 units a month, its BSR jumps to 10,000. The lower the BSR, the faster that product is selling.
By assessing a product’s historical annual BSR, we can determine if that product (and market) is likely seasonal or not.
A product/market that sells well year-round should have minimal fluctuations—highs and lows—during the year, with a prospective small peak around the holidays because shoppers are buying more of just about everything over that period. This suggests that the rate at which that product is currently selling will remain fairly consistent, which means you can better forecast and plan your inventory (and avoid running out of stock).
Here, for example, is what a stable BSR graph looks like:
Even with that slight dip just before January of 2022—during which it appears as if the seller ran out of stock, temporarily—cat scratchers are definitely not a seasonal product!
Unless your actual strategic goal is to sell seasonal products (which can, in fact, make you a lot of money), you should avoid products and markets with unstable or seasonal BSR trends, which often look like a gigantic, albeit brief, spike amidst a field of otherwise consistently higher BSRs.
As a point of comparison, check out this annual BSR graph of a pair of ski goggles which look like a strong product to sell in the winter and less so in the summer (although they continue to sell decently through the spring as ski season comes to close).
You should also aim to avoid fads—short-lived products such as fidget spinners (remember those?).
With fad-type products, you will often see historical BSRs that are incredible…before they suddenly fall off the graph. These products sell well while the product is hot, but when the trend fades, your inventory just sits there incurring (long-term) storage fees.
Check out this fidget spinner historical BSR graph:
While this particular product did eventually pop back up, you can see the stark drop off where fidget spinners collectively disappeared (over multiple years, no less!).
By assessing a product idea’s demand up front, you have the potential to find untapped pockets of Amazon selling potential…all the while avoiding an accidental flop that costs you thousands of dollars.
To get our full product evaluation criteria, visit JOD.com/apply. There, you can speak with a member of our team who will understand your goals, show you the value we can bring to your Amazon FBA journey, and ultimately help you decide if we are the right fit to guide you as you launch and grow your own Amazon FBA business.
Which tools do you use to research product demand? Let me know in the comments.