Today, I’m going to give you a quick, three-step guide to start selling on Amazon FBA.
I know what it’s like to start selling on Amazon with little direction and a whole lot of unknowns. Now, I have been selling on Amazon for almost a decade. Today, I will take my own experience, plus that of the entire Just One Dime team—who has built dozens of Amazon stores, consulted for BMW, a business from Shark Tank, Forever 21, and even Amazon themselves—and boil it all down to this simple training you can use right now.
Later on, I will give you our free breakdown on how to evaluate all of your product ideas.
1. Pick a product with high demand, low competition, & differentiation potential.
One of the most common questions I get from newer, or soon to be, sellers is, “How do I know my product will sell?”
Allow me to respond to your question with three of my own:
1. Is the product in high demand?
Demand refers to how many shoppers are looking to buy your product. You can have the best product with the best listing, but if there aren’t enough buyers who want that type of item, you’ll be out of luck.
Demand is one of the first metrics you should test when looking for a great product idea.
Generally speaking, you should aim to find a product where at least three out of the top ten organic listings do at least $5,000 in revenue each month. Organic listings are non-sponsored, whereas sponsored ads have a badge that reads “sponsored” next to the listing’s main image. In this image, we can see the difference between a sponsored ad versus an organic listing:
Essentially, you should ensure that there are enough customers that shop in that market for you to sell to once your product goes on sale. If there are at least three top competitors making at least $5,000 per month on that product, there is most likely strong consumer demand.
Product research softwares such as AMZScout, Helium10, Jungle Scout, or Just One Dime’s own Niche Hunter can all give you specific seller statistics including how much revenue per month the top ten sellers in a niche do.
If a product has demand, it’s time to test your potential competition.
2. Does the product have low competition?
Competition refers to how many other sellers sell that product or in that product niche.
The more competition a particular market has, the harder it will be for a newer product (like you will build) to capture shoppers’ attention, and the more you will have to spend in advertising to promote your product, make sales, and move to profitability.
You should aim to find a product where at least three out of the top ten organic listings have fewer than 100 reviews. Fewer than 50 is even better.
Fewer competitor reviews indicates that other sellers have not completely captured the market, which will make it easier for you to break into.
When your product first hits the market, you will have no reviews. Reviews lead to consumer trust. However, the importance of a high review count varies from niche to niche.
If you can find a market with high demand but who’s leading products don’t all have thousands of reviews, you’ll be in a much better position to start accumulating sales even without reviews.
You can test competition with the product research softwares I mentioned earlier. But you can also manually check this by assessing the number of reviews on each listing on page one of search results.
To do so, you will need to search your product’s main keyword on Amazon. Keywords are words or phrases that shoppers search on Amazon.com to find what they are looking to buy.
For example, if we were selling “personal locator beacons for hiking”, that is our main keyword. We would search that phrase on Amazon.com.
Once you’ve searched your main keyword, you can determine ease of entry by assessing the review count for the top ranked listings.
Rank refers to the order in which a product appears in Amazon search results when shoppers search a relevant keyword.
From a quick glance, we see that a decent number of top sellers have less than, or around, 100 reviews, which is great!
Even the product labeled “Amazon’s Choice” has fewer than 100 reviews.
We can deduce that the competition is not overly high in this particular niche.
3. Can you make the product stand out?
When your product first hits the market, you will have no reviews and no ratings. Reviews and ratings correlate to consumer proof that your product is worth the money.
When you don’t have reviews or ratings, you must ensure your product stands out from the competition in order to get sales. You must give customers a reason to go, “Hmm. This product has an interesting feature I don’t see elsewhere.”
This is called differentiation.
You can differentiate your product from the competition by either fixing a real need—such as product functionality—or a perceived need—such as product color, retail packaging, etc.
Product research softwares can give you an estimate of how easily a product can be differentiated, but in this case it’s almost easier to check this factor manufally:
- Visit the top competitors’ reviews.
- Read the two and three star reviews. Four and five star reviews rarely offer anything other than praise. One star reviews tend to be from customers having a terrible day.
- Note what attributes customers wish were better and/or different.
For example, let’s look at the “McMurdo FAST FIND 220” product’s reviews:
From search results, click on the down arrow next to the product’s average star rating.
Click on either the 3 star or 2 star buttons.
Read the customer reviews.
Right away, there are plenty of ideas as to how we could make a better version of this product that offers solutions to customers. For instance, we could improve the product’s:
- Battery life
- Battery material
Whatever product you decide to build, it must solve a problem for your customers. By reading customer reviews on existing products, you can find a wealth of ideas as to what problems could be solved in existing models.
Once you know that your product has demand, has relatively low competition, and can be made to stand out from the competition, it’s time to find a supplier to build it.
2. Find a supplier you can trust.
Alibaba.com is the largest business-to-business (B2B) sourcing site on the internet. There, you can find suppliers to make just about anything. The trick is to find the right supplier who is both legitimate and will be able to make your (differentiated) product.
Let me show you how to filter suppliers on Alibaba:
- In the top search bar, change the dropdown on the left that reads Products to Suppliers.
- Type in your product’s main keyword and click the search icon. In this case, we would search “personal locator beacon with GPS”. In some cases, you might need to adjust the keywords you search on Amazon and Alibaba if you’re not seeing the results you want in your initial search.
Trade Assurance ensures that the supplier doesn’t walk away with your money without building your product. In fact, it guarantees that the supplier doesn’t receive full payment until they have produced the item to your exact specifications.
Verified Suppliers have been…well, verified. A third party inspection service has determined these suppliers are legitimate operations. Get an in-depth look at filtering suppliers—and the rationale behind our methods—here.
The search results now show us trustworthy suppliers who can most likely build our product.
But before you pick one at random and move forward, ask yourself three questions about each potential supplier:
1. Do they build my product?
You can glean this fairly quickly by looking at each supplier’s product listing in Alibaba’s search results.
If a supplier’s images look like the product you want to build, that supplier can most likely build your product.
For example, this supplier appears to build a similar personal locator beacon to the one we might sell:
Whereas this one, not so much. In fact, this supplier’s personal locator beacon looks suspiciously like a smoke detector.
If it appears, from a preliminary glance, that the supplier can build your product, move on to the next question:
2. Do they have an SOPI score of 4-5 orange gems?
SOPI stands for Supplier Online Performance Index. This metric measures how well Alibaba suppliers perform.
SOPI scores range from a terrible, singular grayed out gem, to an excellent set of five orange gems. And scores are calculated each month.
Suppliers’ SOPI scores are listed to the right of each product listing:
The higher the SOPI, the more reputable and high-performing a supplier likely is. And you should aim to choose suppliers with at least four orange gems, although this might not always be possible.
Keep in mind that no one factor should make or break your decision to launch one product over another, with the exceptions of differentiation and profitability.
Next, it’s time to look at supplier age.
3. Have they been in business for a minimum of 3 years?
As with most things in life—including your own Amazon listing—suppliers on Alibaba get better with time. To make the process as easy as possible, aim to choose suppliers who have been in business for at least three years. That way, you’re most likely dealing with suppliers who understand English business terminology (most are located in China, afterall), have more experience with customs, etc.
Click on the suppliers’ name to access their minisite—a supplier’s individual page within Alibaba.
On each supplier’s minisite, their age is listed front and center.
Aim to find at least three potential suppliers who meet all three criteria. Then you should compare those three suppliers based on the profit potential they might afford you.
3. Calculate your profit potential.
To do this, you will contact each of your top three suppliers.
Click the Contact Supplier button on the product listing in search results:
Write a message to each supplier and ask them three questions:
- What is your minimum order quantity (MOQ)? Oftentimes, Alibaba suppliers will require that you purchase hundreds of individual units in a single order.
- What is your per unit price? Suppliers often price items in tiers where the more units you order at once, the less you pay per individual unit.
- What is your lead time? This refers to how long it will take the supplier to build your order.
Once you have supplier responses, it’s time to calculate the potential profit you can achieve with each supplier.
Ensure that whatever product you choose to build will leave you with at least 40% profit margin after the costs of manufacturing, shipping, and Amazon fees. In other words, for every $100 worth of product you sell, after the costs to make and ship the product, plus Amazon fees, can you pocket $40 minus advertising costs?
When you shoot for at least 40% profit margin, this will allow you to have plenty of margin leftover to advertise your product on Amazon and move to profitability faster.
To calculate potential profit, we need to know the cost to manufacture one unit by an Alibaba supplier along with our goal sell price. Use a top competitor’s listing price as a benchmark for goal sell price.
Let’s say it will cost $200 to manufacture one of our personal locator beacons.
Additionally, our goal sell price is $370.
Now let’s do the math to calculate profit:
- Subtract the cost to manufacture one unit from your goal sell price: $370 - $200 = $170
- Subtract your fixed, FBA fees (which we show you how to calculate here) totalling $5.90 from that number: $170 - $5.90 = $164.10
- Divide that number (what’s left after step 2) by your goal sell price: $164.10 / $370 = 0.4435
- Multiple that number by 100 to express the profit margin as a percentage: 0.4435 x 100 = 44.35%
With a potential profit margin of about 44%, this supplier’s product is a viable option. However, we’ll need to ensure we can make our version unique, and better, enough that we can charge $370 or a little more to account for current unknowns: Shipping costs and referral fees.
Make sure you perform these calculations for each of your top potential suppliers based on their price to manufacture each unit.
Once you know which suppliers can help you achieve at least 40% profit margin, you should order product samples to test the supplier’s manufacturing quality. This will also help you determine the overall value that supplier will bring to your store.
After you’ve determined which supplier you want to work with, pay them 30% of the total manufacturing cost up front using Alibaba’s Trade Assurance.
Then, order an inspection service from Alibaba to inspect the finished batch of inventory.
Once the product passes inspection, you will pay the remaining 70% of the total cost.
The finished product will then be shipped to an Amazon fulfillment center.
At this point, I’m sure there are a bajillion questions running through your brain:
- “There are over 150 Amazon fulfillment centers. How do I make sure my product ships to the correct one?”
- “What if the first batch of inventory doesn’t pass inspection?”
- “How do I create my listing and how do I take product photos for that listing?”
- “How do I run advertising on Amazon for my product?”
Find out the answers to all of those extremely valid and relevant questions at JOD.com/freedom.
Our membership and coaches will show you how to:
- Choose the best company structure for your business
- Deal with all kinds of taxes
- Optimize and split test your product listing
- Promote your Amazon brand on social media
- Expand your product from Amazon to other ecommerce platforms
- Hire staff
We’ll even send you unique-to-you product ideas and leverage our on-the-ground team in China to help you source the right supplier to build your product.
If I had training like this when I started, there’s no doubt I would be 5x wealthier than I am today.
Still unsure? Grab your free product evaluation breakdown below to see all our criteria for identifying a strong product to sell Amazon FBA.
What’s your biggest challenge in building your first product? Let me know in the comments.