Updated in January, 2018 with up to date information for finding products in 2018.
One of the hardest things for any entrepreneur looking to start an ecommerce business is picking the right product to sell. In today’s ecommerce world the businesses that thrive and survive are those that have their own brands. In this article we’ll discuss how to find products to sell online, how to do research to get estimated sales volume, and how to create a brand around those products. This article is taking the direction of importing a product from China and developing your own products and eventually, your own brand. We are not focusing on finding products to drop ship which is, for the most part, a dying business model with profit margins being pushed to near zero.
Topics we’ll cover in this article:
- How to find niches to build your business around.
- How to find profitable products to import and sell.
- Predictors of success: Good and bad qualities of products.
- Estimating Sales Volume and Doing Competitor Research
- Ensuring Your Products Are Profitable
How to Find Niches (and then products)
Why Niches are Important?
The biggest mistake people make when trying to find products to import from China and sell online is this: they start looking for products first. Wrong.The first thing you need to do is to identify a niche that you want to sell into and THEN look for products. My EcomCrew partner Michael Jackness and I have multiple brands selling over $10 million a year. These cover niches including 4×4 products , adult coloring books, physical therapy products, boating products and so on. We sell lots of products in hyper-focused niches. To make a reasonable income you need to sell many products. If you want to earn a six figure income you will almost certainly need to sell ten or more products (and likely many more).You can see a real example of my previous company’s top five products. Our best selling product sold about $175,000 worth of product a year and had about $45,000 profit. This is good money but not ‘get rich’ money. Thankfully we had dozens of other products as well. Of course, everyone has a first product but finding the second, third, and twentieth product becomes instrumentally easier when you have a great niche.Here are some other reasons why you need to pick a niche first and products second:
- You need to sell multiple products to make a reasonable full time salary
- It’s easier to become an expert in one niche than many
- It’s easier to identify product opportunities
- It’s easier to identify your customer
- It’s easier to upsell
- It’s easier to find manufacturers
The main key is that when you become knowledgeable and an “expert” in a niche it becomes much easier to identify great product opportunities. When I launched my 4×4 brand for the first three months I was struggling to come up with any product ideas simply because of my lack of knowledge in the industry (the closest thing to a 4×4 I had ever known was my Honda Accord with four wheels). Eventually after researching enough competitor websites, brands, catalogs, and industry trade shows I had a list of dozens of great potential products. Now I have the luxury of being able cherry-pick the very best products from this list to develop.
How to Find Niches
So now the natural question becomes: how do you find a niche?Many people, when they’re looking for a niche, make the critical mistake of thinking too wide. When I’m looking for a niche I’m essentially imagining walking through a large brick-and-mortar retail store and picking an aisle in that store and then picking a a section of that aisle. West Marine (the largest boating retailer in America) sold anchoring products but they didn’t specialize in selling anchoring products. Michaels (the craft store) sells adult coloring books, but they don’t focus on it. This hyper focus on micro-niches is part of the reason why large retailers are going bankrupt everywhere: these retailers are good at a lot of niches but not the best in any. You can see the list of the top 100 specialty retailers in America to give you some ideas. Either go visit one of their store locations or browse their website categories for some great ideas.Almost everyone has a hobby or an area of interest they’re interested in. These are normally the best starting points to identify “which store to walk into” (either figuratively or real!). If you don’t have any suitable hobbies or interests then try and identify an area you want to learn about. Magazines are a great way to brain storm for niche ideas as well because they signal both a niche with a wide enough audience and advertisers (normally product based) willing to pay for ad space. Our good friend Andrew Youderian has a Google Doc of hundreds of different magazines worth checking out. If you’re really having a hard time, in our paid course we go into a lot of detail about how to find a niche and also offer a free Niche Brainstorming Guide with hundreds of potential niches to help you pick the best niche.Along with picking a niche that I’m interested in or want to learn about, I’m also looking for a niche that has hundreds of products within it but not thousands. The key is to find a niche that is wide enough but not too wide. Below are some examples of niches. These are real world examples of both mine, Mike’s, and friends of ours (example 1, example 2, example 3, example 4)
|Too Wide||Too Narrow||Just Right|
|Wedding Products||Pink Wedding Handkerchiefs||Special Event Linens|
|Fishing Products||Salmon Flashers||Trolling Motors|
|Medical Products||Hot Water Bottles||Hot and Cold Packs|
|Boating Products||Bruce Anchors||Anchoring and Docking Products|
Using the Amazon Category Tree to Find a Niche
Another great way to brainstorm for a niche is to use the Amazon Categories Tree. Almost all major retailers have some sort of category tree, but Amazon conveniently publishes theirs to be used by Third Party Sellers, listing over 13,000 potential categories to import from.
Amazon’s categories follow a certain hierarchy. For example, here’s the hierarchy for Rice and Potato Servers:Kitchen & Dining / Tableware / Flatware / Serving Utensils / Serving Spoons / Rice & Potato ServersI’ve seen some sites recommending new importers to look at Amazon’s first level categories (i.e. Kitchen and Dining) and looking for a product to import from this category. This is far too broad. You should narrow your niche down to a fifth level category or lower, i.e. Serving Spoons. This helps you to focus your area of expertise, and more importantly, most mass-market retailers will only stock 1 or 2 items in a fifth level category (if any) and therefore there’s a great opportunity to add variety to that category.You can download an Excel Document with a list of all fifth level categories or lower from here: Listing of All Fifth Level CategoriesNot all of these categories are necessarily great potential categories to import products from, however, many of them are. Here are some categories that immediately spring to my mind that could be good opportunities and warrant further research:
- Electronics / Camera & Photo / Accessories / Photo Studio / Storage & Presentation Materials / Storage Binders
- Home, Garden & Pets / Pet Supplies / Houses & Habitats / Accessories / Aquarium Décor / Plastic Plants
- Home, Garden & Pets / Patio, Lawn & Garden / Gardening / Watering Equipment Automatic Watering Equipment / Drip Irrigation Kits
- Home, Garden & Pets / Furniture & Décor / Furniture / Other Furniture / Chairs / Directors Chairs
How to Find Products to Sell (and the Biggest Secret to Finding Them)
There’s one reason why most people fail when trying to sell products online: their products have no competitive advantage. As marketing 101 tells us, there are only two ways to create competitive advantage. The first is cost leadership which means having lower costs than your competitors (this does not mean simply undercutting your competition on price). The second is through product differentiation. We don’t cover cost leadership a lot in this article but we do in our Importing Mega Guide.In the good ol’ days (i.e. pre-2013) you could simply private label a product from China or drop ship a product from a U.S. manufacturer, make no improvements, and sell it online with relative success. You achieved effective cost leadership because not many people were doing this. Now everyone is doing this.For those longing for the good ol’ days take comfort in knowing that there’s still a nearly flawless way to succeed in ecommerce: make your products better than the competition–either perceived or real. In other words, product differentiation. You might be thinking that this sounds hard but it’s not.There’s two ways to make your product better:
- Making actual physical changes to a product
- Giving the impression of perceived physical differences
Giving the Impression of Perceived Physical Differences – The Case of Coke vs Pepsi
This might sound like some shady marketing tactic but it’s marketing strategy. It is tried, tested, and true marketing strategy that nearly everyone has fallen for. One of the most famous examples of perception of a product not reflecting reality is between Pepsi and Coca Cola. Pepsi, in almost every blind taste test done, is almost always overwhelmingly chosen by consumers as the better tasting drink yet Coke holds a 42% market share compared to 30% for Pepsi. There’s a number of reasons for this but there’s no denying that one of the main reasons is the marketing behind Coke. Coke has made consumers perceive it is the superior product.The great thing about the internet is that it is a great equalizer. You don’t need a multi-million dollar marketing budget to convince consumers that you have the better product. In today’s world of Amazon, where many brands are, to their own demise, neglecting their Amazon listings, it is easy to get the upper hand often by simply adding some better photographs, optimized titles, better listing descriptions, and some review grooming (encouraging positive reviews and responding to and rectifying bad reviews).In our Amazon guide, we give this Kent Mountain Bike as an example of a product just waiting to be picked off. It has two photos, terrible bullet points, and ungroomed reviews.
There’s a reason why many of these listings exist on Amazon and they almost always come from brands who sell to Amazon opposed to selling on Amazon. When you sell to Amazon through the Vendor Central platform, the vendors actually have a lot less flexibility and freedom than third party sellers like ourselves. Currently it’s a big opportunity for smaller sellers to compete with larger brands.For the sake of brevity, I won’t go into the full details of how to optimize an Amazon listing in this article, instead check out our Amazon Optimization Guide.
Related EcomCrew Reading (Free)
EcomCrew Importing Course Content (Paid)
- [Video] How to Pick a Home Run Product
- [Video] Other Important Things to Consider When Picking a Product
Making Products Physically Different: The Hard and Easy Ways
The big problem with marketing a product better and giving the perception of perceived physical differences and superiority is that in many product categories this is simply not possible. My favorite example is yoga balls. Do a search for yoga balls on Amazon. This product category is nearly perfectly optimized. Every product has amazing photography, incredible descriptions, endless options and add-ons, and so on. There is no way to market a yoga ball better than the competition on Amazon.If you want to sell a yoga ball on Amazon and succeed there is only one way to do it: make the product physically different.The hard way to do this would be to completely re-engineer a yoga ball. Perhaps you make one out of space-age rubber that conforms to your butt the second you sit on it. If you can do that, fantastic. But if you’re like me, you’re not an engineer and cannot easily invent a product like this. The good news is that there are easier ways through making small incremental product improvements.In the case of the yoga ball, here are some things we could do:
- Make it in different colors
- Make it in different sizes
- Bundle it with accessories (i.e. pumps, stands, etc.)
- Sell it in a multi-pack item
- Make it out of a different material (i.e. a thicker rubber)
- Dramatically improve the packaging
In the case of the yoga ball, however, nearly every one of these incremental improvements has been made. Yoga balls are an example where it is perfectly marketed and has near perfect incremental product improvements. However, there are still thousands of products that are not perfectly optimized on Amazon. Mike and I have literally sold millions of dollars by using these techniques.
If you want to build a real ecommerce business you have to stop thinking about arbitrage opportunities. You have to think about how to make your products better.
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Predictors of Success – Good and Bad Qualities of Products
At this point you know that you need to find a niche to import products into and then you need to look for ways to differentiate your products. If you’ve picked a good niche though you still have hundreds of products to sift through. From my experience of developing dozens and dozens of products I’ve found there are common predictors of successful products and unsuccessful products.
Products That Cannot Easily be Air Shipped and Require Sea Shipping
When an item is so light and small that it can be easily air shipped you open yourself to an enormous amount competition. First, you will be competing against entrepreneurs who are trying to start an ecommerce company for very cheap (shipping items via air from China has a lot lower investment cost than shipping via air). Second, you open yourself to competition from thousands upon thousands of competitors from within China. The reason is that because of a sweetheart deal with USPS, Chinese sellers can actually ship a 1 lbs item from China to the U.S. for cheaper than if an American ships the same item domestically from within America. Seriously. See our article Why China Post and USPS are Killing Your Ecommerce Business.
Once you’re above 2 lbs or so, items become cost prohibitively expensive to ship via air. If you want to be really safe you can source items 4 lbs or heavier.
Products That Sell for $25 or Above
Both Amazon and Google are increasingly becoming pay to play channels. Google, several years ago, made their Google Shopping platform a paid service and has been expanding the number of paid results that appear on a search results page over time. Amazon, for better or worse, has been increasing the predominance of paid ads on Amazon (and, to sellers’ benefit, many consumers aren’t even aware of paid advertising on Amazon). This has serious implications on what price you can sell your products for.The average cost per click (CPC) for Amazon Sponsored Ads is $0.34. If you assume a generous 3% conversion rate, that means the average cost of an acquisition is $11.33. If you’re selling an item for $9.99 it’s hard to be able to profitably employ paid advertising for your products. Moreover, paid advertising is by far the easiest way to launch a new product on Amazon. If you can’t use advertising for your products profitably then you’re at a significant disadvantage.
Products That Are Low Risk
The scariest thing for someone importing from China is importing a product that ends up hurting someone. Not only will you have the moral burden of harming someone, you’ll also likely be sued for every penny you have. If you want to see an example of how product liability can ruin your business and potentially your life, see this article on Bucky Balls here. Many new importers start off their companies as a sole proprietorship or similar entities, meaning you ultimately bear unlimited liability (as an aside, you should really run your company as a limited liability company, such as an LLC, as soon as possible).Most products you can source are low risk. Dining room furniture, for example, has very little risk. A baby crib, on the other hand, has very high risk simply for the fact babies are involved. You may or may not remember when Amazon forbid the selling of hoverboards because it deemed them too dangerous and left countless sellers with millions of dollars in inventory. Don’t find yourself in a similar situation.
Product That Are Labor Intensive
Assuming you’re sourcing your products from China, the biggest cost advantages in China come when a product requires a lot of manual labor and little machine labor. China’s competitive advantage in manufacturing is their near unlimited supply of cheap labor. So the more time a person needs to spend in manufacturing a product and the less likely it is that it can be automated by a machine, the more likely it is going to be far cheaper to be sourced in China than it can be in a Western country.Anything that requires a lot of cutting, sewing, screwing, packaging, and so on are products that are going to be comparatively cheap to source from China. Other items that require a lot of machine labor, electronics being the obvious example, normally do not have a significant cost advantage to being made in China. This is why you see many electronics coming from richer countries like Taiwan, South Korea, and Singapore.
Product Isn’t Counterfeit/Trademarked/Patented
If you’re importing products from China, even the most intellectual property conscious individual run into problems when importing from China.Do not import counterfeit products. This goes without saying. If there is a brand name attached to a product that you recognize in the west, i.e. Apple, Samsung, Gucci, Rolex, etc. and you find someone selling it on Amazon then this product is almost certainly counterfeit.The bigger danger for sellers is for patented products. Patents are something that are often very difficult and expensive to defend in court. But in the world of Amazon, Amazon is a more terrifying judge than any state court. All a seller needs to do, more or less, is allege that your product is violating their patent and Amazon will suspend your listing. Amazon will not examine closely whether or not you are violating their patent.
The first thing I do when I’m considering developing a product is to do a competitive analysis. If I see on Amazon that a product has very high demand (greater than $25,000 in monthly sales) and very low competition (fewer than 5 competitors or so) I get very concerned about a strong patent and/or an aggressive patent defender. At this point, I will examine the top product in extensive detail, examining their listing, their website, and any other materials to see if they have a patent or not. If they do have a patent I head over to Google Patent search specifically to see if a patent has recently expired (which is often a goldmine).
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Estimating Sales Volume and Doing Competitor Research
Once you’ve picked a product, how do you determine how much you can sell of it and how much money you can make?
What Number of Sales Should You Aim for When Looking for a Product?
Many people don’t know how many sales a month they should aim for when sourcing a new product especially when the internet is abound with people talking about selling zillions of dollars worth of products on Amazon. So what type of sales numbers should you aim for?For me I consider anything around $5,000-$9,999 in monthly sales a good average product. Anything above this I consider a home run product. If you’re a larger company with a lot of overhead, your targets would be higher than this but for most solopreneurs and small businesses these are good targets for a couple of reasons.I normally want to turn my inventory every three months (i.e. sell out of it). Most Chinese Suppliers tend to have minimum orders of around $5,000. A good rule of thumb is to assume you have to mark up your costs by 300% (i.e. you buy something for $10 and sell it for $30) this means you need to sell $5000 a month in revenue to sell out in three months. I caution against holding inventory any longer than six months and to aim to sell out within three months.Second, after all your costs are taken into account you will probably have a profit margin of 20-30%. Assuming a 25% profit margin, this means $5,000 in monthly sales will make you about $1,250 which is fair compensation for my work.
How to Determine Estimated Sales for a Product
When you’re trying to determine how much money you can potentially make from selling your product, the first logical step is to see how much your competitors are selling.When you’re trying to determine the estimated number of units/revenue a competitor sells you have to remember that, unless you have access to that competitor’s Quickbooks accounting files, it is always just that: an estimate. I always use a combination of the following methods to estimate sales:
- Amazon research tools like Jungle Scout
- Using number of Amazon reviews to estimate number of sales
- eBay sales history
- The ULTIMATE way to determine sales
Jungle Scout is by far the most popular sales estimation tool although lots of similar tools exist (I actually use AMZ Scout which has a free Chrome extension) Jungle Scout can give you fairly reliable sales estimates for most products that are fulfilled by Amazon.One of my favorite tools is the AMZ Scout FBA Chrome Extension which gives live sales estimates (for free!). The downside with Amazon research tools like Jungle Scout is that they work great in categories with lots of optimized competitors but not well in un-optimized categories which is probably where you want to focus. For example, I have a product that will do close to $100,000 in sales a year that I found simply because there were very few competitors and of the few competitors that did exist I could not get reliable sales history for because the items were not fulfilled by Amazon (research tools cannot reliably estimate sales for merchant fulfilled items). In these cases you have to use other methods to estimate sales.
Estimating Revenue by Using the Number of Amazon Reviews
I always look at the number of units a product sells per month by looking at the number of Amazon reviews it has in the last three months. I then estimate that 1% of people leave reviews. There’s no science behind this but in my experience this estimate works well. So if in the last three months and item has 12 reviews I estimate that it has 1200 purchases in the last 3 months or 400 per month.There is a lot of variation and unpredictability using this method but when combined with other revenue estimation methods it works well.
eBay Sales History
eBay has the “sold items” search featured and you can also see recent sales history for each item. There’s also a similar eBay tool as to Amazon called Terapeak (which I’m not a huge fan of though).
eBay, as a company, gets roughly 7% the sales of Amazon and I always discount this to 5% just to make the math easy. So if I see that a competitor sells 100 units a month on eBay I estimate that it would sell about 2000 units a month on Amazon. Again, this is not a concrete sales number but when I combine it with other sales estimation methods I begin to see a trend with products that either points to a winning product or a losing product.
The final sales estimation method is to use intuition. If you’re following the advice of this article and making small incremental improvements to your product, then there will be no product that is 100% directly comparable to your product. If I’m making a legitimately better mouse trap I have to rely on intuition a bit to estimate how many sales I really can expect. Again, this is where the power of focusing on a niche comes into play. Once you research a niche enough you gain a bunch of accumulated knowledge you can fall back on to get a sense of how well a product can do.
The ULTIMATE Way to Estimate Sales
There is one super secret and nearly flawless method to estimate sales for your product.That method is to actually try selling your product. If you want to find out how many widgets for $29.99 you can sell a month, the best way is to try selling them. You can make every estimate in the world, but ultimately your product could drastically exceed or fall short of your estimates. This is why I am a strong advocate of “trial as many products as possible as quickly and cheaply as possible.”
Ensuring Your Products are Profitable
One of my favorite quotes is that revenues are vanity and profits are sanity. Comparing revenue numbers in the world of ecommerce is an endemic problem. Ultimately revenue means nothing and profits–what you put in your pocket at at the end of the day–is what matters. As you’re looking for products and developing products, always keep your eye on profits and not revenue.Generally, good net margins in an ecommerce business are 20-30% and can often hover closer to 10%, especially for larger businesses with more overhead (my previous company with around $2 million in revenue with office space and staff had net margins under 15%). I see a lot of product categories on Amazon that have profit margins hovering around 0% (or less!).Make an estimate of what you expect to ultimately make in profit for each product you sell. Take into consideration all your product costs, shipping costs, selling fees, advertising, etc. If you’re new to ecommerce, then divide that profit number in half. Almost everyone overestimates revenue and underestimates expenses.There’s two ways to maximize your profit: maximize selling price and minimize costs. Differentiating your products is the best way to maximize selling price. There’s several components of minimizing costs but one of the best ways is to minimize your landed product cost. For doing this, check out our Importing from China Mega Guide.
This article should give you a good starting point for finding a niche to build your ecommerce company around and then finding products to develop. This entire process can take an enormous amount of time. For my newest brand, I spent months just determining a niche and identifying product opportunities before beginning developing and marketing them. Ultimately, finding quality niches and products lays the foundation for a successful ecommerce business.Do you have any questions regarding finding a niche or product? If so, feel free to ask any questions in the comments below.