The huge difference between running a dropshipped print on demand business vs an FBA business is that unlike dropshipping, you have to pay for your FBA inventory up front.
Any time you're risking cash on inventory, you want to do everything possible to protect your investment!
That's where the importance of having a refined, proven approach to product research comes in. Sellers can save tens of thousands of dollars in cash flow by avoiding pitfalls like buying too much inventory, or investing in a products that don't sell.
I'll use this post as an opportunity to walk you through my process for finding profitable Amazon FBA products.
At a high level, the entire process looks something like this:
- Product Discovery Figuring out what niche(s) to target
- Product Research/Validation Validating high/medium demand & medium/low competition
- Product Profitability Interviewing suppliers & crunching numbers
Why Product Research Matters
Some products simply don't sell very well.
Even if an Amazon Guru optimized a listing & drove PPC traffic to it, it still wouldn't be successful if consumer traffic was too low.
The last thing you want to do is have cash stranded in inventory that isn't moving, so in order to avoid that, we want to do our best to project a few important metrics:
- Overall demand: Is demand high enough to make selling this product viable?
- Seasonality: Sales volume can trend based on time of year, and our projections need to account for this (i.e. selling beach towels during summer vs winter)
- Sales per month: When we order inventory from a supplier we need to project our sales for ~70 days down the line (assuming we are shipping by sea to maximize profit)
- Cash flow required to keep inventory in stock: * IMPORTANT * You will very likely need to order & then re-order a single SKU before you see any real return on investment in your bank account (orders that travel by sea require around 60-70 days of lead time) - make sure you can bankroll BOTH orders
Keep in mind that inventory that doesn't sell will cost you money due to monthly storage fees, & there's also a threat of long term storage fees if the inventory sits in an FBA warehouse for too long.
In order to keep fees to a minimum, we need to be as accurate as possible with our sales projections, while also trying to avoid running out of inventory.
FBA Products to Avoid
Not all FBA products are created equal.
While many products can be sold at a profit through Fulfillment by Amazon, there are things to consider avoiding that will help reduce problems over the long term.
- Fragile items: The more fragile your item is, the more likely it is to break. Customer returns can kill your profit margins (especially on oversized items)
- Print-on-demand items: You don't want to compete year round with print on demand listings... but during Q4 (or specific holidays), sending POD items into FBA is a great way to make money
- Oversized items: You're going to pay a lot more in storage fees & on inbound shipping costs for large oversized items (you have to ship to 3 different FBA warehouses instead of 1)
- Items made from chemicals: Your supplier can provide you an SDS for items made from chemicals, but that doesn't mean Amazon won't randomly close your listings because a competitor purchased your product and falsely accused you of lying about the material
- Items that include batteries: Especially if you're launching your first product, avoid the headache involved with shipping batteries
- Patented Products: * IMPORTANT * - Suppliers don't care if a product is patented in the US - once you pay them, it's your problem! So make sure to check if your product is patented first
In general, you want to keep your first few FBA products simple!
You wont appreciate why this matters until you launch a few products that require extra attention, or that have high return rates (if return rates get too high, your listing gets closed).
Also, remember that this is meant to be a passive income stream, so the simpler your products are, the less time you'll spend on them once they're up & running.
Amazon FBA Product Research Tools
Reminder: Best Seller Rank (BSR) is Amazon's indicator of how well a product is selling relative to other products in it's category. A lower BSR reflects more sales volume that listings with a higher BSR in the same category.
DS Amazon Quick View lets you see Amazon product best seller rank on the search results screen, making it incredibly easy to see how well products in that niche are selling.
After installing it, perform a keyword search on Amazon & give it a second to load the BSRs for each product, underneath the listing.
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Remember that the lower the BSR, the more sales that product is getting.
* UPDATE 2019 * Please use Helium 10 [FREE] in favor of Keepa which moved to a paid model in 2019.
Keepa makes it easy to track a product BSR over time.
Large spikes up can reflect going out of stock for a period of time, while the inverse could represent either restocking inventory / running promotions / giveaways.
You ideally want to look for consistently low line charts, indicative of a product that sells well year round.
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Together, these two free tools help us form a picture of how well an entire niche is selling over a period of time.
Jungle Scout Chrome Extension (paid)
The JungleScout chrome extension is a paid resource that will gather similar information to both Keepa & DS Amazon Quickview, and display it in a nicer, easy to digest user interface, making it very popular amongst new sellers.
The honest truth is you don't need to spend money on JungleScout (or similar competitor tools like Helium10) to do product research, but when you're starting out it often makes FBA sellers feel more comfortable.
Opportunity Score is the most popular metric, where it attempts to sum up entire niches in a single number representing if it's going to be a profitable venture or not.
Ideally, you want to sell products with high demand & low competition, but they can be difficult to come by (& it's always subject to change as more sellers launch similar products).
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Remember how 5 seconds ago I said it's hard to find high demand/low competition products?
Well fortunately, JungleScout also has a web app that can show you just that!
It allows you to query on things like:
- Categories
- Demand
- Price
- Opportunity Score
- Competition
- Listing Quality
- Word Count
- + More
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It's extremely useful for expediting the product discovery phase of product research.
The Ideal Private Label Product
Our definition of what the "ideal" FBA private product is will continue to evolve over time, as the Amazon marketplace becomes more competitive.
The ease with which we find winning products has an inverse relationship with the number of sellers joining the platform, meaning that the more sellers there are, the harder it is to make money selling on Amazon.
That said, you shouldn't be deterred from beginning your journey as an Amazon seller because there's definitely still meat left on the bone.
Don't do what I did and spend 2 months looking for the perfect "golden egg" product for your first launch, but keep the following factors in mind when evaluating whether or not to invest in a new SKU:
- Consistently low BSR (the top listings should be sub-5,000 BSR)
- Relatively low competition
- High demand (look for at least 5 listings with sub-10,000 BSR)
- Profit margin of at least 30% before PPC factors in
- Not fragile or made from chemicals
- Not patented & doesn't contain any trademarked designs
- Not oversized
- Within your budget (meaning you can afford to place & ship TWO orders before seeing a return on investment)
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A near-perfect example would be selling garlic presses on Amazon (minus the INCREDIBLY high competition).
They're compact, lightweight, they pass the drop test (they can survive a short fall without breaking), there's a nice profit margin built in at the average price point, and they sell like mad year round.
If there weren't hundreds of sellers trying to make a dollar on them on Amazon, a garlic press makes a perfect candidate for a private label FBA product.
Ideally, you want to find a product just like this with a reasonable amount of competition (the competition for selling garlic presses is unreasonably high).
You shouldn't be completely deterred by competition, because Amazon is getting more and more saturated over time. That said, evaluate each listing and check the quality of the important things:
- Product Images: Are they using all of their product image opportunities? Are the images quality? Can they be zoomed?
- Bullet Points: Did they take the time to write out quality, in-depth bullet points? Did they lead with emojis?
- Description: Is their product description well formed? Do you see multiple sellers using Enhanced Brand Content (EBC)?
- Advertising: * ADVANCED * You can go into Campaign Manager or AMS & check on the suggested bids for the product's primary keywords to evaluate how competitive advertising will be
A Successful FBA Product's Criteria
Your first product will need a month of sales (which will likely almost all come from PPC spend) before you can project whether or not it will be a success, and you'll likely need to undercut competitors to help get initial sales.
I'll leave product launch strategy for another post, but I just wanted to help inform you what it takes to deem an Amazon FBA product a true success.
Remember that things gaining positive feedback on your seller account, and sales history + reviews on a product listing factor into your listing's ranking in search results on Amazon.
You won't find overnight success on Amazon, nor will you on Google. Both search engines have complex algorithms behinds the scenes that determine which products will get the most customer eyes on them.
If you stay committed over time and improve things like overall sales (through PPC) & conversion rate (through optimizing your listing), there's no reason why you can't climb the search ranks.
When you have a few products that don't require PPC to sell because they rank organically, you will truly know what it feels like to make passive income. Your only job will be to keep it in stock, which is a breeze.
Try to keep the right perspective on this entire process:
It's a long-term journey that will have ups & downs, but the fact that you're willing to make an investment in YOURSELF should be celebrated!
Starting a business is a scary thing. In a world where most people are afraid to leave their comfort zone, you're willing to take the plunge and bet on yourself. That to me is worth more than money, and I'm proud of you for believing in YOU.
