Amazon FBA 101 – Evaluating Sales and Competition

Adam Amazon, Entrepreneurship 1 Comment

For more on Amazon FBA, Check out our first post Amazon FBA – What and Why and our 2nd post Amazon FBA – Choosing a Product.

Now that you have a long list of potential products from our last post, it’s time to do some research to figure out if your item is a potentially profitable niche.

There are 4 Steps to determine if your product idea is solid.

  1. How Many are Selling?
  2. What’s the Depth of the Market?
  3. What’s Competitive is the Product?
  4. What’s does the Operating Margin Appear to be?

Sales

The most basic question is – does this product sell? You can probably determine this pretty easily, by putting in your keyword and seeing what pops up. If page 1 of your search is full of items with hundreds or thousands of reviews, you know there are product sales.

My suggestion would be to click in to the top 5-10 listings and look at the BSR (Best Sellers Rank) which is located in the product description about halfway down the page. If you are already familiar with your category this probably gives you a good idea of not just sales for the #1 seller, but also how much depth is in the market. The image below is from the top selling garlic press on amazon.

bsr

Now that you’ve written down the BSR’s an easy and free way to check on this would be over at the Jungle Scout Sales Estimator. If you are willing to spend a bit of money there are multipe, quality pieces of software that will give you a very specific and accurate estimate of sales for each product at the click of a button. Jungle Scout is probably the most popular option.

If you need some quick short-hand, each of the following are equivalent to 10 sales per day per JungleScout:

Baby: 3,400 (Sept.)
Beauty: 9,000
Cell Phone 7,000
Grocery 4,900
Health and Personal Care: 14,000
Home and Kitchen: 16,000
Home Improvement: 5,500
Kitchen and Dining: 6,800
Office Products: 4,500
Patio, Lawn and Garden: 2,200
Pet supplies: 3,500
Sports and Outdoors: 8,000
Toys and Games: 6,000

Paying for software is certainly not a requirement if you are strapped for cash and just getting started. Our first product which averages over 10 sales per day we discovered by accident, by just keeping our eyes open and we did our sales and competition research by just doing a bit of digging and guesswork.

Depth

Depth of the market is important because in some categories your #1 seller may be killing it, but the number of sales to listings #2-20 may be pretty much nothing. It’s a good sign if the top 5-10 sellers are all doing decent volumes and you don’t see a super steep drop off. You should try to be sure that the 10th seller is doing numbers you would be happy with.

If you are an Amazing Seller fan, you’ve probably heard him mention that you want the top 10 sellers should be selling at least 3,000 units per month. This is based on the logic that you can probably capture 10% of the market which is 300 units per month and 10 per day.

10 sales per day is a very reasonable and achievable goal for anybody trying to launch their first product while still having the possibility of making a meaningful financial impact.

Competition

garlic pressCompetition is intimately related to your sales numbers so there’s not a lot of extra work required to check this. The easiest way to check is to simply glance at the number of reviews per seller. If the whole front page has high hundreds to thousands of products, it’s pretty unlikely you are going to be able to break in to the first page without a massive amount of work and capital through free giveaways and promotions.

Seeing someone in the top 5 with under 100 reviews is a great sign and hopefully multiple people under a 100 in the top 10. You can see in the example of garlic presses getting on page 1 would be an extremely difficult proposition. The top items tend to have in excess of 500 reviews with the exception of a few items, and they’re largely undifferentiated products beyond price.

Greg Mercer did a pretty good quick tutorial on this that I think outlines the thought process pretty well, though he is using JungleScout, you can accomplish the same thing with a bit more time.

Profit Margin

This is the 3rd step after you’ve decided if your product idea has enough sales and low enough competition to be an attractive option. If the product didn’t make it through the first 2 steps, there’s no reason to continue to this point. I’ll detail product sourcing further in another post, but you can do a quick search to get a quick and dirty idea of what the margins on your product will be.

Jump over to Alibaba, search for your product and simply check out what the basic versions of your product appear to sell for. Also be sure to look at the MOQ (Minimum Order Quantity) because if you plan to order a lot less than the MOQ you’ll be paying a much higher price.

For example, if your item is going to sell on amazon for $20, amazon is going to take about $5.00 so your hope would be that you can purchase and ship the product for around $5.00 in order to meet a 50% operating margin (pre-marketing costs).  If the math looks good at first glance, it may be worth moving forward to actually contact suppliers and start digging deep on the details of price, quality, and other information needed to select a product and manufacturer.

Note – Be sure to look at the prices of the entire top 10, not just #1. Prices may vary widely and you don’t want to be overly optimistic on what you can sell yours for.

Tools

Some tools you might find helpful in your research

The Amazing Seller does a good job of talking about this topic. A few good episodes include:


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  1. Pingback: My Amazon FBA Story | Adam Chudy.com

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