Market Research and Product Sourcing Part 1: Finding Profitable Products to Sell
By Steve Nye, Research Education Specialist and eBay Certified Consultant
I just got back from a fun week in Boston at eBay Live! I collected a bunch of pins, ate some great seafood, and saw a Red Sox game at Fenway.
But what I didn’t see was the seminar on market research and product sourcing by Jen Cano of HammerTap and Robin Cowie of Worldwide Brands. I felt bad I missed it, and realized that many of you probably weren’t able to be there as well.
So, I pulled some strings and got a copy of the presentation to use for the topic of discussion for my next two articles. The foundation of these articles is based upon their latest book, eBay Performance: Selling Success with Market Research and Product Sourcing. It’s the most comprehensive reference for building a successful inventory based upon what’s really going on in the market.
And it all starts with juggling. Yes, juggling!
A Juggler’s Act
Ever seen a juggler at the circus? I remember being captivated by the precision and pizzazz while watching one when I was younger.
First he started with balls, and then moved to bowling pins. From the pins he moved to knives and then swords. I was captivated! But what surprised me most was his grand finale—chainsaws!
The act was a hit, and it was all based on a very simple process: anticipate, catch and release. This is really all the juggler was doing, over and over again. Anticipate, catch and release. Whether it was pins or chainsaws, the process is the same.
The Turnover Principle
Surprisingly enough, this same principle applies to your eBay sales. However, instead of anticipate, catch and release, your process is slightly different, and it’s called the Turnover Principle.
You can see from the figure below that the three steps of the Turnover Principle are Research, Source and Sell, again and again, over and over.
Benefits of the Turnover Principle
But what’s the point right? Why should you turn your sales into a complicated juggling act? As if it’s not already complicated enough already right?
The key to successful juggling, and the using Turnover Principle, is actually based upon removing chaos, and making the process less complicated.
Here are a few of the benefits of successfully mastering the Turnover Principle:
- Stay Ahead of Change: Predict change and offer what consumers want, when they want it
- Stay In-Demand All the Time: Be ready to phase out old products as new ones phase in
- Focus on Profit: Know exactly which products bring you the highest return and know how to sell them at peak prices
- Offer a More Fluid Inventory: Don’t get stuck with only one product offering when you can successfully offer many
And of course the list could go on. Essentially, applying the Turnover Principle to your eBay business gives you a solid sales strategy based upon the facts of what is actually going on in the market. It’s time to remove the guesswork when it comes to your profitability, and the Turnover Principle does just that.
Start with Product Research
You can see from the figure that the Turnover Principle begins with research because research reveals:
- What products are selling well
- How much these products are selling for
- The supply and demand for these products within the market
- Your profit potential
Look at any successful company, large or small. Their secret to success is based upon making sound decisions based upon the facts. It’s through research that you gain the facts, or the answers to the list above.
In short, research is essential for this to work effectively for your business. Here are some tips to help you start your research effectively:
1. Get general direction
2. Get more specific direction
3. Calculate profit potential over time
1. Get General Direction
A perfect place to start your research is to check out eBay hot lists.
This will tell you the current hot-selling categories on eBay. You can get some good ideas of categories you may be interested in selling.
However, you need to know how hot lists are created. Let’s say for example that the Women’s Clothing>Jeans category was listed as hot. This means that you should run out and buy a truck load of women’s jeans right?
The Women’s Clothing>Jeans category is hot, but that is based upon averages, specifically upon the Listing Success Rate (LSR) for that category, usually anything over 50% success rate is considered hot.
But, that means that some jeans sold with a higher conversion rate than 50% while some sold at a lower conversion rate. It is impossible to know which jeans sold well and which ones didn’t without doing a little more information.
Now that you have a specific category you know is hot, it’s time to use a research tool like HammerTap to find which brands are the hot ones.
To do this, you will want to start with a category research for Women’s Clothing>Jeans.
Once you’ve got the results on how that category performed, you can start to zero in on specific brands, styles, sizes, etc. Anything with a success rate higher than the average can be considered hot, and anything lower than the average is not.
In our results above, we found four brands of jeans that sold for higher than the average LSR, which for the Women’s Clothing>Jeans category was 44.18% with an ASP of $26.47.
One of the top sellers for Women’s Jeans is the brand 7 for All Mankind, with an LSR of 65.84% and ASP of $61.25.
So now you’re ready to order that truckload of jeans right?
Not quite, cause you still don’t know which styles, sizes and types of 7 for All Mankind jeans are most popular and most profitable.
2. Get More Specific Direction
Now you’re ready to narrow in even more with your research. This time, instead of doing a category search within the Women’s Clothing>Jeans category, we can do a product search on our specific product, 7 for All Mankind.
Use HammerTap to zero in on a specific product by searching for styles, sizes and types with:
- Success rates greater than the overall LSR
- Selling prices greater than the overall ASP
Remember, 7 for All Mankind Overall Stats: LSR = 65.84%, ASP = $61.25.
Our results in the table above give us even more insight into specifically which types of this brand are profitable and/or successful.
It’s also good to try out some combos, too, such as Boot Cut and Stretch: LSR=89.47%, ASP=$43.22, as well as Low Rise and Boot Cut: LSR=86.36%, ASP=$37.05.
Now, of course you still can’t order a truck load of jeans because you don’t know your profit margins. Even though Boot Cut sell for a lower price than the average, it really comes down to your cost of sourcing the product.
3. Calculate Profit Potential over Time
Don’t worry; we are talking about simple math here, so you can put away your anxieties of college algebra.
In order to calculate your profit potential over time, you’ll need the following figures:
- The Listing product Success Rate (LSR)
- The Average product Selling Price (ASP)
- The price you’ll have to pay for the product
- Your selling fees (Insertion, final value, PayPal, other)
First, determine your profit for the sale of a single product. This is the Profit Formula.
Profit Formula: ($ASP) – (Cost of the Product) – (Selling fees) = PROFIT
An example using 7 for All Mankind NYD would calculate as follows:
($90.20) – ($75.00) – ($6.93) = $8.27
Next, determine your profit over time. In other words, if you bought 100 pair of jeans, what would be your profit over time?
Profit-Over-Time Formula: (Profit per Item) x (# of Listings) x (LSR%) = Profit Over Time
An example for 100 listings of 7 for All Mankind NYD with a profit of $8.27 would calculate as follows:
($8.27) x (100) x (72.44%) = $599.08
Ready for that Truckload Yet?
So now can you contact your supplier to make that order for a truckload of jeans?
You have successfully juggled the first step in the Turnover Principle and are ready to move on to the next step, Source.
Part two of this article will discuss both finding a product source and then selling those products for the maximum selling price.
So, in the words of Batman—“Same bat time, same bat channel!”