When developing your marketing strategy, it’s important to understand where your focus should go. More precisely, you should be fully aware of the cost and the profit associated with every product and service in your portfolio that you’re selling online within your eCommerce business.
That’s why in today’s article we’re talking about just that – how to find the most profitable products and what to do with them moving forward.
Why do you need to know your most profitable product to sell?
An online business that produces, distributes, and/or sells products needs to identify and understand the profitability of each of their individual products. Not having this piece of vital information will lead you to make uninformed decisions, that can further lead to a loss of money, time, and popularity in the long run.
However, if you do invest a bit of time to understand exactly what this entire subject is all about, then you will be able to:
- Make better business decisions. Ones that will improve your online business’ overall profitability, in a sustainable way;
- Optimize your marketing strategies in order to reach the right audience, at the right time, with exactly the right products ideas they were looking for;
- Better allocate your marketing budget in order to increase your return on investment;
- Find out which area of your business could be a good candidate for expansion;
- Manage the prices of your products (by increasing or decreasing them), in order to increase your profits. In an ideal scenario, you would be able to increase your products and still keep (or even increase) market interest;
- Find which products are essentially a waste of time and eliminate them from your portfolio;
- Reduce stock by selling products that are less profitable in bundles with more profitable ones;
- Make educated decisions in regards to the products that are best suited for upselling and cross-selling.
How do you determine the most profitable product to sell?
In order to determine profitability, it’s important to keep in mind the difference between profit and revenue. It’s a basic distinction for most people, and yet many business owners still make the error of mistaking the two.
So, revenue is the total amount of money that comes into your business. In other words, it’s the amount of money that you can see in your bank account before paying the bills. So, if you sell a specific product for $15, you can say you’ve made a revenue of $15.
However, if you want to figure out the profit you need to subtract from the revenue the costs of running the business. Meaning the cumulative financial amount for the direct costs and indirect costs, which we’ll explain in detail in a second.
But first, here is the equation – which is pretty simple:
Total Product Revenue – Total Cost To Sell Product = Profit
Remember to take into account these costs as well:
The price you paid for acquiring the product or for the materials you used to manufacture the product. Plus the money to pay your employees to produce the product (if applicable).
Also known as the “overhead”. Meaning the ongoing costs that you are investing in in order to run your business. Some of the costs in this category are:
- Marketing efforts,
- Internet and website hosting fees,
- Apps, storage and digital maintenance costs.
The costs in this category are a bit harder to allocate to one specific product. That’s why you need to have a bird’s eye view on your entire business and determine how each product or service is worth. So take your time and make sure your estimations are as accurate as possible.
What else to take into account when choosing your most profitable product
The price point
But the price point doesn’t matter as long as you have high margins, right? Well, not quite.
Let’s take an example of products to sell online – say, phone cases that you buy from China for 10 cents and sell for a full dollar each. That’s a huge profit margin, but at the end of the day, the reality of the fact is that you’re only making less than 1 dollar per product sale.
If you want to make a considerable profit in a rather short time, you should be aiming for products that can bring in the big bucks. It is true, though, that the higher the price, the harder it is to convert leads into actual customers.
But would you rather work a month in order to sell one product worth several thousand dollars or work the same amount of time to sell hundreds of knick-knacks?
There is no right or wrong answer, but it’s important to have this discussion with yourself and determine what the best course of action you should take for your online business.
The size and weight
The ideal scenario for your online eCommerce business is this – you don’t hold stock, you don’t make any pre orders, you simply intermediate sales between the consumer and the producer.
However, not every business model works like that, so sometimes business owners are forced to keep physical stock in order to fulfill the orders you get on a regular basis.
That’s why it’s ideal to focus on products that are worth a lot, but don’t weigh too much and don’t take so much space. Product details such as these can make or break your business since they demand financial input to be stored properly.
A good example of optimizing your space – mobile phones. It’s inventory that you can keep even in your personal house and make a lot of money off of. The problem with electronics is related to their fragility, so that’s another thing to take into consideration.
Whatever you choose to sell, remember to take into account the costs, struggle, and hassle related to the inventory you would have to keep in order to keep the business running smoothly.
Have you gotten your hand on some amazing product that is going to revolutionize the industry… but that your potential customers have never heard of?
Well, if it’s not your invention or something you want to invest a lot of time and money in the long run, then stand far away from it. Even if it’s amazing, chances are there is going to take some time before it’s going to take off and actually become truly profitable.
Few product ideas explode on the market when they come out – most of them need time, a lot of money in advertising, and patience. If the market doesn’t demand products, then they can’t be successful.
If your aim is to turn a profit fast, then focus on products that are highly demanded at the moment. You can do that by checking out popular sites’ “Most popular products” lists (like the ones selling on Amazon), on social media, or on search engines like Google Trends. If you have Amazon seller friends, you can also consult with them. Either way, remember to periodically engage in eCommerce product research.
Now, that you’ve determined that the products you want to sell are fairly popular, you’re faced with a new challenge: how popular are they? If the supply on the online marketplaces is already at its peak, chances are that it’s going to be really hard for you to differentiate yourself from the competition and acquire a relevant chunk of the market share.
Therefore, you need to either find that sweet spot: meaning a time when a product is rising in popularity, but the market is not yet saturated. Or, find a creative way to sell a product that is already being provided to the audience, but find a way to market it and sell it that will differentiate you from the competition.
Some ways you can do that is by selling packs of stuff, using creative marketing techniques, or adding something new to the basic product.
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Knowing which products listed are the most profitable in your portfolio can make a huge difference in your online store’s success – whether it’s selling on Amazon or having your own ecommerce websites. This shift, towards the perfect product to start selling online, will be very noticeable in your bank account at the end of the month.
So, even though this article was not a guide to selling, but rather an instructions manual on how to go about optimizing your efforts, we hope you found it informative nevertheless.
Remember to always check sales data, always look out for product opportunities, and never settle for old, boring ways of turning a profit with your eCommerce platform!
And if all this seems like too much of a hassle for you to take on, then let us help. Reveal is a business tool dedicated to making your eCommerce excel in its domain. We analyze, study, and come up with the ideal solutions, specifically for your business’ needs.