5 Dangerous Pitfalls When Doing Product Research on Your First Amazon Private Label Product
Doing research for your Amazon Private Label product requires a good bit of analytical approach. While the conventional blueprints, that teach you to look at just a few metrics and product criteria, take an existing product and slap your label on it, might have worked 1 or even 2 years ago — the landscape for Amazon PL has undoubtedly changed since.
And boy is it changing at a rapid pace.
I can tell you that Chinese sellers are stepping their game up literally every month. I know of companies in China that hire tens and even hundreds of employees to look at all best-selling products in each category, run numbers, and see if they can dominate the market or at least get a significant part of it. I also know of companies running training courses and teaching tens of thousands of Chinese suppliers and sellers how to sell on Amazon. Heck, even Amazon itself sends high profile employees to China and hosts conferences where they educate the Chinese sellers! Needless to say, no one can ever have the leverage and prices of a Chinese factory, unless you can manufacture the given product better or cheaper elsewhere.
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There has never been more companies in China that operate on Amazon on as large a scale as now.[/caption]
Before we get into the nitty-gritty, let me put a disclaimer here. I’m aware that different people have various approaches to researching and choosing their next PL products. Some have the capital, time, and resources to throw a bunch of different products onto Amazon and see what sticks.
My approach to product research is for someone who perhaps has around $3-$6k of capital and they really want to make it work.
I call this the Sniper approach to product research. Here are the characteristics:
- Not too competitive niche, top 5 sellers doing at least 10–20 sales a day or more (with a review count in the low 3 digits or ideally 2 digits)
- Clear gap in the market, a product that could be done and marketed better
- Custom-made or modified product
- Around $4–6k initial investment, a purchase of 500–1000 units (custom-made product is going to drive up MOQs higher)
- Non-seasonal, evergreen products. We want to create at least a few evergreen money makers first to establish a good cash flow
- Heavy due-diligence (meaning run ALL the numbers) before you go down the rabbit hole of working on developing or customizing that product
Many people coach themselves into the mindset that their first product on Amazon is mostly just for the learning process (“you’re probably not going to make much money on it anyway”) — I see the point in that but I have to disagree. You should absolutely be doing the maximum amount of due-diligence and striving to create a well-selling, solid product on Amazon from day one.
You can hit 10–20 sales/day with your first product. You can get a 200% ROI on your initial investment within 2–3 months. You can be making a clean $2.5k+ profit per month, within just few weeks of launching your first product (bearing in mind that you’ll probably need to reinvest all of it). This is exactly what I’ve done — I’ve hit $3.5k per month net profit within just 3 weeks of launching my first Private Label product. It continues to sell and rank consistently, and this was accomplished with a $5.5k initial investment, a giveaway of just 20 products, and a hell of a lot of due diligence. The amount of competition in my niche is minuscule, and the barriers of entry are there (the product is highly customized). I project this product to bring in highly passive income consistently, all year round.
For me, it’s all about building products that are defensible and have that defensibility baked into them (through the customization they’ve undergone). They are more customized, meaning you can’t launch as many or as fast as the classic Private Label products (which you normally just slap your label on and make new packaging). But I’m not telling you about my approach is a way to scale your business fast. We are talking about getting started on Amazon with your very first product, or, if you’ve tried doing the “guru” thing and have failed — trying again with a different approach. Once you have at least 1 or 2 such products, you’ll have highly passive income that should enable you to start scaling and try different things.
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The “Sniper Approach” is not meant for scaling fast. It’s meant for building your first, solid foundations for a successful Amazon business and brand.[/caption]
Another disclaimer is that I did have a leg up when I started selling on Amazon — by the time I was developing my product, I already had a few months’ experience with most aspects of running and managing an Amazon Seller Account from my job at the time. But I believe that with proper knowledge and surrounding yourself with people who are a few steps ahead of you, pretty much anyone could do it.
Now that we’re done with the lengthy intro, let’s get into the meat and potatoes!
- Not looking to make a custom product
I think this is probably the most common mistake people make before even starting their product research. They follow advice from “gurus” to the T, take some blueprints from popular courses (often aged 2 or 3 years) verbatim and think that as long as the product checks off the right boxes (lightweight, not too many reviews, fits in a shoebox etc… sound familiar?), their product will sell.
The reality is slightly different, especially with the now rapidly changing landscape of Private Labeling on Amazon. You need to look beyond those plain metrics and look at what the market actually needs and wants. I am going to risk making the statement that merely looking at these metrics and taking some product off of Alibaba, slapping a label on it with hopes to make a quick and easy buck is coming from the wrong place — a place of selfishness, rather than assessing and addressing the market’s needs.
Even if you do make a quick buck this way (it’s still entirely possible), you won’t have consistent sales down the line, and your product(s) will always just be one step away from being superseded by a clearly better and more differentiated product that someone that actually took the effort to customize. You won’t build a solid brand.
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Hundreds of sellers selling what is essentially the exact same product. How are you going to differentiate and REALLY add value that makes you undoubtedly stand out from the competition?[/caption]
I think it’s very helpful to ask yourself these questions before jumping any further in your product research:
- How can I really make this product better?
- How difficult is it going to be for someone to copy me after I customize or bundle my product?
- Do I believe this product is truly superior to what’s currently on the market, and do I see it selling consistently in 1 year?
- Am I just looking to make a quick buck, or build a brand? Do I want to flip products that are trendy for a short time, or do I want to build a solid, evergreen product line?
- Taking estimates at their face value and using software for product research as a be-all end-all
1) They are merely helpful for broad product research. This is just the beginning, there’s actually way more work to do once you’ve done your broad search.
2) They don’t give you all the metrics you need to to pull the trigger on a product in an analytical manner. And their sales estimates are just that — estimates, based mostly on the BSR ranking in that very moment. That BSR ranking — and sales estimate — could change within hours — i.e. if the product goes out of stock, comes back into stock, or someone is doing a giveaway (and this happens all the time). What you should do is take those estimates as a very rough idea of the sales you could possibly be making if you managed to get the piece of that market.
Things to do after you get a general idea of sales estimates and want to investigate the products/niche further:
A) Get The Camelizer Chrome extension, or go to camelcamelcamel.com. Check how the price and sales rank has changed over the last 3 months, 1 year, and lifetime.
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You can see the entire history of how the BSR and prices have fluctuated.[/caption]
What I do is copy and paste the results from Jungle Scout into a spreadsheet, then next to each product I put a “corrected” sales estimate that’s not just based on an at-the-moment-BSR, but the average BSR for the last 3 months. Then I go to https://www.junglescout.com/estimator/, click on the category, and enter that BSR to get another, “corrected” estimate.
B) A product sales estimate is still just an estimate, so you want to actually track the product sales by checking the product’s inventory status every day. You can do that in two ways:
- Manually add 999 units to your cart. If there are less than 999 units of that product in stock, you will get the exact number of how many units are available. Note them down in your spreadsheet. Rinse and repeat every day, ideally by the end of the day PST time. Unfortunately, if there are more than 999 units in stock, you won’t be able to know how many units a seller actually has.
- Use a paid software that will do the above operation for you automatically. Off the top of my head software with this functionality include: AMZ Tracker, AMZ Shark, Jungle Scout Web App. I know there are quite a few more so you need to do your own research and see what other features you’re willing to pay for.
- Being concerned with the number of sellers in the niche
Every once in awhile, I will see someone write “But there’s 27,000 sellers for this product! How can I compete!?”. My response is that you should be only interested in what is on page #1 and #2. There are millions of SKUs on Amazon that are barely selling, and their presence in your search results for a given keyword should not be of much concern to you, if at all (most of the time). You don’t want to be just one of 50 or 100 sellers for the same or almost exact same kind of product, you want to create a better product and get a significant piece of the pie — and the pie is usually what top 5–15 sellers are making. The rest usually get scraps. This all goes back to point #1 — make sure you actually come up with a better product that adds value.
- Not enough due-diligence when getting quotes and selecting a supplier
Depending on how well you’ve done your supplier pre-qualification and how well you’ve communicated and presented yourself when talking to your potential suppliers, you will most likely get varying price quotes.
The nature of your price quotes can vary greatly depending on how heavy your customization is, and how many pieces go into your whole product unit. Some products will feature dozens or tens of pieces, and even a 0.2 RMB difference ($0.03 US) can make for a significant difference once you multiply it by tens of thousands.
Being a perfectionist can be good or bad depending on the situation. When it comes to getting your numbers and deciding on a supplier to work with, I think you should strive for maximum cost to quality ratio. Not just quality of the product, but the supplier’s attitude and support — both pre-sales and after-sales.
I almost didn’t pull the trigger on my product (that turned out to be a quick success).
After I’d received around 6 price quotes, I saw that the combined price of a whole unit wouldn’t allow for very exciting margins — maybe around $5 on a $20 — $25 product (before the PPC costs). But then I received a couple more quotes and saw that it was possible to manufacture my product at a lower price without lowering the quality. I started reaching out to many contacts I have in China and got quite a few details of suppliers through recommendations. The interesting part is that almost all suppliers that came through recommendations gave me lower quotes than the ones on Alibaba. I’ve since been able to lock down a supplier that has a great attitude, their rep speaks decent English, and their prices are highly competitive — I was able to basically double my margins thanks to their pricing rather than pricing from Alibaba suppliers! This is also just one of the many examples where reaching out to the right people for advice has saved me a lot of time and money. It was Rico (one of the Partners in Enter China & the CEO of Source Find Asia) that really helped by pointing me in the right direction. When I felt a little bit lost or on the fence while trying to find that perfect supplier (this was once I was already fully committed to my product). You can watch Rico drop knowledge bombs about finding factories in China here.
Don’t get too hung up on setting up your supply chain for your very first product though, and certainly don’t let it leave you with analysis paralysis — you can always streamline your supply chain after your product actually proves to be successful.
- Not taking all numbers into consideration, such as the real cost of shipping
Amazon businesses (any type of retail business really) is all about the numbers, as cliché as it may sound. Not getting enough numbers or getting the numbers too late is something I’ve experienced myself and keep seeing other people do.
It usually goes like this:
- You see a market opportunity and think to yourself that it’s pretty decent because you can make a $8 margin on a $16 — $25 product.
- Oh snap, unexpected assembly or packing cost. You didn’t see that one coming, but it’s still good, you still have your $7 margin.
- The actual finished product is slightly heavier/bigger than estimated, and for some reason your supplier’s or freight forwarder’s actual shipping quote is all of sudden substantially higher than the original! Oh well, now it’s definitely too late to go back, you need to ship it anyway. There goes another $1.5 — $2 of your margin.
- You’ve gotten your product to Amazon FBA, the total landed cost makes out to around $5 — $5.5 margin. But there’s still the cost of giveaways and PPC marketing! Your final margin rounds up to something like $3. A huge drop from what seemed like $8 initially.
I actually wasted around 2 weeks of going back and forth with a supplier and starting to create a custom production sample — just because I didn’t get all the numbers right. I jumped into that particular product without doing enough due-diligence on shipping quote estimates. As soon as I realized the actual margins would be razor-thin — I jumped ship.
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This is what happens when you haven’t estimated your shipping rates correctly. The dollars flee very fast.[/caption]
Making sure you have enough buffer in your estimated margins is absolute key. Do factor in all the extra costs (PPC and giveaways). Get quotes from at least 5–10 freight forwarders. A $4/kg price for Air Freight (if your shipment is not charged by Volumetric Weight) is a nice competitive rate that you should be looking for. It might be challenging to get the carton size and weight for a product you haven’t even started making yet, but due-diligence here will pay off and is crucial to your business.
This about wraps up the most common pitfalls, I’ve observed just being around a strong community of people selling on Amazon or wanting to start selling on this giant platform. When I first joined Enter China in early 2014, I had no idea how far down the line I would be engaged in the community and what I would get out of it. It was actually one of the other Enter China members that inspired me to take the plunge and start selling PL products on Amazon. If it wasn’t for the close support of some of the people I’ve met in EC, I can undoubtedly say that my road to figuring out how to succeed on Amazon would have been a much longer and more complicated one. Running an e-commerce business where you take care of everything from sourcing all the way to advertising and after-sales support — is a truly complicated process with tons of minuscule details. The more support you can get dealing with the minutiae, means you’re more like to avoid the pitfalls, succeed faster and more assuredly.