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When it comes to building a very profitable e-commerce business, choosing the right product is without a doubt the most important part of the puzzle.
A critical first step in ensuring that the winner is selected is to assess market demand, existing competition and the viability of the product itself.
You misunderstand this step and run the risk of wasting your time and energy, or worse, sinking a bunch of money into inventory you can’t move.
Fix it properly and set yourself up for sales and success.
To help you determine if you have a viable and profitable product idea, we’ve put together this comprehensive guide that shows you exactly how to look “under the hood” of your market and your product to keep you safe. build a business on a strong foundation.
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Note: In this post, we will show you how to analyze different factors to better understand the viability of your product idea. We will do this by using our own selection of products, coconut oil hair care products, as a case study.
It is important to remember that no single factor can give you 100% confidence in your product choices. Instead, it is a combination of many factors that will help you take a more complete picture and will allow you to make the best possible decision.
Manufacture, manufacture, wholesale or delivery of a ship
Before we start evaluating, we must first understand that there are several ways we can build a business around coconut oil care products. The first step is to decide how we want to build this business: make, produce, wholesale or capitulate.
- To make – Coconut oil based hair care product can be made relatively easily. We were quickly able to find recipes and ingredients available online to make our own unique hair care product. We are happy that such a product does not require sophisticated processes or hard-to-reach ingredients. Making a product like this would be relatively easy and inexpensive. Buying in small quantities to make the initial product means that our margins will be less, but as a new product and brand, we would also have full control over prices and lower inventory risk.
- Production – This would consist of working with a manufacturing partner to develop coconut oil based hair care products. Due to the relatively simple nature of the product we create, this option does not make much sense until we reach the point that we cannot keep up with demand. These costs associated with producing such a product would be much higher than making them ourselves due to the minimum order quantities specified by the manufacturers, probably in the range of thousands to tens of thousands of units.
- wholesale – Wholesale purchase involves the purchase of commercial and independent coconut oil hair care products and their sale on our website. Usually, your product resale margins are about 50%, so a product that costs $ 10 to wholesale, retail would be about $ 20. When you buy in bulk, you will have little control over prices, as prices are usually set by manufacturers and are expected by the market.
- Dropship – If we didn’t want to carry any inventory, we could have started the boat. If we were working with dropshipping partners we would be looking at a much smaller margin, usually around 20%. This means that we would not have the cost of running our inventory. Instead, we would enter a product list on our site, and when we make a sale, our dropshipping partner would charge us and deliver the product on our behalf. If you are interested in dropshipping, we recommend Oberlo.
For this assessment, we decided to evaluate the viability of the business around making our own coconut oil hair care product. Keep in mind that when choosing your own business type, you can always re-evaluate other business models if your first choice does not meet the criteria below.
How to evaluate your product idea
For all the rating criteria below, we will briefly explain them and then use it to evaluate the idea of our product. Many decisions are arbitrary and you may have slightly different opinions for each criterion. For many points, there will be no perfect answers, but rather taught guesswork. Each of these criteria should help you better understand your own choice of product and all the factors of building a business around it.
You can use these 16 questions as a framework, replacing our product selection with your own to give you a better idea of the potential of your products and avoid dangerous potential pitfalls.
The first thing we want to look at is the market criteria. These are criteria that are usually external, such as market size, target customer, trend trajectory, and so on.
1. What is the potential market size or demand?
Estimating market size and demand can be difficult, but you will need to have a sense of the potential size and demand of the market before investing any significant amount of time, money and energy into your venture. It can be as simple as using a service like Buzzsumo to better understand how many people talk about your potential product daily. Perhaps the most popular tool is Google’s Keyword Planner, which will help you determine how many people search for keywords related to your product idea each month.
Gradeing: In the last post, we found that the search volume for coconut oil hair products is extremely high. With Google’s Keyword Planner, we’ve been able to determine that there are more than 73,000 searches per month in the US and Canada coconut oil for hair and similar keywords.
Using Buzzsumo, we were also able to determine that around 150-250 tweets per day mentioned our main keywords.
This information does not give us 100% certainty that our potential products will have a customer market, but it is our belief that if we launch coconut hair oil, it is likely that people with interest will learn more.
2. Who are your competitors?
It’s always good to know who you’re going to compete against if you decide to start your own business. The more you understand about the competitive landscape before you start a business, the less potential surprises you face later.
Gradeing: From our analysis and as we mentioned in a previous post, there are three areas of competition in the coconut oil market:
- Pure coconut oil – Pure coconut oil is a major ingredient and does a great job of moisturizing and repairing our hair from our research. Pure coconut oil is readily available online and locally.
- DIY Coconut Oil Recipes – Do-it-yourself recipes are available online. All recipes obviously include coconut oil as a basic ingredient, but they also combine various other ingredients to enhance the effects of the final product or to help change its core function / texture. For example, a hair conditioner versus a hair mask.
- Hair products for coconut oil – These are products made by businesses large and small and contain a proprietary blend of ingredients to create a unique and perceived better end product.
We have not found a true market leader for our coconut oil for hair products, and a very fragmented market for manufacturers and traders.
3. Is it a trend, a fad, an apartment or a growing market?
Just as important as knowing the potential size and demand of the market is also knowing which direction the market is headed. The last thing you want to do is spend a lot of time, money, and effort to create a product and start a business only to find that you have missed a boat and the market is rapidly declining.
Gradeing: We know from Google Trends that search interest has grown significantly in recent years.
“Coconut Hair Oil”
Although coconut oil is currently high in trend, the beauty industry is always undergoing huge marketing shifts that highlight and push new key ingredients as breakthroughs to drive sales. It is important to recognize that one of these marketing shifts could overshadow coconut oil and cause demand to decline.
4. Can your potential customers buy the product locally?
If your product is available locally, there is one less reason for people to search for your product online.
Gradeing: We know that coconut oil alone works well for hair repair, moisturizing and anti-freeze. Coconut oil as a raw ingredient is quite widely available online and offline, we could easily find it in our local GNC as well as in our local supermarket. However, commercial coconut oil based hair care products are much more scarce and will probably take some travel to find it.
5. Who are your target customers?
Before you fully decide on a product, it is important to understand who your potential customer is. You don’t want to find out too late that all the people who would be potentially interested in your product live somewhere that you can’t send or can’t buy (i.e. kids without credit cards).
If there were any major players in the market, we could use channels like Quantcast and Alex to find out more about the demographics of our potential target market. This is difficult in our case because there are no really big competitors from the sites to analyze. As mentioned earlier, the market for coconut oil hair care products is currently quite fragmented.
To get a better idea of our potential target customers, we took to Twitter. From our last post, we know that there are approximately 150-250 tweets daily that mention the keywords “coconut oil for hair“So we took a closer look at exactly who these people were talking about coconut oil. From this analysis, and as we expected, the people on Twitter who talked about our product idea were predominantly female. Based on credible profile pictures , we can assume that the average age is 18-35.
We also know from Google Trends where our target customer mainly lives:
In the US
From this information we know we can easily reach our potential customers and generally know that this particular demographic is not harmful and shy about spending money online.
Now that we have reviewed our market-based criteria and feel confident in the market, which direction our target customers are heading in, it’s time to consider the factors around the product itself.
Product-based criteria deals directly with product sustainability. These criteria can help you better understand what the strengths of your product are and the potential pitfalls you need to be aware of.
6. What is your potential selling price?
The lower the price, the lower the potential profit per unit. That means more marketing dollars to find more customers. Many top ecommerce entrepreneurs have generally accepted that products selling for between $ 50 and $ 150 reach a certain point where you can earn a respectable amount per unit, but it is not too high for customers to hesitate to buy online or expect premium services such as telephone support.
Gradeing: We looked at about two dozen coconut oil and hair care products from various brands. After reviewing the average cost per milliliter, we determined that we would be able to charge around $ 9 to $ 20 per 120 ml unit, depending on brand position. This low price means that our margins will be small and may make it difficult to use advertising channels, especially when we first start.
7. What is your potential margin?
The mark is the amount over the cost of the product. That amount is what will cover your overheads and be your profit. Keep in mind that when looking at a potential margin, you should also consider how it can change as the business grows. For example, if we start making our own coconut oil hair care products, we will probably start with a relatively small amount of raw ingredients. However, as we grow and the volume of our purchases grow, the cost of ingredients drops. The same goes for manufactured goods, as your order quantity increases, prices go down.
Gradeing: We know from our analysis of the potential selling price that we can comfortably sell a premium coconut oil based hair care product for $ 9 to $ 20 for 120 ml.
We were able to find raw coconut oil for $ 80.00 per gallon (3,785ml). We were able to find other essential oils and extracts that have proven to help damaged hair for a relatively low price on average $ 10 per 60ml.
If we assume that our product will contain mostly coconut oil, along with a few additional oils and extracts, we can assume that our total price would be $ 110 for 3.965ml (3,785ml + 60ml + 60ml + 60ml). We divide that by 120ml, which would be the size of our final product and we get 33 total units. If we take our total cost ($ 110) and divide it by the total units (33), we will get a cost per unit of $ 3.33.
Considering that a 120 ml jar would cost approximately $ 2.00 and $ 0.50 for a label, our total cost per unit becomes $ 5.83. At the lower end of our potential selling price, this would be a big concern, but if we sell our product for $ 13 to $ 20, we can enjoy a pretty healthy brand.
8. How many SKUs will you have in stock?
Generally, more SKUs (product types or styles) mean more potential headaches. Usually this can become a problem if you come across things like sizes and colors. For example, if you plan to sell jeans online, you will need to purchase many sizes for each style. This increases your inventory costs, storage and increases the potential for delivery of blends.
Gradeing: Our product selection would probably start with just one or a few SKUs. You can probably handle just a few of your own products or about a dozen or so coconut oil products.
9. Can you offer a subscription?
It does take a long way to build a successful online business, however, the ability to offer a subscription for your product is highly desirable as it helps increase customer lifetime value, gives you the opportunity to spend more on customer acquisition, and reduces the number of customers you need to build a successful business.
Gradeing: It is doubtful that customers would buy a paid-for hair care product because such a product would probably not be used regularly but would be used as needed.
10. What is the size and weight of your product?
The size and weight of your product can have a big impact on your sales and conclusion. If your product is too big or heavy, expensive shipping can distract potential customers and squeeze your margins. Size and weight can also be an expensive storage and storage factor.
Gradeing: Delivery of coconut oil is not easy, but in unit sizes where we are likely to sell our product, we do not expect packages to be that heavy. For an average order, most shipping companies would consider this a small package and should fall well below the weight limit for small packages.
11. How long is your product?
A durable product is always more ideal. The durability of the product will reduce your overall shipping costs and prevent costly breakage during shipping.
Gradeing: Most coconut oil hair care products come in glasses or plastic containers. This makes them relatively durable, but if we plan to use glass containers, it is important to consider additional shipping costs to ensure that the glass containers are properly and safely shipped to avoid breakage.
12. Will you face a change in seasonal difference?
Seasonality refers to changes in customer behavior during the year. For example, Christmas trees have a very high seasonality and almost everything is bought in the months of November and December.
Seasonal changes are important to keep in mind because of the impact they can have on the cash flow and overall sustainability of the business.
Gradeing: We used Google Trends to look at some of the main keywords around our product idea to better understand if we are potentially suffering from seasonal changes.
We can see that there are subtle spines in January that we assume can be caused by people seeking help to help them dry or freeze from winter. In addition, season does not seem to affect product selection.
13. Does your product serve passion or manage pain?
Products that solve a pain point or serve a passion are much easier to find and attract a customer than a product that is just “beautiful.”
Gradeing: It is fair to say that our product selection can definitely solve a pain point for customers, including dry, brittle and hairstyles. It certainly serves the passions as well, as women tend to go to extraordinary lengths to keep their hair healthy and beautiful.
14. Is your product disposable or disposable?
A consumer or disposable product is good from a business perspective because it gives you a better opportunity to earn trust and repeat business than previous customers. Generally, this can help you lower your marketing costs and increase the average value of your client’s life.
Gradeing: As a hair care product, our product selection definitely falls into the category of consumables.
15. Is your product perishable?
Choosing a perishable product can be a recipe for disaster if you struggle to find your market and make a sale.
Gradeing: Coconut oil, along with several other ingredients we have researched for our product (other oils and extracts), has an approximate shelf life of three years or longer. This should give us more than enough time to sell our product and give customers enough time to use the product.
16. Are there any restrictions or regulations on your product?
Restrictions and regulations are part of the life of many businesses and products. However, it is best to learn about it before investing time and money in your business. Understanding these things in advance will help you plan accordingly and will probably save you a lot of time, energy and money.
Gradeing: As far as we have been able to determine, there are not many regulations or restrictions on our product other than labeling requirements.
After considering and considering all the market and product criteria, we feel pretty strongly about our product idea and the potential market for it. Some highlights that really stand out to us are the low cost of running this business, strong demand, trending trajectories, and low-competition keywords that we think could rank Google over time.
However, we do have a few issues that prevent it from becoming a slag. Some of the biggest concerns include the low cost of the product and the competitive landscape.
Much of the potential success of our product idea would come from the ability to develop a product that is significantly better than coconut oil itself, create a brand around it, and score high on keywords we’ve identified.
What are your thoughts? How confident or uncertain are you in the selection of products based on the above criteria?
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