What a merchant sells online has a significant effect on that merchant’s success, including profitability and longevity. New ecommerce entrepreneurs should choose products wisely.
According to estimates from Forrester, the research firm, U.S. online retail sales should reach about $278.9 billion by 2015, after enjoying significant annual growth. What’s more, comScore, an analysis and trend-tracking firm, found that U.S. online sales grew 14 percent in the fourth quarter 2011, reaching nearly $50 billion.
All of this growth suggests that there are significant opportunities for small and mid-sized ecommerce businesses. Certainly, many factors go into making a profitable business — hard work, capital, and creative marketing are examples — and product selection is absolutely among them.
What follows are three tips for choosing which products to sell online.
1. Find Your Niche
There are companies that are making large profits online, selling mass market products like DVDs, iPads, books, or even Levi’s jeans, but for the most part these businesses tend to be either brick-and-click sellers with established physical locations or very large concerns capable of investing millions into marketing.
Certainly, it is possible to compete with these sorts of large ecommerce firms. But doing so may require a significant financial investment or a truly innovative business model — as examples, look at how PetFlow and Manpacks sell product subscriptions.
Instead, it may make sense to seek out a niche market that big box stores and everything-to-everyone ecommerce giants tend to under serve.
To identify these niche markets, an entrepreneur may want to look at personal hobbies, skills, and interests or even news headlines. Whenever possible, seek to sell exclusive or unique products in a unique way.
Here are a few possible niche examples.
- English riding tack
- Wrestling singlets
- Professional mountaineering gear
- Reprints of t-shirts seen in movies
- Imported modeling kits
- Artwork made from video game screen captures
- Period costumes
- Professional farrier tools
- Oversized sunglasses
- Premium chocolates
- Armor for members of the Society for Creative Anachronism
- Curated luxury undergarments (see PantyByPost.com)
2. Know Your Market
New online merchants should seek to serve a market they understand well. This means finding and selling products that appeal to known customer demographics with measurable and predictable buying habits.
In effect, knowing the market to which a product appeals brings balance to choosing a niche product, since market knowledge may help a startup avoid selling products for a niche that is too small or that tends to acquire products in a different way.
As an example, it might not make sense to try to sell something to a community of barterers, accustomed to trading. Likewise, broadcast tower maintenance workers, who climb hundreds of feet up cellular or television towers, may be willing to pay a premium for extremely high-quality climbing gear, but with only a couple thousand of these workers total, the market might be too small.
Again, choose products that fit a known and predictable demographic.
3. Know Your Margins
New ecommerce businesses should choose to sell products that have enough margin — i.e., profits — to be successful.
At a typical brick-and-mortar store, different products will have different margins. For example, pet food bags might have margins of less than 10 percent, while fashion clothing from brands like Silver, Miss Me, and Bebe might have 70 percent margin. For a store with hundreds or thousands of products, margins and profits have a way of averaging out.
A new online business may not have so many different products to sell. So it is important to select products that have a sustainable margin. As a rule, a merchant can survive on smaller margins if more total units are sold.
Don’t forget to consider shipping costs when looking at a prospective product’s likely margin.
What a retailer sells certainly impacts his or her success. Choosing to sell products that fit a niche, serve a known demographic, and earn a reasonable profit can go a long way toward success.