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Partial Transcript:
We’re looking at four main things: barrier to entry, revenue, trends, and level of competition. First we’ll define what these look like, and then we’ll dive into our pinned product ideas to see if the markets are any good. And, we’ll show you exactly how to evaluate your product ideas with Market Intelligence, our product research tool.
First, we’ll talk about Barrier to Entry. The highest barrier to entry in a market is the average number of reviews the products have. This is because gathering reviews is pretty difficult, with the industry average being around a 3% review rate. That means for every 100 products you sell, only around 3 will typically leave a review. So if you’re competing with products that have thousands and thousands of reviews, you’re not likely to capture many sales. Think of it from a buyer’s perspective... If you’re shopping for a spatula on Amazon, and there are two products that are almost identically listed, will you pick the one with 3,000 reviews or with 30 reviews?
Next, Reviews. Reviews serve as social proof on Amazon, helping buyers understand that other people have bought this product in the past and were happy with it. It helps them to believe that this is a solid purchase, and they can trust it. So when you’re looking for a product to sell on Amazon, you want to make sure you can compete fairly quickly with top sellers. And a big part of competing means matching the number of reviews they have.
So as we’re looking at products, we’re going to look for markets that have products with high average sales and low average reviews. These are the markets that will be easiest to enter because we can compete relatively quickly. For example, let’s say there’s a market with 1,000 average monthly sales and 100 average reviews. It won’t take us too terribly long to compete by gathering 50-100 reviews, especially since we’re selling a lot of units each month. We name this metric at Viral Launch, and we call it the Sales to Review ratio. In this instance, if we do 1,000 divided by 100, our Sales to Review ratio is 10. That is high, so that’s good! Remember, we want high sales, low reviews.
The next thing we’re looking at is monthly revenue. Now, revenue is sales*selling price, so ideally here we’re wanting both sales and selling price to be high, resulting in high revenue. It’s important here to know your goals. Are you okay with a market that does $5,000 in revenue each month, with less upfront investment, or are you wanting a market where revenue averages $25,000 or more, with more upfront investment? And on top of that, will revenue be enough to cover your costs and still leave you with a solid profit?
Next, we’re looking at market trends. We want to look at how sales, price, and reviews are trending. Is it a seasonal product, like beach towels? Or is it declining, like Snuggies? Is the price pretty consistent or does it fluctuate? And how quickly are reviews climbing? Are there lots of new sellers in this market? These are all important things to look at before jumping into a market. You want to know where it has been, where it’s at now, and use that information to predict where it’s going.
Next, level of competition in this market. Are there big name brands with a large share of the market? Maybe there are a lot of vendors, or people who sell to Amazon and then Amazon actually sells it to consumers. You typically want to stay away from competing with big brands or too many vendor sellers.
In looking at the competition, you also want to see how the listings of the top sellers look. Is there room for improvement in the image sets? Is there a common complaint in reviews that you could potentially address or fix with your product? Perhaps the review rating is high across the top products, so you want to make sure you’re sourcing a high quality product. Or if review rating is low, that’s an opportunity for you to stand out with higher quality.
