Demand Assessment Tool User Guide
This Demand Assessment tool is designed to help you set realistic demand parameters when carrying out product research on Amazon and beyond.
Often when starting out, new eCommerce sellers can make the mistake of falling into one of two demand traps:
Aiming Too Low
Trying to sell a product without existing demand is taking a big risk. Much better to iterate in-demand products than invent products based on guesswork to ensure you can sell the products you source.
Aiming Too High
Trying to sell a product with demand levels far in excess of your budget will mean you could sell out very quickly. On platforms like Amazon, this can make it very difficult to rank and make long-term profits.
The solution: Source and sell products in a manageable range of demand according to your budget.
Step 1: Calculate your inventory budget
To learn what that range is, enter:
- Startup Capital: The total amount of startup funds that either are or will be available to you.
- Inventory Allocation: The percentage of your overall startup capital you will allocate to inventory costs. We’d always recommended holding at least 20-30% back to help with legal, design, and other launch-related expenses.
You’ll then be given the resulting inventory budget you’ve got to work with.
Step 2: Understand your research range
Next, you’ll notice a lower ‘from’ figure and a higher ‘to’ figure.
These are suggested revenue ranges to input into tools like Helium 10’s Black Box when carrying out product research.
This range is designed to be compatible with your budget and ensures you don’t fall into either of the traps mentioned above.
Step 3: Define product parameters
Once you start to find potential product ideas you can add the final set of filters.
Choose the days of inventory you’d like to order for: 30, 60, 90, 120, or 150.
When starting out we’d recommend budgeting for 90 days’ worth of inventory as this gives you enough stock to start selling, re-order from the proceeds of that inventory, and receive the new inventory before stocking out.
Then use the volume slider to select the estimated average number of units your competitors are selling each month.
To find this out, search for your main keyword on Amazon and use Helium 10’s XRay tool to summarize the data from page one.
You’ll then be given:
- Max COGS: The maximum price you can pay per unit based on your budget, the product’s demand level, and the amount of inventory you’re looking to order.
- Selling Price (Low): The low end of what you should try and sell your product for to at least break even. This is calculated as a 3x markup on your COGS. Please note: This is very much on the low end of the scale.
- Selling Price (High): A higher end price to aim for to maximize your profitability. This is calculated as a 7x markup on your COGS.
When it comes to a markup of COGS, the rule of thumb you need to remember is:
- Low COGS; high markup
- High COGS; low markup
For example, if you source a product for $1, selling it for a 3x markup at $3 is not going to work. But selling it for a 7 or 8x markup might.
Whereas if you source a product for $50 you can absolutely make a good profit at a 3x markup of $150 because you have more actual dollars to work with.
Most sellers will find a sweet spot in the 4-5x range, but these are the factors to consider.
THE ECOM MEMO
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