Life lessons in business: How to pick a product to sell

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My kids are all into selling things these days. It is fun to watch and I don’t get too involved. My youngest tried to capitalize on the fidget spinner craze. (If you don’t know what those are, it is not the end of the world.) He went out and found an importer and bought maybe 100 of them and started peddling them on Instagram. Another of the kids, Katelyn, recently began selling her homemade slime online.

After watching this for a while, eventually, I called a business meeting. I took all the kids to Taco Bell and talked about how to pick a product to sell. What I told them is what I am going to tell you. I know for a fact that many of you will be interested in this topic because many of you write and ask me what I think you should sell. Here is my advice.

Pick a product that is in demand.
You don’t have to do much research to know that fidget spinners have been a craze for a few months. However, things will not always be clear. Just because you have a friend or two that likes something does not mean there is real demand for it. There are tools online that will help you figure out how much demand there is for a product. For example, Google Adwords includes a tool that estimates the number of searches that are done for a particular search term each month. If only 10 people a month are searching for a particular product, it is not popular. If there are millions of searches, it is very popular. I can’t tell you the number of searches that would have to be occurring to make deem the product automatically “in demand” because you have to balance other factors as well. However, in general, I would probably stay away from any product that does not have tens of thousands of monthly searches.

So what if it is your own new product and you are trying to build demand for it? That is an exception to this rule and a perfectly fine thing to do. That is what we did with Vitabase. It will take longer (most of the time) but in the end, the payoff could be much bigger.

Pick a product that has beatable competition.
Assuming there is demand for a product, the fewer competitors there are, the better. You also need to consider the sophistication of those competitors. If you are selling some electronic device that is huge on Amazon, guess who your competition is? I am not saying you can’t beat Amazon because it is possible and we have to compete with them ourselves. As a rule though, you have to understand that you are going to really struggle as a small company going up against Amazon and other large players.

I will give a trade secret here. I like opportunities where the manufacturer forbids the retail of its products on sites like Amazon. Those opportunities exist. Ideally, your competition should be only small companies that you have a realistic chance against. If you can work out exclusive deals to sell products, all the better.

Pick a product with a legitimate healthy margin.
A healthy retail margin is 40-50%. You can get by with a smaller margin in many cases. However, you need to make sure that you really know what the margin is. You calculate margin by subtracting your product cost from the street price and then dividing it by the street price. For example, if a product sells for $100 and you buy it at $60, your profit is $40 and your margin is 40%. The street price is the actual selling price for the product in the real world. You do not calculate street margin based on some fictional suggested retail price provided by the manufacturer. No products sell at suggested retail.

Pick a product that you can buy cheaper than your competition (optional but valuable).
This last rule is a bonus and you can make things work without it. However, if you can find a way to acquire inventory at a better price than your competition, you have an enormous leg up on them. Let me give you a practical example. Zach, my fidget spinning retailer, purchased his inventory from a distributor that imports from China. I think he paid maybe $1.60 per fidget spinner. He would probably get his cost down considerably if he had cut out the dealer and gone straight to a Chinese company. Doing so would have required a bigger investment, more risk, and more time but it would have also immediately put him a step ahead of 99% of his competition who also buy from distributors.

There are numerous strategies and nuances to this point that I won’t go into here. However, one thing you need to understand is that buying inventory is just as important as selling inventory.

Those are the big guidelines. I hope you found them helpful.