Not all your Amazon FBA ideas are good, but it only takes one idea to make it. The best way to improve the chances of success is to validate the ideas you have in mind thoroughly. This guide will show you how I validate my Amazon FBA ideas to shrink the possibility of failure.
What is market validation
When we validate your product idea, we have to understand what the process of market validation means. To put it simply, we determine if there’s a need for your product in the niche you are looking to enter. It’s essential to validate your idea early in the process to ensure you don’t waste time and resources creating a product that is not going to work.
Going through the upcoming process, you will have a deeper understanding of the market, competitors, sourcing capabilities, trends, and more. So keep reading.
resources to compete
Do you have the resources to compete? This question is the framework of it all. We always come back to it to ensure we are on the right track. It goes very well with another training I did on barriers to entry. Check it out to understand why I believe barriers to entry are a good thing.
I thought about this segment for a long time before deciding the best way to demonstrate this is with a real example.
For this example, we will take the product – “running belt.” I’m not saying this is a product that is good to sell nor a significant opportunity to jump on. The product is for demonstration purposes only.
Before determining the amount of money we need to compete in the market, we have to know the average sales price and the monthly sales for the first page. I use Jungle Scout for this. I have been using JS since the start and still think they are two steps ahead of the competition, but you should consider what data software is best for you.
Like you can see in the above image. Jungle Scout gives us the average monthly sales and price for the market. Note that I have removed most listings. JS only shows the top 20 listings for this keyword at this point. I’m only looking at the 20 most relevant listings in the market because I like to have my listing stick in the top 20 after my launch. This way, we will be getting a significant number of organic sales to rank even better.
Average monthly sales: 1707
Average price: $17
The next step is to go to Alibaba and get an estimate on what the landed cost per unit is.
There are multiple ways to do this. First, you can type in the keyword on Alibaba and get a feeling of the average price, or you can contact suppliers to get a quote. Getting a quote is more accurate, but it also takes more time.
When calculating the landed cost, you want to include to following:
- The cost of the product
- The cost of the packaging
- The cost of any inspections
- Freight costs
- Label costs
- Overhead costs
Calculating the landed cost of your product can be tricky. Here is a guide that helped me.
The landed cost for our running belt is 9.50 USD.
Landed cost * (Average monthly sales top 20 * 2) = costs
9.50 (1707 * 2) = 32433 USD
32433 USD is the estimated amount of capital you need to compete in this market. It’s a significant investment, but the payout is even bigger.
I multiplied it by two because we need two months’ worth of inventory. Sometimes you need fewer or more months of stock, depending on our lead time.
The average new Amazon seller is not going to invest 30K upfront in starting his new business. That is why I recommend most starting sellers begin with retail arbitrage to get a feeling for the game. Then slowly invest in small markets with not much competition. Then do it again, Then do it again… See it as a game with different levels. Each time you level up, you enter into a bigger market.
Next to the 30K upfront investing, you also have other costs you don’t want to forget. Here is a list:
- Design work
- Data tools
You can significantly decrease these costs by selling in smaller markets, starting with a different business model, differentiating yourself significantly, having a better lead time.
Reviews play a big part in deciding to sell a product on Amazon. 95% of customers who make a purchase have read reviews about the product. That makes having reviews on your product a great resource if you have them or a barrier to entry if you don’t.
Getting reviews is a bit like the chicken-and-egg problem. If you don’t have reviews, you don’t get sales, but you don’t get reviews if you don’t have sales. Aha.
Here is an excellent article by Jungle Scout on how to get your first initial reviews up.
One way to surpass big sellers who have a ton of reviews is by differentiating your product from the competition. If you do this extremely effectively, you can create a blue ocean with no competition. However, there are more simple differentiation factors like color, functionality, price, and more. That guides me to the next resource to compete, which is differentiation.
Differentiation is probably the best tip you can remember from this full breakdown. It’s so important, and you must understand this if you sell on Amazon.
Essentially, we want to have a form of differentiation because instead of going up against everybody, we are just next to everybody.
The only way to withstand a competitive market is to be different from the rest. You must stand out between the many choices buyers have in your niche. That is why copying doesn’t work anymore. The only way copying still works if you have more significant resources to compete.
Differentiating goes well with having a unique selling proposition. Your proposition must be different from your competition in a way that it is not offered yet. It must be strong enough so that it can pull new customers from the competition towards you. This is also the way you surpass not having enough reviews to compete. Because if done correctly, you are creating a new market.
Giving your product a competitive edge is difficult. The only real effective ways I see Amazon sellers accomplish this is when they have studied the niche thoroughly and understand the customer’s needs. They see new audiences where they can market, for example. This mobile tripod is sold a ton. You might even have one.
The competition is overwhelmed, and you will fail to sell this product like every other regular seller. With the proper differentiation, you can develop a new target audience with no competition. That is the ultimate way to differentiate on Amazon.
And that is what the company above did. They knew, targeting everyone to sell their tripod doesn’t work, but targeting specific industries will work because there is no or less competition.
You can replicate this concept in different industries as well. You just got to stop copying everything you read and hear from people and start thinking by yourself. Be creative. In this case, the most innovative entrepreneur wins.
I believe Peter Thiel explains this the best. His “competition for losers” talk at Stanford is a great way to understand this concept better.
I just want to add to this. Once you have decided there’s a place for your product in the niche, ensure that you have tested your product and conducted customer interviews before jumping in.
Ask potential customers about their motivations, preferences, needs, and the products they currently use. Then introduce your product. Be open to the feedback you receive and try and a glance if the market is open for our innovation. The input may reflect that your product is not a good fit for the market, in which case, you can use it to develop your offering and repeat the market validation process.
Ability to source
Are you able to source the product you came up with? I can develop and come up with millions of ideas to solve a market problem better, but most ideas are too complicated.
To put words simple. Are you able to get that idea that you have in your mind into a real product? Can you develop it?
Jumping back to our old example, we are looking to put our running belt on the market and differentiate it by making it thicker and from a particular material that is more durable. Can we do that?
Well, you get a sample to start. But this opens up a different world—the world of sourcing. I have written a complete guide on sourcing from China that you can check here. It’s in-depth and advanced, so don’t get overwhelmed if this is your first time sourcing.
Sourcing can mean more then you might think. Think about regulations, profitability, complexity.
Conclusion on “resources to compete”
Now, if your idea passes all of the above and you feel confident about it. You want to go immediately go forward with it. I say immediately because there is no reason to wait anymore.
Starting a business is the same as having a baby. It’s never the right time to start. The funny thing is, most sellers fail because they never even started. By just starting, you are already better than 75% of sellers who keep on learning. Your idea might flop (and probably is going to), and that is fine. At that point, you need to learn from your mistakes and do it all again. You will feel terrible when nothing is working. Just remember why you started, and don’t give up. The person that doesn’t give up doesn’t lose.
All ideas should go through this initial framework that I explained. If your idea doesn’t meet the criteria, don’t do it. As a beginner especially. This framework will be the best way to succeed, even if you fail the first couple of times.
If none of your ideas made it through, that is okay. Go back, gather more ideas, run them through this framework. You mustn’t get emotional with your product. If it doesn’t meet the criteria, throw it away, start again.