How to test a new product
I love creating new products. It is probably the most invoragting part of my day. However a good idea does not necessarily mean you will sell a lot of the product, so i have come up with some guidelines to follow. The first guidelines are what I call my basic rulebook for new products.
Rule #1. I never start out with a new product in great quantities. I start with a prototype and then create a couple locally. For example, lets say uou were going to design a new shirt that you think you can sell a lot of. It would be very tempting to buy the shirts in bulk (overseas) and then try to sell them. A better approach is to create the shirt in a small quantity such as ten and pay a higher price for the unit. Then you test the shirt for sales appeal. If you sell them all rather quickly, order 20 in the next run. Even at a quantity of 20, you most likely will not make any money kuch less the first quantity of ten. It does not matter at this point. If you go through the 20 fairly fast step up to 50. At this point you might make a buck or two per shirt. If sales demand looks good after a bigger test then consider buying in larger quantities to lower your cost and increase your margin. This works for any product whether its a shirt or a dining room table.
Rule #2. Make a test schedule. when you create a new product, you need to build a page on your site for it to live on. That page needs to have all the elements of good eccomerce design to compell someone to buy. Because the page is new, your rankings for it most likely do not exist, this is how you test it.
- Post or highlight it on your facebook page
- Put the item up on Ebay or Amazon for larger exposure, the key is for as many people to see it as possible
- Make a video with the product in it.
- Use a facebook ad to promote the product
- Use a PPC campaign to drive traffic to the page
These types of test build some hype around the new product until it naturally ranks in the search engines.
Rule #3. Decide if you will make money selling the product individually to consumers or you want to sell it by the case load to other vendors. Selling one by one is fine if you get a lot of traffic and have a good shipping system to handle individual orders. However sometimes you can make more money selling by the case load. One way to do this is to have a site that is under your business name. Nyou can showcase the product for sale to your competitors as well as selling it as a vendor on your site. You will need to create a master product cost sheet to your desktop tools so you can have prices ready. In it include your cost to create, your wholsale price per unit, uour case price wholesale and your list price. Use these numbers and list your product on sites such as global sources or Alibaba. If you just want the product to stay within your country and not export it, you can select that option.
The last item is not really a rule but a technique. I like to know who my competitors are for a certain product. I take the time to list them out and keep them for reference. When i am ready i send an email to possible sites that can carry my product with the offer of a new product. This combined with my other sales efforts completes a whole spectrum of activity. Lets review it as a whole.
- Create the product in small quantities.
- Build the page for that product on your site.
- Promote it via social media
- Promote the product page with a facebook ad and a PPC campaign
- Put the item up on ebay.
- If you have a merchant account and are approved for the appropiate category, put it on Amazon.
- Contact competitors with the opportunties to buy it by the case load.
- List the product on Global Sources and Alibaba domestically.
If you follow this blueprint for a new product it simply becomes a checklist that you repeat over and over again every time you have a new product.
A lot of people start businesses for various reasons. Some build online businesses as a part time experience to generate a little extra cash. There is not much focus given to growing it or making it a full time gig. However there are a few people out there that the soul intention is to grow it big enough so that they can quit their day job and rely solely on their business income. These types of people not only need to do more planning but also need to be able to project profit margins a little more carefully. They have too, it’s the income that they need to live off of. So how can you count on a steady margin in an ever changing market? The answer is, you can’t unless you dive into your notes and books once in a while and do the math.
So lets use an example here of a yearly sales scenario. Lets say Stacy has a business that generates $100,000 in sales a year. Sounds pretty impressive so far right? Now lets say she tracks the profit margin of her 10 products very carefully and projects that she can create a steady 25% return on her sales. 25% is not a bad margin depending on the product line. It could be better and certainly could be far worse. Lets also say Stacy is in her second year of business and wants to live off her income. So let’s do the math.
At $100,000 in sales with a 25% return, she generates $25,000 in gross income. Not bad, however the next consideration is in Stacy’s operation. Does she work from home? Is she the sole employee? What are her expenses? In an ideal situation with her working from her home and having no employees and no expenses, she would pocket the 25K. But can you live on 25K a year? That is the real question. Most likely the answer is no, its just not enough money to make ends meet and run the business with the goal of growth. Your expenses are always going to have a tangible value and you will always be pouring money into adding more products or into developing new ideas. So how do you fix this scenario?
- Find a way to decrease your costs so that your margin increases.
- Generate more sales to increase bottom line.
Those are your basic two options that you can control or develop. Most other options involve spending more money to grow. So the next question to ask yourself is this. How much money do I need/want to make that is a reasonable (not a dream scenario) goal? Take that number and then work back words using the same profit margin alottment.
So lets say you need to make 50K to run your household and life. With the same margins, you will need to generate 200,000 in sales and most likely 300,000 if you want to accurately account for expenses. Keep in mind this is twice as much work and its not easy to hit this kind of gross revenue early on in your business.
The real eye opener about this example is that most people do not realize that they have to keep their full time jobs active longer while they develop the sales of their business to the point of living off it. while this may be a bit depressing for most people, its much better to find out about it in the developing stages of your business then after your neck deep and stressed out. planning and information is power. the more you do the better off you will be.
And in case your asking yourself how do you generate more sales as an option (and you should), here are some ideas:
- Carry or develop more products. You can do this the by either developing yourself or finding companies that sell their products wholesale to business owners like you to give your customers more choices.
- Add a new revenue stream. If you sell your product on your own stand alone website consider adding other sites such as Ebay, Amazon and Etsy to your revenue stream. This keeps product choices in front of as many eyeballs as possible, which is the goal. There are some people who are diehard Amazon shoppers and nothing else, the same goes for Ebay. If you cross market your sales offerings you can improve your gross sales significantly.
- Add an employee to the mix to help you manage the day to day operation. I know it sounds like you are adding to your expenses because you are. But, an employee also generates income for you because you can focus on growth instead of running the business. This allows you to work ON your business instead of IN your business.