In this article, I’ll go through the steps that I use for planning a new ecommerce business, with a focus on competitor research. You’re sure to pick up a few new techniques that should prove valuable to you. The case study that I’ll go through is for Hammocks in Australia, but the techniques will work for practically any niche and location.
Picking a NicheI’m assuming you already have a good niche, but if not, you can browse listings at Flippa.com until something jumps out at you. Meaning, there are people making good profit with relatively little effort in the niche, and you feel you could replicate their success or surpass it.
Flippa Competitor ResearchLet’s start with Flippa, since where else do your competitors openly display confidential documents and trade secrets? Search for your keyword, ‘Hammocks’ in my case, or closely related keywords.
For hammocks, I found 9 historical listings, 2 competitors whose profit I’d consider decent and above. One is from Australia, and one is from England – good – 2 different perspectives to better understand the potential of the market.
Revenue and ProfitWhether you’re already up and running, or still planning, it’s great to know how much your competitors are making. But be aware, for those of you who understand accounting, sellers will almost never display Net Profit After Tax. Usually they ignore some costs like wages, payment processing fees and taxes when displaying their ‘profit’ figures.
The revenue figures, you can generally believe, but you will have to reverse engineer the true profit figures from their attachment files.
In the case of the hammocks, I found that the 2 competitors had a range of revenue from $10k-30k per month, and profit before tax of roughly $3k-10k per month. Both are dropshipping, so let that play into your calculations.
Profit MarginProfit margin is easy to calculate, by comparing the profit to the total revenue – 20-30% Gross Profit Margin for these 2 competitors. Then consider, is it good enough and can you do better?
There are always ways that you can beat your competitors, so consider how many ways you think you can outperform them e.g. increasing conversion rate, lowering advertising cost per sale, getting bulk import savings / importing instead of drop-shipping, cutting delivery costs, lowering payment processing fees.
Conversion RateIt’s nice to have this to use for goal setting. You calculate it by dividing sales by the total visitors. These 2 competitors seemed to have 1.21% and 2.75% conversion rates – drastically different. So I have to target the upper end of that, and can guess why one competitor outperforms the other. By increasing conversion rate, advertising costs per sale fall, increasing profit margin.
Advertising CostsThe English competitor listed advertising costs of 4839 GBP on 27247 GBP of revenue. It’s pretty high at $18 advertising per $100 revenue. This seems to be because of their low conversion rate.
SeasonalityIn the Flippa attachments, you might notice some industry seasonality which you can verify in the Google Adwords Keyword Tool. In the case of hammocks in Australia, it peaks at Christmas and is obviously due to summer and winter weather.
More Metrics to Check
- Average Order Value
- Revenue from SEO versus Advertising
- Delivery Costs
- Items / Add-ons per Order
Top ProductsYou might find your competitors top selling products on Flippa, or you might not. If you do, make sure you’re stocking those products. If you can’t find it, then make your way to Ebay and the Ebay research sites.
At Best Selling Auctions we can see the top selling products on Ebay for your keyword. Note that these are very price competitive products, and may be different than the products your competitors are selling most successfully on their own websites.
If I want country specific, I use Watch Count and if I want Ebay Seller specific, I use Ebay directly.
Researching SuppliersYou now have a list of great products, so you head over to Alibaba and start talking to manufacturers. Avoid the scammers (if Alibaba has done a premises and activities check, that’s a good start), and find one who can make good products at a good price with acceptably low volumes.
Assuming you have $5k-10k for start-up inventory, you might have a hard time finding a supplier who will agree to your relatively small order, so you should be speaking with 5-10 suppliers to find the best and most flexible one.
If you want to find your competitors’ suppliers, then do a reverse image search in Google for some of their product images. You’ll likely find their supplier’s website.
Try to estimate your import costs accurately, but you’re still likely to underestimate, so include a 10% contingency cost. I use the following image as a reference, so I don’t forget anything and I use Duty Calculator to check my products’ import tax rates.
Delivery CostsFor comparing courier costs for my product, I go to Temando who give me something like the following.
SEMRush Top KeywordsTo find out about the competitors search engine rankings and Adwords ad rankings, I use SEMRush which normally comes up with lots of valuable insights.
ConclusionThere’s lots of ideas here that you can use to improve or plan your business. Compared to somebody without these insights, you’re at a distinct advantage, so good luck.
For an alternative business idea, you might consider subscription boxes, gift boxes delivered monthly to your customers.
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