When your new e-commerce store opens, you may be tempted to stock it with every product under the sun. After all, you want to ensure that you're offering everything your customers could possibly want, right?
Wrong.
The truth is that a well-curated product lineup will help you increase your profits more than a huge one that doesn't have much focus.
Still, once you're open for business, how do you know if your products are making money? This can be especially tricky for newer online retailers who don't have much experience with sales yet.
Fortunately, there are plenty of ways to determine whether or not a product is profitable in your e-commerce store—and even better: All of them are relatively simple. Keep reading to learn more frens!
Take the first step frens
The first step in determining a profitable product lineup is choosing what kind of store you want to run: Do you want to focus on selling a few items at high prices, or do you want to offer a wide range of options at lower prices?
To illustrate, if you're going for luxury goods, having only one or two products may be more profitable than having dozens of products. Although, if you're looking for volume sales, having a large selection might work better for your business model.
When it comes to making money, there are two primary ways that your e-commerce store can do so:
Offer products that are in high demand (and thus have high margins).
Sell products in low demand but with lower price points and thus more volume potential.
Note how many people might be interested in buying this product lineup from you versus other similar options on the market today. Hence, you might learn beforehand whether or not there will be enough demand for your lineup when it goes live.
Consider the size of your target audience. If you're selling products online, it's essential to know who your target customer is and how much money they have available for spending on their purchases.
Look at your competitors' lines and offerings. Looking at what other e-commerce stores in your niche are offering can help give you ideas about what products might sell well for you—or even better than theirs. You can also get an idea about pricing trends in that area by checking out prices on similar items from different sellers (and whether those prices seem reasonable).
Think about what consumers need or want right now, not just what they might wish to buy someday (or have enjoyed at some point in their lives). A good example would be clothing—people always need clothes, so having them readily available is essential.
Evaluate profitability
The easiest way to evaluate profitability is by looking at the net profit margin. Deduct all your e-commerce store’s expenses from your total revenue.
Rising margins are always desirable as they indicate growing profits and more money in your pocket after expenses are paid out. However, before you get too excited about your new high-margin product line or low-margin problem child (depending on which one), let's take a look at some other profitability metrics so we can make better decisions in our business planning process:
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