Monday, 1 November 2010

Performing a profitability calculation before doing anything else

Here I wrote about a testing challenge for my idea to sell an MLM product on ebay with the company drop shipping it direct to customer.

I spent a total of 12h (over 4 days) on:

  • keyword research
  • competition research
  • profitability analysis 
My assumptions were that:
  • other distributors are only selling single products and not programs which leaves room for premium products
  • I could turn a profit thanks to low costs of ebay
  • I could compete with other featured products by crafting a superior copy
  • I would not have to spend much time on the upkeep of this as the MLM company would handle shipping and packaging for me.
To test these assumption I was getting ready to run some listings with featured first advertising on ebay for 10 days.

The previous three mornings were spent on keyword research and competition research, writing out headlines ideas, copy ideas and differentiators.

Initially this morning was supposed to be the copy writing morning, but I decided to move the profitability calculations from tomorrow in order not to waste time if those would prove discouraging, which they did.

I calculated that for the top program (of the three planned), I would need to be selling 3 per week (each selling for £118.80 !) just to break even after insertion and final value fees, featured first advertising and my value added pack. Which means that I would need to sell 4 programs per week just to turn a profit of £16.00...

Now, I understand that this is my assumption that this is nearly impossible to do, but I am basing that assumption on completed listings by another distributor, who sells the same thing for half price without the featured first ads, and in the span of 11 days sold three sets out of 8 listings, which means to me that the market is too saturated (at least on ebay) to try and enter it with the same product at twice the price no matter how good the copy.

This basically means that I have skipped testing all together.

Another approach that I could test in the future is doing the same thing but outside ebay - with Google or Facebook advertising and with my own store front. The problem is that being a reseller leaves very little margin. Usually (my assumption with some observations over past months or even years) resellers have varied stock, which means that they can generate revenue from cross selling products in the store. There is just too much competition as the MLM business is designed to create marketing through distributors' friends networks.

What I would need (my assumption based on advice in books I've read) is to create a product that would cater to a specific market solving a specific problem. 

Lesson Tokens to take away:
  • perform the profitability calculations early
EDIT: I received a letter today from the said MLM saying that I have violoated their rule of not selling stuff on auction sites as this undermines the personal relationships distributors build with clients. This only is another reinforcement of my decision and a reward for not wasting time deliberating options but cutting them down with my personal Assassin!

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