This article is inspired by a post titled “5 Types of Products with High Profit Margins” on Shopify’s blog. You can find the original article here. Just as car salespeople lean toward showing potential buyers SUVs and trucks over sedans due to their higher profit margins, entrepreneurs should focus on high-margin products to boost your profits.
Bottom Line: This article reveals top strategies for boosting the profit margins of your ecommerce business and helps you identify products with high-profit potential. It offers essential advice for business owners geared towards increasing Return on Investment (ROI) and overall profitability.
Looking ahead, one could predict that as technology and digital worlds evolve, ecommerce businesses will continue to have a wider pool of high-margin products to choose from. Leveraging data and understanding customer behavior could lead to higher ROI and increased profitability.
Understanding High Profit Margin Products
A high margin product is one that yields significant profit for each unit sold. The profit margin of a product equals the retail price minus the cost of producing the item. High profit margin products lead to a higher ROI, stimulating business growth. For example, two products could cost the same for the customer but yield different profits for the online seller, attributing to differences in production costs. It’s clear that focusing on high profit margin products can result in higher net profits for online stores.
Five Types of High-Margin Products
If you’re on the hunt for high-margin products for your ecommerce store, consider these product categories:
- Specialty products: Items like phone accessories, kitchen gadgets, watches, and trading cards can be manufactured inexpensively and sold at a significant markup. Some businesses, such as Timbuk2 and One Blade Shave, have built their online stores around specialty products.
- Children’s products: Parents are known for spending significantly on children’s toys, many of which have a low production cost. Babylist is an example of a business thriving in this area.
- Candles: The candle business has a good profit margin, ranging from 25% to 50%. This is attributable to the availability of affordable, large-scale overseas suppliers.
- Private label products: Ecommerce entrepreneurs can partner with manufacturers to create custom-made private label products, such as custom clothing, jewelry, and health products. Companies like Victoria Beckham Beauty, Blume, and Frank Body have built successful ecommerce stores in this sector.
- Dropshipping: With dropshipping, third parties handle manufacturing and shipping, allowing you to avoid the costs of retail and warehouse spaces and physical product creation. This makes it a high-margin option.
Key Factors in a High Margin Ecommerce Product
A successful high-margin ecommerce product often depends on factors such as quality, demand and competition, production and sourcing costs, shipping and fulfillment costs, and pricing. Fulfilling these criteria may have a significant impact on the profitability of your ecommerce products.
Maximizing Profit Margins: Four Practical Tips
Maximize your ecommerce business’s profit margins with these tips:
- Target niches with high demand and low supply: With fewer competitors, you’ll be able to price your products more flexibly.
- Negotiate lower prices with suppliers: This can enhance your profit margins without needing you to increase product prices.
- Suggest related products: Offer customers the chance to enhance their purchase, increasing their total spend.
- Keep pricing competitive: Avoid overpricing your products. While this might temporarily boost your profit margins, it could lead to fewer sales in the long term.
Market research, including tracking user searches and browsing your competitors’ websites, can offer valuable insights for identifying potentially profitable products. Selling these high-margin products in your own online store can offer significant profitability while avoiding the sales commission expenses of third-party platforms.