Choosing the right product is crucial for the success of a direct-to-consumer (DTC) brand. It involves understanding market needs, identifying opportunities, and leveraging your strengths. Here’s how Josh Delaney picks a winning product.
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Market Research
Conduct thorough research to identify trends, gaps, and consumer needs within your target market. Typically, entrepreneurs want to be 6-8x the cost of goods with your retail price. If the product is $1, then they should be charging $6-$8 on average to really be able to scale through branding, advertising, ordering inventory, etc. If entrepreneurs can get past 8-10x cost of goods (COGs) and still have people purchase, then you are in a great place!
You want to get a look at the search volume of competing products as well as check Facebook ads for those brands and similar brands. See the creative they are using, the comments and engagement and how much volume. Read blogs and publisher articles about current products in the industry to see what the industry says. Lastly, you can read reviews on competitors’ websites to see what customers like and dislike when it comes to these types of products.
Solve a Problem
Successful products often solve a specific problem or address a particular need in a way that resonates with consumers. Entrepreneurs need to be in your customers’ heads right when that problem occurs. What are they thinking? What are they frustrated about? What else does this problem affect daily or weekly? Can they craft a message to speak to that internal dialogue that potential customers are having with themselves? If entrepreneurs can, then they have a shot at being a business owner.
Validate Your Idea
Use surveys, focus groups, or a minimum viable product (MVP) to test the product concept with the target audience before full-scale production. This doesn’t mean entrepreneurs have to have 100 people try their stuff. It’s all about their risk tolerance. How much validation is enough? When Delaney made health supplements in the past, he would go to the gym and literally ask 20 people there to walk over and try his product to tell him what they think. This gives quick and real-time data and feedback for you to move on with. Entrepreneurs who have a ton of money for something, then maybe more people are better. You’ll know when you feel validated enough or not.
I get all the information I need by having expertise in the field I choose to be in, which is supplements, skincare, and wellness products. If it was an industry I knew nothing about I would do all the homework I could to find every bit of information on good and bad qualities of the products and industry. I would check all the SEO tools to check search volume and keywords, as well as click around Google and Facebook to see which ads are running and others that are out there targeting me once I got into the ad realm of that industry. This type of homework will tell you a lot. Testing marketing is tough until you have samples made.
Consider Profit Margins
Ensure the product chosen has a viable profit margin after accounting for production, shipping, and marketing costs. This varies from industry to industry of course, but in DTC/Ecommerce, Delaney typically likes to see between 30-40% net profit margins on my brands.
Have your COGS broken down upfront so you can plan on margin for affiliates, discounts, ad spend, inventory, etc. You should have a plan for 2-4 inventory orders up front so you’re not scrambling at the last minute while sales are coming in.
Scalability
Think about the product’s potential for growth. Can it be scaled up easily? Is there room for expansion or variation? If you accomplish #4 above properly, then you should have room to scale ads and inventory without problems.
In my experience, a product in the consumer packaged goods (CPG) space selling online through all the standard channels needs to see a 6-8x multiple of the cost of goods to achieve an ideal retail price that can turn a profit. For example: $1 cost of goods = $6-$8 retail price. Anything less than that is going to be tough to run ads, order more inventory, and test new channels that require more creativity or labor. There simply won’t be enough room to grow. Profits up to $2m is easy with good marketing; $2m-$5m with a good product; $5m-$10m+ needs to be good operations.
