How to Choose Which Products to Use in Your Ads

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Let’s talk about merchandising and how to choose which products you show in your ads.

Demand

Pick products with the highest demand. Demand is what your customers want, and they want your best sellers, the products that convert the highest.

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Seasonality matters. You might sell more jackets in winter and more crop tops in summer.

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Lifetime value is part of demand too. Some products bring in new customers but do not create repeat orders, while others may be less effective at finding new customers but produce loyal buyers who keep coming back.

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For example, I worked with a cheese brand that had one cheese great for attracting new customers but poor for lifetime value. Another cheese attracted slightly fewer new buyers but those buyers kept ordering and created more long term profit.

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New product releases carry risk. You pay for inventory and ads before making a sale. If possible, test new products with your existing customers by email or SMS before committing to inventory and ad spend.

Supply

Think about how much product you have and when you want to sell it. Your days of inventory should be greater than your lead time, the time it takes to restock.

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If you sell out with ads faster than you can replenish, you may sacrifice unit profitability and limit future repeat orders.

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Sometimes it is worth selling through inventory less profitably on acquisition to grow your active customer base and increase lifetime value, but plan carefully.

Margin

Gross profit must be higher than the cost of acquisition to be profitable.

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You can spend more than you make on the first order if the lifetime value of returning customers covers that cost plus operating expenses like rent, salaries, and software.

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For example, a $100 product with 80 percent gross margin gives $80 gross profit. If acquisition costs $40, that leaves $40 contribution profit. With a $400 lifetime value and 80 percent margins on repeat purchases, that product is excellent for ads.

Scenarios

Consider these situations:

• High demand, high supply, high margin. Perfect for ads.
• High demand, low supply. Decide whether to acquire new customers now or save stock for returning customers. Factor in lead time.
• High demand, low margin. Risky for paid ads, maybe use bundles or other low cost marketing.
• High supply, low demand, low margin. Avoid paid ads. Sell through email, SMS, or promotions instead.

Testing

If you do not know demand, supply, or margin, test first. Use email, SMS, or other channels with your existing customers to gauge interest before investing heavily in ads or inventory. Then start with a small budget before scaling.

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That is how to choose which products to feature in your paid advertising by weighing demand, supply, and margin.