1) Limit the choices. Having 5 different colors of t-shirts might be a nice touch, but it's crazy inventory-wise and actually can impede that sale. A good salesman limits the choices to only 2. Any more and you risk the potential buyer throwing their arms up and saying, "I can't make up my mind," and not buying anything!
The same can be said for different styles of shirts as well. Remember, too many choices = buyer indecision.
2) Target the merch. You're a lot more likely to sell heavy sweatshirts, hoodies and beanies in the Minnesota in the winter than in California in the summer. Likewise, tanktops are going sell in better in Florida in the summer than in Detroit in the winter. You can even increase your profit margin (i.e. charge more) if the merch is climate appropriate and targeted.
3) Tie the merch to a tour. Tour merch generally sells better than generic items because you're celebrating a moment in time. Even if you're just playing local clubs you can do this successfully by calling a t-shirt something like, "2010 Club Tour." In 2011 you change the color and style to give your fans a reason to purchase again. Sports teams do this every year by changing the color and even the style of their uniforms. You can do it too.
4) Don't forget the girls. Under the right circumstances, it's well worth it to have an item aimed just for the ladies in style and color, since many girls and women would never be caught dead in a generic shirt. Guys, don't design or pick this item out yourself. This is one time help from the opposite sex is mandatory. If in doubt, go back and read #1.
5) Be careful of novelty items. Novelty items such as lighters, condoms, beach balls, etc. can be fun, but usually don't sell well. They're usually meant to be given away for free to remind people of the brand, and that's the way they're best used. Once again, remember #1.
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