There’s a lot of information out there about how to choose a profitable market. The simplest explanation I’ve found from a resource I trust is a 15-point checklist from ecommerce marketing expert Ezra Firestone. I’ve excerpted parts of it here with his permission.
Keep these tips in mind when you are thinking about your ecommerce business in relation to profit margin, risk, and income potential:
You don’t always know the margins upfront on products, but if you're considering two niches and they both have the same average order value, you should go with the one that has the higher profit margins.
A quick and easy way to evaluate this is to type the top 15 or 20 content page keywords into Google. If it’s always the same 10 companies that populate the first page of Google, it’s not a fragmented market and instead has a handful of entities dominating the market share.
But competition is not a huge deal -- you can break in no matter how competitive the market is. But it is something you want to look at because a fragmented market is better because it’s easier to break in.
Do you have the opportunity to resell to your past customers, or is it one and done? An electric fireplace is kind of a one-and-done sale. It’s a high-dollar sale, but people aren’t going to come back and buy another electric fireplace from you. With gift baskets, on the other hand, you have the opportunity to sell to those people every single holiday.
This is where you really stand out. You’re going to want to choose a product line you can add value to -- something you’re willing to learn and talk about. The days of ecommerce stores just being stores where there’s no face, there’s no person, there’s no name behind it are going away in our hypersocial society. It’s becoming more about connecting with your customers and creating a community. There are a lot of ways to add value to a marketplace. Educational content is a fantastic one. So are buyer’s guides: stuff that solves the purchaser’s problem.
If you don’t live in, say, New York City, can you buy it down the street? Fire pits are a good example. Walgreens, Costco, and Home Depot might have one or two fire pits, but they don’t really have a large selection. The only place you can find a really good selection of fire pits is online.
Most markets are somewhat seasonal. But seasonal product lines -- toys, Halloween costumes, Valentine’s gifts -- are great because people don’t think twice about purchasing something when they’re buying a gift for someone or when they need a costume for their kid.
You can use Google Trends to find out all kinds of valuable information. Google Trends is a tool that analyzes how often certain keywords are searched for, who’s searching for them, and when. It’s great for highlighting trends in your market that could be beneficial for you to align your marketing strategy with. For instance, is your product seasonal? Are most people searching for your products in the United States? You can use Google Trends to find out.
Never sell a commodity -- you don’t want to be competing against Walgreens. In economics, a commodity is a generic term for any marketable item produced to satisfy wants or needs. For example, if you open an ecommerce store selling Toms shoes, people will shop purely on price. They’ll scour the internet for other people selling the exact same shoes for a lower price. That’s a position you hope to never be in. That’s a simplified explanation, but really, commoditization occurs when goods or services lose their differentiation across the supply base. Basically, what that means is that anyone can produce it. It doesn’t cost a lot. It doesn’t require a lot of capital to produce it efficiently. You just don’t want to sell anything that’s readily available that anyone can produce anywhere.
SKU (stock keeping unit) is a fancy term for a company’s catalog system. Books all have SKU codes on them, for example. Does your ecommerce store have at least 70 different items? The reason you want at least 70 is because when you have a store that sells 50 items or fewer, it’s pretty hard to grow that business up to six and seven figures. You just don’t have enough products to sell unless you’re building a brand. But when you’re doing a drop-ship store, you want to have a larger fishnet. Firestone’s best stores have between 500 and 1,000 SKUs, which is a really good number of products to shoot for.
Take your top five keywords and type them into Google. You should see a full page of ads for each one. But if there’s no one buying ads on your keywords in the market you’re evaluating, no one’s making money on those keywords. So make sure there are people actually paying for advertising in your market.
If you have heavy products, it just makes things more complicated. Shipping hassles can be a big nightmare, though it’s not a deal breaker. But if you can find lighter products, that’s better for the most part.
Do your top three keywords have at least 15,000 exact match searches per month on the Google AdWords Keyword Planner? If you’re new to this topic, exact match means when someone types in that exact phrase. Most people freak out about keyword volume. They just go nuts on this subject. It’s not a huge deal, to be honest. Most markets you’ll find have a bigger long tail. You’ll make more money from your long tail than just about anything else. Most markets have a huge long tail if you know where to look.
Firestone really likes to sell to women. He thinks they’re just better buyers. They’re usually more willing to engage and comment on the products and talk to you about them. And you’d be surprised what women are buying -- they’re buying the furniture for the house. They’re buying the costumes for the kids. They’re ordering gifts more often. If you think about it, a lot of markets are female-oriented.
Take our full assessment, and get on the right track to start your successful online business
Article and image originally posted on Entrepreneur.com – June 1, 2016