You've undoubtedly heard the mantra, “Just follow your passion!” But I have to strongly disagree: I think it's dangerous advice that can lead new entrepreneurs astray.
This is especially true when it comes to choosing something to sell online. Your life-long love of Star Wars figurines doesn't mean it's a great niche to build your new ecommerce store around—sorry, Skywalker. If a thriving business is your goal, you should follow a methodical approach and pick a niche with attributes conducive to online success.
In this short guide I'll share six strategies to help you find a niche and product to sell. I'll also show you how to determine if there's enough demand for your product, and give you a few tools to measure the competitive pressures in those areas.
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6 ways to find a new product to sell
While you're brainstorming various niches and products to sell, there are a lot of important things to consider. Here are 6 strategies to help you find a product to sell.
1. Accessory-heavy niches
Merchants rarely make much on big-ticket items and will only earn maybe 5 to 10% on products like laptops and TVs. Where they really make their money is on the accessories.
Accessories enjoy significant markups and customers are much less price-sensitive about them. A buyer might shop for weeks to get the best deal on a TV, but wouldn’t think twice about dropping $30 on an HDMI cable from the same place. Yet there's a good chance the business made nearly as much profit on the cable as it did on the flatscreen.
When you choose a niche with lots of accessories, you'll enjoy significantly higher profit margins and fewer price-sensitive shoppers.
2. Customers with a passion or problem
It's amazing how much money passionate hobbyists will spend. Mountain bikers will drop hundreds on lightweight accessories to shave a few pounds, and avid fishermen will invest tens of thousands of dollars in boats and related accessories.
Also, if you can offer a product-based solution to a painful problem, you'll find a captive audience eager to buy.
3. The $100 to $200 range
I've found that this price range is an ecommerce “sweet spot.” It’s large enough to create decent average order value and per-order profit, but small enough that—with a quality, informative website—most customers won't need to personally speak with someone before the sale.
As you grow, being able to generate most of your orders online offers massive efficiency savings versus a phone-heavy approach. But if you're selling products that cost $500 or more, many customers will want personal customer service before pulling out their credit cards.
4. Hard to find locally
If you needed garden equipment, you'd likely head down to your local Home Depot or Lowe’s. But where would you go to buy surveillance equipment or magicians' accessories? Probably online. Pick niche products that are hard to find locally, and you'll be able to get in front of the vast majority of your customers as they search online.
While you ideally want something difficult to source locally, you also need to ensure there's ample demand for the product! This can be a fine line to walk, and we'll return to the issue in the competition section below.
5. Low product turnover
If your product line is constantly changing year to year, you’ll end up spending valuable time on resources that will soon be outdated. Selling a product line with limited turnover ensures you can invest in an information-rich website that will be viable for years.
6. Consumable or disposable products
Repeat customers are essential to any business, and it's significantly easier to sell to existing customers who trust you than to new prospects. If your product needs to be re-ordered on a regular basis—and you're able to keep your customers happy—you’ll be on your way to building a profitable business with recurring revenue.
Finding a great product is only part of the equation. Even a niche fitting all the above criteria would be a poor choice in the face of inadequate demand or crushing competition. Understanding a product’s demand, competition and suppliers will be important to making an informed decision.
Is there enough demand for your product?
One of the best ways to measure online demand is with keyword research, which provides data on how many people are searching for a specific term. If you're unfamiliar with the concept, I'd strongly recommend watching this video on how to do keyword research:
It’s important to note that you should look for keywords with lots of “long-tail” variations. If we were selling sunglasses, “prescription sunglasses” and “discount Oakley sunglasses” would be examples of long-tail variations. These are important because your primary keyword (“sunglasses,” in this example) will only provide a small fraction of your traffic. Even with a #1 ranking in Google, you'll be lucky to receive 30% of the phrase’s traffic.
Realistically, most ecommerce sites will receive 80 to 90% of their traffic from long-tail keywords. So the more long-tail variations associated with a primary keyword, the more potential traffic you can generate. As a rule of thumb, I like to see at least 3,000 exact-match local searches for a niche's primary keyword, and ideally a dozen or so long-tail variations. Without sufficient search volume, I won't even bother evaluating a niche on other criteria.
Can you effectively compete in the market?
You'll need to weigh market demand against the strength of the entrenched competitors. Keywords like “scented candles” and “baby clothes” will have tons of searches, but competing against legions of established businesses in these markets would be extremely difficult, especially for a new business.
To measure competitive pressures, I recommend looking at three metrics for the top 10 businesses listed in Google for your niche.
Inbound links: Using a site like Open Site Explorer, you can see how many other domains are linking to the competition. Top competitors in any niche worth entering will have at least a few hundred inbound links, and this shouldn't scare you away. But if every business has upwards of 1,000 inbound links, you'll need to seriously consider the commitment required to compete.
PageRank: All links aren't created equal, and PageRank is a metric that takes into account the quality of inbound links. It's also a representation of how much authority a page has. Homepages with PageRanks of 3 and 4 are fairly standard and will likely be the minimum point of entry for most viable niches. Trying to outrank sites with PageRanks of 5 or higher will require significantly more work and an SEO campaign dedicated to getting quality backlinks.
Quality of site: This metric might be the most important of the three. Browse the competition’s websites and ask yourself: “How likely would I be to purchase from this site?”
If most of the businesses have poorly designed sites with little information, you have an opportunity to compete. But if the niche is flush with professionally designed sites adding loads of value, you're going to have a hard time differentiating your site.
How to source your products
Having reliable and competent suppliers is a crucial element of launching a new ecommerce store and needs to be a key consideration in the niche selection process.
This is especially true if you'll be dropshipping, as your supplier will be doubling as your warehouse and fulfillment agency. A bad supplier will cause an endless supply of headaches from botched shipments to perpetually out-of-stock items.
I strongly recommend having at least two suppliers for any new ecommerce store. Why is that?
- You're not 100% dependent on a single supplier;
- Higher fulfillment rates and fewer out-of-stock issues with two warehouses;
- Better pricing when suppliers are competing for your business.
Wait! Passion is essential
The grand reveal: I wasn’t being completely serious when I warned against following your passion. Doing something you're passionate about is crucial to achieving success. The mistake new ecommerce entrepreneurs often make is focusing their passion on the products they sell instead of the process of building a thriving, profitable business.
It doesn't matter if you sell diapers or dentures; if you've built a successful ecommerce business around a niche, I promise you'll become passionate about it.
About the author: Andrew Youderian is an ecommerce entrepreneur, owner of numerous online stores using the drop shipping model, and founder of eCommerceFuel. You can learn how to create a profitable online store with his free no-fluff ebook.