Despite what many people think, the world of ecommerce is still wide open, with thousands of opportunities for people to build online stores that are highly profitable. While there are more articles than you can count online that tell you how to advertise, how to get found by search engines and how to market your products on social networks, very few give you the most important advice of all … what to actually sell online!
You can build the best website that’s ever been created, provide amazing information about your products, offer great prices and a smooth checkout experience. You can spend countless days and months creating your site, optimizing it for search engines and saturating social networks with your product offerings. Unfortunately, all that time, effort and money may be wasted if you do not choose the right products for your website to begin with.
You’ll never be able to compete with the big box stores, selling everything under the sun. They have too much of a head start, they likely get better product pricing than you’re ever going to get and they have marketing budgets that are hundreds of times larger than anything you can afford.
Because of that, you are going to need to find a product niche that you can specialize in, offering far more product information, guidance and selection than the Walmarts of the world do.
Here, I’ll show you how to choose the right products -- ones that are profitable, in high demand and where you stand an excellent chance of making money the very first week your new online store goes live.
Keep in mind that we make a lot of guesses beforehand about what our costs are likely to be, based on averages we have come up with over time. Those “guesstimates” may be wrong when we actually find suppliers and when we start marketing those products online, but they are pretty good guidelines for finding what may be the perfect product niche to sell online.
The Big Five
There are five characteristics that every successful online product niche has in common. If the products that you choose to sell fail at any of these five things, your chances of success are highly unlikely. You need products that a lot of people are looking to buy online, that have a good markup and that don’t have too much competition. Here are the five questions you need to ask yourself about your intended product niche:
- Is there demand for the products?
- Is it available in local stores?
- What kind of profit is there per order?
- How much competition is there?
- Can you do it better?
1. Are The Products in High Demand?
There’s no sense in selling something that nobody really wants. Plenty of examples of products that failed due to lack of demand litter the annals of history -- the Ford Edsel, New Coke, Microsoft Zune, the Nook e-reader, etc.
Fortunately, you don’t have to invent something to sell it online, so your risk of failure is not even close to what some of the biggest companies on the planet had to experience. You only need to concern yourself with selling what has already been proven to be in demand.
The easiest place to see what demand is for any given product is to take a look at the number of searches for it online. You can do that by using Google’s free Keyword Planner Tool. Just click on the large “Discover new keywords” button to get started.
Next, enter your generic niche in the provided search box and then click the blue “Get Results” button (e.g. if you are thinking about selling lacrosse sticks, gloves, helmets, etc., enter the words “lacrosse equipment”).
Google’s Keyword planner will now not only show you the number of searches for the phrase that you entered, but you’ll also see the number of searches for a wide variety of related phrases -- many of which will be very pertinent to the products you plan to sell on your website. You’ll even see how competitive a phrase is and an approximation of what each click will cost you when you advertise for any of those search terms with Google text ads.
Clearly, there is relatively high demand for lacrosse equipment online. Generally, you shouldn’t pursue a niche that doesn’t get at least 200 searches per day for the top 3-4 search phrases (6,000/month) -- a number you can see at a glance since, by default, Google’s Keyword Planner ranks each phrase by the total number of searches per month.
What you should do from here is add up the search numbers for all of the phrases that you are likely to create pages for on your website, whether they are product pages, the home page, collection/category pages or articles. Once you’ve done that, review the total number of searches per month that Google generates for the overall niche. You can use this total number later on to compare different niche ideas.
2. Are the Products Widely Available in Local Stores?
Despite the frenzy of online buying and the ever growing share that ecommerce has in the marketplace, nothing replaces being able to run down the road, see the product for yourself and buy it immediately. Even saving a few bucks by buying online is not enough incentive to keep most people from buying products locally when they can. The fact is, with most things, when people decide they want something, they want it immediately.
Because of that, it is imperative that you select a product niche where the majority of the items can only be purchased online. Sure, the local Walmart or Best Buy might have a few products that you sell available in their stores, but if the entire catalog is available to customers locally, your online store is going to be a loser.
Please keep in mind that Walmart.com or Staples.com or HomeDepot.com are not the same thing as their local stores. The fact is, as many as 90% of the products you see on the big box stores’ websites are not available in their brick and mortar stores. They are likely dropshipping them from the actual manufacturers’ warehouses and likely getting the same wholesale costs you would have. In other words, they have no competitive advantage other than their own well established store names.
One of the best ways to find the type of products that might be successful online is to actually go into these major stores and do some exploring. Walk up and down the aisles, looking for interesting products that meet the other criteria and see if they truly have a representative selection of all the brands and models for that type of product. Chances are, they aren’t even close and you may have found a good product niche.
3. What is your Profit Per Order?
How much profit you make per order is easily one of the most important things to factor in. It makes little sense to sell something where the cost of your time and effort of not only building the website, but processing orders and providing customer support is not compensated by the amount of money you make when each order comes in.
Your profit per order also plays a major role in whether or not you are going to be able to afford to advertise your products online. Getting your website to rank well in the search engines can take a very long time -- several months to several years. As a result, you are going to need to advertise, utilizing pay per click advertising in order for your website to immediately start making sales.
Although the recent trend has been online courses that teach you how to buy cheap products from China and sell them online for “big markups,” in most cases there isn’t enough money left over to effectively advertise those kinds of products. That “big [percentage] markup” usually only translates to $10-$20 in gross profit per order before advertising costs. Keep in mind that these are not established brand name products, so you are going to have to create interest and demand for something people have never heard of before. That costs more than advertising well known brand names and products, so you can eat up your entire gross profit (and more) in advertising costs.
We advocate selling established brands and products -- things that consumers are actually searching for. And, because advertising even well known brand names is going to eat up a lot of your profit, we recommend only selling relatively “high ticket” items online -- things that cost at least $400 on average, preferably more. Selling established brand products in that price range will allow you to advertise and still have a decent profit left over after those advertising costs.
Every product niche is different and has different levels of competition but as a very general rule of thumb, you can estimate that the cost to get one sale through advertising is going to be roughly 10% of the price customers pay for a product from a high ticket website and can be a little more or less, depending on how well your ads convert to sales. In other words, if you are selling a product that people pay $500 for, you can “guesstimate” that the cost of advertising until you get a sale is going to be around $50.
On top of the advertising cost, you are going to be paying processing fees to credit card companies or PayPal. You can estimate those costs at around 3% of the price a customer will pay for your product.
And of course, you’re in this to make some money, so you’ll have to factor in what you will pay yourself for processing orders and dealing with customer service. What’s your time worth? Figuring that it probably takes a total of 15 minutes per order in customer service and/or processing time, you can take what you want to pay yourself per hour and divide by 4. Want to make $50/hour? That means your profit after advertising and credit card fees needs to be $12.50.
Using the example above of a $500 order, your profit needs to be $77.50 on that order:
$500 x .10
$500 x .03
$50/hour ÷ 4
Total Profit Needed
$77.60 ÷ $500
Clearly, in this example, you can see that you need at least 15% net profit per order in order to come close to your goal of paying yourself $50/hour. If you are willing to accept less than $50/hour for your time, you can come in a few percentage points less than a 15% net profit margin.
The bottom line here is that you are going to need to ensure that your supplier’s wholesale price to you including shipping (either to your customer or your combined cost of shipping to you and then you shipping to the customer) is giving you at least 15% off of the price you are going to sell your products for.
Fortunately, most product niches do better than that - some going as high as 50%-100%, in fact. Over the years and with more than 150 niche ecommerce websites built, we have found that most ecommerce niches fall in the 15%-40% range so we use 20% as the “guesstimate” when we are trying to determine if a product niche is viable.
One final thing to note here is that I have used the term “profit per order” here and not “profit per product.” You generally make more profit, the more items a person buys at the same time. Your shipping costs are generally lower when people buy multiple products because they often all ship in the same box and the cost of your time is pretty much the same, regardless of the number of items ordered by a customer. Accessories for products can usually be upsold at much higher profit margins than the main product, too (ever wonder why that TV salesperson tries so hard to sell you HDMI cables, a wall mount kit and other add-ons?).
4. How Much Competition Will You Face?
Consumer demand and competition pretty much go hand in hand. If hardly anybody is buying something then you can bet that there aren’t a whole lot of companies knocking themselves out to sell that type of product.
Competition is actually a good thing -- it shows you that a niche is worth getting into. Too much competition, however, can be as bad as no competition at all.
That said, I like to know that I’m not going to be knocking heads with dozens of companies as I try to carve out my piece of that niche’s pie. The best way to approximate competition level is to figure out what top three to four brands are in your niche. You figure out what those top three to four brands are either by looking at the search phrase list in Google’s Keyword Planner and seeing if three to four different brand names come up. You can also simply do a search for the niche’s top search phrases and see what brands the top three to five sites are selling.
Once you identify the top brands, do a search for [brand name + model name] to verify that retailers are selling at the same general price point. You never want to enter a niche where “price wars” are going on, which is why we prefer niches where manufacturers have instituted M.A.P. (Minimum Advertised Price) rules.
We also want to ensure that there aren’t a ridiculous number of retailers selling every make and model. Unless we know they are going to be very high ticket products that we will make $200 or more per sale on (generally, products selling for $1,000 or more), we won’t consider entering a market where there are more than 10 websites selling every make and model that we search for.
One final note on competition … It’s a real bonus if only a few well known retailers appear in search results for your niche products. If you see several companies you have never heard of continually showing up on page one of the search results, you might have a very good chance of ranking well for organic searches in the niche. There’s nothing better than FREE traffic, after all.
5. Can You Make a Website That is Better Than the Rest?
One of the questions I get asked often is “how am I ever going to compete with major brands that everyone knows, especially when we are all selling at the same price point?” The answer is that you are going to have to do it better than the major brands (and any other website in the niche, for that matter).
People who are searching online usually do not know exactly what product they want to buy - at least in the initial stage of their product research. You need to create a site that answers every question they may have about your products.
Make sure that you have great images that show the features of your products, include videos of the products, link to the actual owners manuals or installation instructions so that people can see exactly what they are getting with any given product.
You also need to think about why people are really buying the products. While most marketing courses tell you that you need to sell benefits, not features, I like to think of it another way. For every niche that I can think of, people buy things to solve a problem (real or perceived) or to make themselves feel better (which is a different kind of problem). Figure out all of the problems a product solves and make sure you convey that in each product’s description.
Just as important, make sure you make it easy for people to find the product(s) that solve their exact problem(s). Creating a world class buyer’s guide is the best way of steering people to products that solve their problems. It’s also a way to answer every question someone might have. Don’t give people an opportunity to leave your website and search for answers elsewhere because you didn’t provide them.
Finally, make it easy for customers to contact you. Once you truly know your niche, you will welcome every phone call or email that you get (well at least the ones that are asking for more information). Nothing converts better than a phone call, and email is right behind that.
Do you think anyone at Amazon or Walmart.com is going to have a clue about each of the tens of thousands of products they carry? Of course not! The person on the other end of the phone (or email) at those companies can only recite the same bullet points that their website has. They know absolutely nothing about the products on their company website.
This is where you can really shine. Answering customer questions is the one thing you can definitely do better than anyone at the major websites. People buy from the places that help them the most which is why the best niche ecommerce stores sell more of their products online than Amazon and Walmart combined.
Check out the top 10 sites in your niche and see what they do well and what they don’t. Borrow the best ideas from each site and use them on yours. That’s how you do it better than anyone else. Now, the only question you should have is whether you want to put in the time to create the best website in your niche. If so, your niche idea has passed all five of the major criteria for choosing a niche!