Before diving into an ecommerce project (starting a business!) you have to make sure that your venture has the potential to be profitable. You don’t want to invest time and effort, without any real opportunity to run an ecommerce store.
A lot of people come to me saying “I am only passionate about (insert odd hobby here) and cannot imagine I could make money off this!” My response to this is two-fold:
You may actually be surprised about how many other people have a similar hobby and spend money on it
Once you determine that a certain niche could be profitable and you start making money off it, it is amazing how fast you will become passionate for that product!
In this post, I will review what makes up a solid niche. In my next post, I will review how to use Google Keyword Tool to analyze the demand in a marketplace prior to diving too deep into a niche.
WHO SHOULD I SELL TO?
Gender and age is an important to consider when determining a niche. Your target audience will drastically affect your conversion and therefore, profitability. Let me review some ecommerce trends here.
58% of e-commerce revenue comes from women
Men make more online purchases than women, but the value of women’s purchases is more
The leading demographic age group for online shoppers is 31-44 and 55-65. This comes as a shock to many people who would think the 18-30 age range is on top (probably because 18-30 just doesn’t have as much income!)
Women’s purchasing trends towards new releases and quick deals, where as men are more likely to want information about their products. This means to me that men like to spend money on their hobbies.
From reviewing the above, it is key to target people who either (1) are willing to spend significant money on a hobby, (2) depend on ecommerce for the majority of their purchasing, or (3) have a problem that needs to be fixed. A fourth target audience here, which I have personally not gotten into yet, is selling to businesses, allowing for higher ticket prices and consistent rebuys.
WHAT TYPE OF PRODUCT SHOULD I SELL?
Love what you sell
Of course, it is important to sell something that you are passionate about and enjoy speaking to your customers about. If you are going to dedicate time to building a store around Hockey Sticks, it would of course be more enjoyable if play hockey. But, as I mentioned above, once you start making money from a product, you will become passionate about it pretty quick. I was a very casual pool player before starting Grip Billiards, but now that I speak to my customers often about their cues, and sell them for a living, I love pool much more!
It is possible to make money online selling items at any price point, from a few bucks to thousands. But, customer expectations and margins change at every level. For example, if you are selling cars online, it is more likely that a customer is going to want to have an extended conversation with you on the phone about your product than if you were selling cans of tennis balls.
One feature that is nice to offer customers, and will help you stick out amongst competition, is free shipping. But, for cheap items (<$50) this is tough, because it can eat into margins fast. So, from my experience, selling products in the 100-250 dollar price range is the best for ecommerce. For many online shoppers, spending $175 on an item for a loved hobby is not a huge deal. At this price point, you can make a significant margin, and offer free shipping to your customers.
As the price goes up, the conversion of your customers is going to go down. So, picking a product at a higher price point will cause you to sacrifice volume, which you will have to make up in profit margins (which is not always the case). As your prices go up, you also can eat into margins through credit card fees. For example, a credit card processing fee of 3% on a $200 product will be $6, where as the 3% on a $1000 product will be $30.
Something that will help you become more valuable than Amazon
Stores like Amazon and Ebay eat up a nice percentage of ecommerce shopping. When it comes to some purchases, it just makes more sense to buy something on Amazon than it does on another ecommerce storefront – why would I buy an identical role of toilet paper from some ecommerce store for a dollar more than Amazon?
So, it is essential that you sell a product that requires information that you can offer, and that Amazon does not. For example, when I went online shopping for a pair of hockey skates, I needed to make sure that this pair of skates was right for the type of playing I do. I visited a very informative online store that helped fit me and pick the pair that was right for an intermediate skater. This store ADDED VALUE to the product, giving them a competitive edge.
For my billiards cue store, I make sure to give thorough description of all the products that I offer, so that customers can essentially feel the cue in the hands prior to making the purchase. This is essential when picking out what to sell online.
Size of Products
Shipping is a major consideration in running an ecommerce store. If you are going to charge for shipping, a large shipping fee can often be a deterent to your customers. And if you are going to eat the shipping fee, it can cut into your margins hard.
As a result, my suggestion is to sell a smaller, lighter product. This will make your life easier, and make shipping less of a headache.
This seems obvious, but you don’t want to sell garbage. Make sure that whatever you are selling has manufacturers that fit your needs. If you are going to run a dropshipping company, make sure that they dropship (read my article on selecting a good dropshipper here). And no matter what you sell, you want to make sure that they are selling good products. The last thing that you want is to run into a bunch of customer complaints over poor quality products. To test, buy some of the product yourself and make sure if fits your expecatations!
Lastly, finding a good niche is easier than you may first imagine. There is so much to sell, and oftentimes the answer is right in front of you. If you are looking for some ideas, go onto Yahoo forums and search for keywords like:
can anyone find
where can I buy
This will help give you an idea of what people are looking for, and what products are out there. I will reiterate it again though – once you start making money off of a product, you will grow to like it and be passionate about it. So find something that it appears you can make money on, and start getting excited!