How to Start a Niche Business on the Internet Step III: Determine Profitability
How to Start a Niche Business on the Internet Step III: Determine Profitability – This step is the most important step in the process. Get this right, and your success is virtually assured.
I emphasized the word “profitable” for a reason. Not every niche is profitable. Usually this is an issue of size where the online market is simply too small to sustain a business.
I hate splitting hairs, though. So, as far as we’re concerned in this guide, if the target market doesn’t have profit potential, it’s not a niche!
Profit Check Method #1 – Keyword Research Again
We used keyword research in Step II to identify potential niche markets. Now we’ll use it to size up our target market a little further.
Let’s use our “guitar pick” example again.
I’ve gone through and counted up the search totals (March 2005) for every keyword combination related to the concept of “customized guitar picks”.
The grand total is: 3, 458 related searches. What does this number tell me?
It tells me that, at the very least:
• There is a market with an interest in custom guitar picks.
• Assuming that number is in the ballpark of the month-to-month average, I could expect to generate a respectable amount of traffic to my site.
Conversely, here’s what that number does not tell me:
• What types of customizations are people looking for?
• How many of these searchers converted to customers, assuming they found custom guitar picks for sale?
• Do they tend to order one pick at a time,, or do they purchase in bulk?
These are vital questions,, and they illustrate the limitations of keyword research. Keyword data gives you, at most, a snapshot of trends. It’s like taking the temperature of a market with your bare hand, instead of a thermometer. The market appears warm, but just how hot is it really?
In order to find out, you need to move on to more advanced research tactics.
Profit Check Method #2 – Scope out the Competition
It’s time to hop online and enter your niche keywords into Google.
Look over the results and take note of the sites which show up in the regular search listings, as well as the sponsored AdWords results down the right side of the page.
Are there a lot of sponsored listings? How relevant are the sites
that come up in the regular listings, and are they commercial?
It’s often difficult for beginners to distinguish between healthy competition and market saturation. How much is too much?
A certain amount of competition is good. It indicates that the market is robust, people are buying and the niche is profitable.
There are no hard and fast rules here, but there is a useful rule of thumb. You need to weigh your keyword(s) search volume against the number of “hits” or indexed pages reported by Google.
So, for example, if your niche keywords receive an average 500 searches per month, while Google reports that it has indexed 550,000 web pages containing your keywords, you’ve got some saturation on your hands.
Likewise, what if you find a niche with very few competing web sites or sponsored listings? This might mean you’ve uncovered an overlooked, underserved niche market.
However, it could also indicate a ‘dead market’. No one is advertising or creating commercial sites because people aren’t buying.
Regardless of how things look when you do this phase of research, don’t throw away your idea too soon. There’s a simple way to eliminate all doubt once and for all, and you’ll learn how to do this in Profit Check Method #3.
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