How do some small businesses like Diamond Candles (230,000+ Facebook Fans), Luxy Hair(708,000+ YouTube Subscribers) and DodoCase (Winner of Shopify’s Build-a-Business Contest) break through in their hyper-competitive niches and become market leaders in less than a few years?
One of the most important factors in creating a successful ecommerce business is knowing what to sell online. Finding the perfect product(s) to sell is often the most important step in creating a profitable and growing company.
For the past 2 years, I have been trying to answer the question - what is the perfect ecommerce product? To better understand what the perfect ecommerce product is, I had to determine common characteristics successful products and niches share.
By analyzing hundreds of successful and unsuccessful products and niches alike, I developed a comprehensive list of key metrics and criteria to evaluate new ideas against.
What follows is my definitive criteria to evaluating your ecommerce product and niche.
Note: You will likely never find a product or niche that fits all the criteria below. Evaluating your idea against this list though will give you a better understanding of your chosen product/niche, helping avoid pitfalls and increase your overall chances of success.
1. What Is The Potential Market Size?
Choose a product and niche with a small but sufficient market size. Avoid niches that are too small with low keyword searches. For example, a product that caters to pregnant females between 25-40 years old is probably good. But a product that caters to pregnant females between 25-40 years old who like punk rock music will likely be too narrow. It will be harder to find customers, more expensive to acquire them and the small market size will limit your potential growth substantially.
Example: Shopify store Daneson sells luxury toothpicks. You can probably imagine that the market for luxury toothpicks isn’t massive. Being in a small niche like luxury toothpicks can be both a good and bad thing. The small market size will likely limit revenues, but if they do a great job of defining their target customers and acquiring them inexpensively, they can definitely own that niche. As a bonus, high-end toothpicks is a product that lends itself very nicely to garnering media attention.
Tools: Using Google’s Keyword Tool can help you determine search volume of chosen keywords. This can give you an idea of how many people are searching for your keyword terms and in return give you a sense of the market size. Combine that with realistic judgment and some Google searches on your interested niche and you should start to get an idea of your market viability.
2. What's Your Competition?
What does the competitive landscape look like for your product? Are there no competitors, a few competitors or many?
If there are a lot of players in your niche, it can be a signal that the market has been validated. In order to break thought though, you will have to do something different to attract customer attention and build market share.
Example: Shopify store Luxy Hair wasn’t the first company to sell hair extensions online, the market was filled with competitors when they began two years ago. Right from the start they knew they had to do something different. Luxy entered the game with a different marketing strategy by offering value for free in the form of video tutorials on YouTube.
2 years and over 700,000 YouTube subscribers later, they are now one of the biggest online hair extension retailers in the world.
Tools: Of course, good ol’ fashioned Google and Bing searches will help you uncover current market players. Google’s Keyword Tool can tell you approximate search volumes for your chosen keywords, and also tell you how competitive they are (meaning how many other people/businesses are bidding on those words). Don’t forget, the more people bidding on your keywords, the more expensive they will be.
A subscription ecommerce model is especially important for a company like Dollar Shave Club because of the extremely low price of their products. Monthly blade subscriptions begin at $1 USD/month. If they didn’t sell to that same customer on an ongoing basis their business model would not work.
3. Is it a Trend, Fad, or Growing Market?
Make sure you understand to the best of your ability where your product stands. Does your product or niche fall into fad, trend, stable or growing market?
Example: A Geiger Counter is a personal device about the size of a cell phone that tells you the level of radiation around you. Cool niche market right?
With a quick Google Trends search, I knew instantly that I would have probably made a small fortune if I had been selling them in March of 2011 right after the earthquake in Japan. Likely if I tried to sell them now, I would probably sit on my inventory for a while.
Tools:Google Trends will help give you the big picture whether something is a trend, fad, growing or stable market. If you see unexplainable spikes, try doing some further searching to see what the possible cause was of it.
4. Can You Buy The Item Locally?
If your product is readily available locally there is one less reason for people to seek your product out online. Example, most people who want to buy a toilet plunger simply go to Walmart or their local hardware store.
If your product can be bought locally, how are you going to differentiate yourself and convince people to buy from you online? Can you offer a better selection? Higher quality? Better price?
Example: Ellusionist sells gorgeous, high-end decks of cards for magicians and card players alike. Take a look at their products. Have you even seen something like them sold locally?
5. Who Is Your Target Customer?
At this point you don’t need to go into extreme detail but you should be aware of they type of customer you would likely be selling to and their online purchasing capabilities.
If you have a product geared for teens, you should keep in mind that most don’t have a credit card to purchase online.
Example: Clothes for Seniors offers adaptive clothing for seniors. One of their main target markets has a low level of technology and online commerce adoption. You'll need to taylor your entire online store to accomodate them.
Tools: If you find another company selling similar products, you can use Alexa to get information on their visitor demographics, which may help you define your target market better.
6. What Is Your Markup?
It is vitally important to take markup for a specific product into consideration before going too far into the process. This is important as there will be lots of other small fees associated selling your product that will eat away at your margins. Having a strong initial markup will provide you with the necessary cushion to absorb these variable costs.
Example: Lets look at an actual product to get a better understanding of why initial markup is so important. We will work with a Pet Pedometer - a little device you connect to your dogs collar to count how many steps they take.
This might be an interesting little niche - people are always willing to spend money on their dogs. But can you sell this product profitably?
I chose a potential selling price of $24.99 and got a cost per unit of $2 from a manufacturer on Alibaba. I added all the other approximate costs associated with selling the product into the spreadsheet below:
You can see from this example how the small fees whittle away at your margin. In this case, a product that had an initial markup of over 1,200% ends up less than 100% when all is said and done. Of course, these are just approximates and you can cut costs significantly by handling fulfillment yourself and spending less on advertising.
Tools: Try to find an example of the product you are interested in on Alibaba. Email a few manufactures to find out pricing and minimum order quantity (MOQ). From there, use Google to try to find others selling the same or similar product. How much are they charging?
Survey Monkey is a great tool for creating quick surveys to send out on your social networks to get a sense of what others would pay in your social circle.
When you begin to get more serious, you can mock up a quick website using tools like Weebly and actually try to attract a customer to put through an order to validate your price point. There can sometimes be a big different between what people say they would pay, and what they would actually pay, especially if all you solicit is friends and family members opinions.
7. How Much Can You Sell It For?
A price point between $75-$150 is general recommended as it minimizes the need to find a large number of customers to turn a decent profit and be able to give you some cushion for customer acquisition (marketing) costs.
Prices in excess of $150 tend to come with a lot more customer scrutiny. Potential customers will want and expect a lot more re-assurance. They will have more questions and in general will create a longer, more difficult sales cycle.
Example: In our previous example with the Pet Pedometer we had a relatively low selling price of $25. Because of this, variable costs ate away at much of our profit, leaving us with a profit per unit of only $12.95. Lets say we switch out the Pet Pedometer for a new product called “Product X” and assume that “Product X” has a potential selling price of $100 (4x more than the Pet Pedometer). For consistency, I have also multiplied the other appropriate cost by a factor of 4x.
Because of the higher selling price we have much better margins 73% vs. 42% for the Pet Pedometer, and our profit per unit skyrockets from $12.95 to $76.75.
8. Can You Offer a Subscription?
You will hear it time and time again: It’s much easier and less expensive to sell to a current customer, than to find new customers. A subscription-based business allows you to sell to the same customers many times over, automatically. There are generally two types of subscription-based ecommerce businesses, discovery and replenishment.
Examples: A discovery based ecommerce business like Quarterly Co. sends you something on a schedule but you don’t know what it is. It is picked by someone else but usually falls within the same category every period like beauty or fashion products.
Below is an example of a quarterly based subscription service of products hand-picked by Tina Roth Eisenberg (Swissmiss).
A replenishment based ecommerce business like Dollar Shave Club is based on sending you things that you consume and constantly need. In this case, shaving razor blades.
9. What is Your Product Size & Weight?
Product size and weight can have a big impact on your sales and bottom line. More and more customers expect free shipping these days. If your product is oversized and/or heavy, costly shipping can deter potential buyers. Did you know that shipping costs are the #1 reason for shopping cart abandonment?
Additionally, there will be added costs for shipping the products to you if you are working with an overseas manufacturer and it will increase warehouse costs if you choose to use a fulfillment warehouse.
Example: There is a popular oversized yoga mat company which sells giant workout mats. The product itself is a reasonable $99. Shipping to the USA is $25, Canada is $40 and the rest of the world is $100. For some, it would be hard for them to justify spending 40-100% more for shipping.
Same goes for any large or heavy item. You may be very keen on selling iron weight sets, and perhaps you found a great supplier that will give you an excellent price - well, you need to take into account the increased shipping cost. There's only so much in shipping costs that a customer is willing to pay.
10. Is Your Product Durable?
How fragile is your potential product? Fragile products can be an invitation for trouble. Breakable products will cost you more in shipping/packing costs and you are bound to have more customer returns and exchanges. Always keep in mind that even if it’s the shippers fault, it’s still the customers experience with your brand. You are ultimately responsible for that entire experience.
When you get to the stage of ordering samples, test them and push them to the limits. Leave them in a hot/cold environment, apply pressure, twist it, pull it, drop it, kick it. Don’t worry about breaking a few hundred dollars in samples. It’s more important you know exactly the quality of your potential product.
Example: Play Lashes lost over $2,000 worth of product due to a damaged shipment to themselves when the shipping company tried to fit the shipment into a P.O. Box that was too small. The hard plastic cases that were protecting the delicate product shattered on most of the units. Going forward they decided to have their fulfillment warehouse bubble wrap all orders.
11. Is Your Product Seasonal?
Businesses with seasonal products can suffer from inconsistent cash flow. Ideally, you want to find a product that will show even demand year round. At the very least, you just want to be aware of seasonal demand fluctuations to plan accordingly.
Example: Christmas items like the Omega Tree Stand are best sold leading up to the the holidays. Take a look at the Google Trends report below.
Tools: Look for seasonal trends by looking at Google Trends for your product/niche keywords.
12. Does Your Product Serve a Passion or Pain?
Products that sell best serve a passion, relieve a pain, or solve a problem. Customer acquisition (marketing) costs tend to be lower as well since customers are actively seeking out a solution as oppose to discovering it.
Example: Pro Teeth Guard sells custom mouth guards to prevent teeth grinding. People with this problem are likely to seek out a solution and find Pro Teeth Guard rather than needing costly advertising to draw them in. As JP, owner of Pro Teeth Guard pointed out in a Skype call, “It’s a much easier sale when someone is in pain and your product helps alleviate that pain.”
13: What Will Your Turnover Be?
It’s risky to have products that constantly need to be changed. You run the risk of not being able to sell your product before time of turnover. For example, clothing with seasonal colors or accessory products for the ever-changing smartphone and tablet market. Now of course there are plenty of successful businesses who cater to these markets, like iPhone and iPod cases, but it's important to realize how fast your product turnover may have to be. There are costs associated with entering a market like this.
Example: I got a chance to talk to the owner of Sutra Designs who is the designer/owner of a line of leather smartphone/tablet cases. He has been having difficulties building awareness of his brand and selling his product since launch.
Sutra Designs' biggest challenge is creating enough traffic to sell his inventory before the cases become obsolete due to new models of hardware. If he choses to design new products for new hardware models, he will be faced with additional costs for developing new designs and minimum order quantities by manufacturers. This will be perpetual and ongoing because of the niche he chose.
14. Is it Consumable or Disposable?
As we already discussed, it’s easier to sell to existing customers than to new ones. Having consumable or disposable products makes this easier by essentially putting a time limit on the products life.
Example: Manpacks sells products that generally have a lifespan like razors, condoms, socks and underwear.
15. Do You Need to Consider Perishability?
Perishable products are risky for a physical storefront, never mind for ecommerce. Since some perishable items require speedy delivery, shipping can cost quite a bit.
For example, baked goods, meat, frozen foods, and anything else that needs to be kept cold or has a short expiration date all require special care when shipping to a customer. If you choose to sell perishable goods, you need to be prepared for the extra process and shipping costs associated with your product.
Example: The Yummy Tummy Soup Company makes delicious homemade soups and desserts that they sell and ship to customers through their ecommerce website. This model works well for them and they're doing very well, but it's not right for every ecommerce merchant. They need to prepare fresh soup every day and be very conscious of shipping times.
16. Will There Be Restrictions & Regulations?
Before you dive into a niche or choose a product, make sure there are no regulations or restrictions, or make sure they are at least manageable. Certain chemical products, food products, and cosmetics can carry restrictions by not only the country you are importing your goods into but also the countries you are shipping your product into.
Some places to make a few phone calls are customs of the country you will be importing your product into, your warehouse if you plan on using one, and the food and drug administration if it’s a food/supplement product.
Example: Silky Polish, a non-toxic, cruelty-free nail polish, was excited about their product and niche, but ran into problems when they learned it was considered 'hazardous materials' because of flammable chemicals in it.
These regulations prevented them from having the product transported by air when they were importing it and when selling it to customers, preventing oversea sales.
17. Is Your Product Scalable?
Many people don’t think about scalability when they first start out. It’s difficult to think about the future when you are still in the launching process but scalability should be thought of and built into the business model right from the start.
If your product is hand made or contains difficult to find materials, think about how to scale it if your business takes off. Will you be able to outsource manufacturing? Will your number of employees have to increase with the number of orders or will you be able to maintain a small team?
Conclusion
The product and niche you choose is at the very core of your business and one of the most important decision you will have to make.
Although the perfect product may or may not exist, there are definitely ways to minimize risk by choosing a product and niche that have more going for it, than against it.
Using the above criteria as a guideline can help you better understand the product you are considering and increase your overall chances of success.
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