This is probably the most tedious and time consuming step of all but if you choose rashly you’re screwed so it’s worth putting the time in up front.
So how do you find the right niche? There are 1000s of suitable niches so don’t worry, but choosing one is not random. The first thing to do is write down a list of objects, no criteria here for choosing, basically just brain vomit onto paper, you need to come up with anywhere between 100 and 150 different items. Walk around your house, look outside, just write down whatever comes to mind with no filter. Examples of items could be: table, chair, bicycle, wine coolers, car roof rack, surf board, paddle board, kitchen knives, fishing equipment, hunting gear (not guns)… etc etc. the important thing is you come up with a full list. Or be creative a google “expensive hobbies” to get some inspiration.
Once you have 100 – 150 here’s where it gets hard. Create an excel file with the following columns:
Niche – Average Price – Brand Loyalty – Dropship Friendly – Product Complexity – Google Trends - Weight
Once you have these columns names exactly as above, you should start by adding you list of items you completed in the 1st column (Niche).
Then you need to start at the top of the list and go through each niche idea and try to populate as best you can all the columns, but it’s vital that you complete column B (Average Price) for all niche ideas before proceeding to column C and the same for all the columns.
DO NOT research the next columns until you completed the previous column for all niches so you populate the excel by completing column A FULLY, column B FULLY, then column C FULLY, then column D and so on. There is a very good reason for this.
You find the average price by going to Google Shopping and looking at how much on average that item costs, just ball park, get the average add it to the file in the column B (Average Price). Once you have completed for all niches move to next column.
The reason we do this is to get the sweet spot where each sale makes a difference but it’s not so expensive that it would require a lot of phone calls to close the deal.
At this point we exclude all niches in the $0 to $500 average price range (you can filter them out of the file), reason being people with not a lot of disposable income spend in this bracket, but still are quite uncomfortable with spending it so they tend to be more ‘needy’ and call you a few times asking where the package is. And basically you’ll need many sales to see any profit, 300 hundred sales equates to 300 fulfillments with suppliers, at least 300 emails and phone calls and it becomes a huge challenge for very small profits. Bear in mind that your average margin is around 20% - 30% so if you’re selling an item for $50 and you make $10 profit you would have to sell 200 items a month to make an average monthly income, but taxes and advertising will eat a good portion of that.
We then exclude the $10K and higher average price mainly because selling very expensive items is a lot harder to close the deal and not a lot of people are comfortable whipping out their credit card for $10K or $20K items, they do but they will have lots of questions first, and it’s still a small portion of the public in that bracket.
So we are left with the mid range prices between $500 to $10K. We tend to focus on this bracket for a few reasons, the demographic willing to spend thousands on an item they want and tend not hassle you every day until it arrives but most importantly, 20% - 30% profit margin on a $5000 dollar item gets you to $20K per month in only a few sales. Which means only a few supplier calls for fulfillment and only a limited amount of interaction with the public (phone and emails), which once the store is set up, means you can do other stuff, you don’t need to monitor the laptop all day, if someone contacts you, you greet them, otherwise you do cool stuff instead J
Brand Loyalty. At this stage you have a revised list of niches ranging from $500 to $10,000. Now we move onto the next column in the file, Brand Loyalty. We need to identify if the remaining niches you have, have brand loyalty or not. By that I mean if you think action video cameras, you probably think GoPro (at least I do), that’s brand loyalty. Or another example, smart phones, you think Apple or Samsung, that’s brand loyalty. So go through the list and put a yes or no in this column. We cannot compete against niches that have brand loyalty so we will then exclude everything with YES in this column. You see? We are getting closer to the ideal niche!
Dropship Friendly. Next column to complete is another yes or no option. Is the niche dropship friendly? The way we determine this is do some research and check to see if other online stores are dropshippers or simply the websites of brick and mortars stores. To figure this out we have to spend some time browsing the internet. What we do is, we go to Google Shopping and search for the niche, anyone selling that item will show up (annoying advertising that is), and what you need to do is click through to each of these websites and look for signs that they have no physical presence (brick and mortar store). To do this we look for clues on their about us page and at the footer of their home page. If they have a brick and mortar store there will certainly be an image of the store or address and indications on how to reach the store. You may find an address on the footer of the home page but that doesn’t mean they have a store, you should Google street view the address to see if there is a store there or they just have a business address registered there. Also, if in the address you see “suite” that most likely means they registered the address there but they are just paperwork in a folder with a suite number.
I for example have my business address on my site, my business is in Delaware, but Delaware is just a lawyers office with a folder which contains my incorporation documents. I pay $300 rent every 6 months for that ‘office space’.
We do this research for all stores we find on Google shopping so we can see how many stores are dropshippers. If for one niche there are no dropshippers that’s not a good sign. It could mean that the specific product is sold directly by the manufacturers so they don’t want any competition running the prices down. We want to find a niche that already has a few dropship stores because that means suppliers/manufacturers do allow dropship stores to sell their products. On the other hand if you find a niche with lots of dropship stores selling that product the niche could be oversaturated 20+ stores is oversaturated. The home furniture niche has been oversaturated for yrs because everyone tries that niche (designer chairs, garden furniture etc). So at this point after you’ve reviewed every niche you should exclude any with no dropship stores and exclude niches with over 25 dropship stores. To make things easier later on, you should record the website addresses for those other dropship stores and create a new column called ‘Competitors’ (you’ll need this info later).
Product Complexity. This is another yes or no choice. Here you need to think about the niche and decide if that niche would need some form of robust customer service. For example, electronics generally demand more customer service than an office desk, if you want an office desk you choose one that suits your character or fits in the room you need it to. If you buy a projector for watching movies there are usually a lot of up front questions about range, lumen brightness, battery duration, installation questions, lots of that, you should avoid anything with lots of customer service but for now we just add Yes or No in the column and DO NOT exclude anything ( the best niche in the end may be one that requires some customer service).
Google Trends. We’re nearly done J. By now you have a list that has been filtered a few times over and are looking at the niches that up until this point seem valid.
Go to Trends.Google.com and you will be prompted to enter a word or phrase. Enter the first niche on your list. This will give you an indication as to whether the niche you are looking at is trending up or down, or consistent or even seasonal. I like to use the option for ‘Last 5 Years’ to get a good idea of the trend. Google displays the trends based on people searching on Google for that niche.
For example, if the niche is artificial Christmas trees it’s seasonal, if the niche is gun safes, not seasonal. Don’t exclude anything when you’re done. The idea is, anything trending down steadily is likely not a great option, trending up over 5 years or consistently high search volume is a positive sign.
The last column is regarding the weight of the niche item. Just roughly decide if the item is light, medium or heavy. Don’t exclude anything when you’re done. The idea here is, the lighter the better. Since most online stores, and likely your future competitors are offering free shipping you will have to offer free shipping too. But you still pay the supplier to ship it (in most cases). The heavier the item the more expensive the shipping cost will be and that comes out of your profit margin.
So in an ideal world you can see on your list, only products on the $500 - $10K price range with not too many dropship stores, with no brand loyalty, that has limited complexity around the product that is trending up and doesn’t weigh a whole lot. If you have that, then the list will be very short and you could choose form those remaining niches.
If you filtered and filtered and you are left with nothing, either start from scratch or start including heavy items and/or items that have some added complexity and remember that there will be an added challenge around those areas.
If you have a shortlist but not sure which one to choose, I would recommend a niche that is more a passion niche than I need niche. If one niche is full of passionate people then it will be easier for people to want to buy. While if you sell something that people need but don’t really care about, it’s hard to convince people. They are not emotionally connected to the niche. It’s just a transaction. And also it will be very boring selling to people that care passionately about what you’re selling.
So, you should now have a niche. It’s time to spy on your future competitors and identify your future suppliers…
