Why is it that some small businesses
like Diamond
Candles (230,000+ Facebook Fans), Luxy Hair (708,000+ YouTube Subscribers) and DodoCase
(Winner of Shoplift Build-a-Business Contest) break through in their
hyper-competitive niches and become market leaders in less than a few years?
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.
In 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.
In 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: Shoplift 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?
When 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. Luxury 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.
#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 accommodate 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.
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.
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.
#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 oversize 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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