Choosing a product or niche is the most important and the most difficult part of starting an ecommerce business. With tens of thousands of possible choices, how do you find the one that will stand the greatest chance of success?
By studying hundreds of successful and unsuccessful ecommerce businesses and their products I have compiled a criteria and list of questions everyone should ask themselves before starting their ecommerce business. Asking these questions will give you a much better sense of where your product or niche stands in the market. It can help you avoid pitfalls you may not have thought about and overall increase your chances of success.
The questions are broken out into 3 different types. Market-based questions, which will help you better understand the market you are targeting. Product-based questions, which will better help to determine your chosen products strengths in ecommerce and uncover its weaknesses. Finally, we will look at you-based questions to determine if you’re right for your chosen product or niche.
1. Market Size
Q. What is the potential market size?
Having a good idea of your potential market size is important before getting started. A smaller market size means you can be more targeted with your advertising but be careful, if you niche is too small, you may find it difficult to find those customers, let alone convert those to sales and be able to support the new business.
Q. What does the competitive landscape looks like?
It’s not only important to know the potential market size, but the competitors that are already playing in that space, if there are any. How big are they? What are their strengths and more importantly, what are they weaknesses?
It’s ideal to find a niche that has a few players that have been in the space for while. It’s a signal that the market has been validated and “de-risked” so to speak.
3. Market Trajectory
Q. Is this product/niche a trend, a fad, growing or stable market?
You likely don’t want to get caught up in a fad or trend. Long-term business stability online will require you enter a market on a stable or steady growing trajectory.
4. Local Availability
Q. Does this product/niche have limited local availability?
A product that is available locally gives the consumer one less reason to buy from you. If your product is available locally, how do you plan to compete? Are you able to offer better pricing or selection?
5. Target Consumer
Q. Who are my target consumers?
Although online commerce is relatively well established at this point, it’s important to keep in mind that not everyone is capable, or feels comfortable buying online. Many seniors still have risk aversion to ecommerce and people under 18 without a credit card don’t have the means without using a parent’s credit card.
Q. What is the potential markup?
It’s been said time and time again; ideally you want to be selling a product with a 5-10x markup. In ecommerce like any other business, there are many little fees that will eat away at your margin. Having a 5-10x markup initially will provide you with the cushion to absorb these fees and still make a healthy profit.
7. Selling Price
Q. What is the potential selling price?
Equally as important as your markup is your potential selling price. It is highly recommended a product with a selling price between $75-$150. Any less and profit per unit becomes low. Any more and generally consumers become more skeptical. They require more proof, testimonials, a support phone number for questions etc.
8. Product Variations
Q. How many different SKU’s do I need to manage?
More SKU’s equal more work and headaches. It will increase the MOQ (minimum order quantity) from your supplier/manufacture, it can confuse your customer if all the SKU’s aren’t necessary (i.e. different colors) and becomes a lot more to manage. I have generally found under 20 SKU’s works best. Less is more in this situation.
Q. Can I re-sell to the same customers with a subscription?
Subscriptions have been around for a while but it seems like everyone is trying to jump on the bandwagon recently, and with good reason. I’m sure you have heard it time and time again that selling to the same customers is easier, quicker and cheaper than finding and selling to new customers.
10. Size and Weight
Q. What is the size and weight of my products?
Heavy and/or large products are difficult and expensive to store and ship. Shipping costs are the number one reason for shopping cart abandonment and shopping cart abandonment is a big issue for ecommerce stores. A product that is small and light weight offers you the greatest chance of success and gives you the option of including shipping in the cost of the product, eliminating the biggest reason for lost sales.
Q. How durable or fragile are my products?
A fragile product increases the number of returns and packaging costs. If you plan on selling a fragile product don’t forget to plans for damaged units in your financial model. If you have a low priced or low margin product, it can mean the difference between a successful and unsuccessful business.
Q. Will my niche suffer from seasonality?
I tried to sell my fake Christmas tree last week on Craigslist. Guess how many phone calls I had?
Although that’s an extreme example, seasonality affects many businesses to some extent. Try using Google Trends and look for seasonality swings. It will help you plan ahead and understand what your cash flow will look like.
13. Passion/Pain Product
Q. Does my product/niche solve a pain point or serve a passion?
Tylenol is an easy sell when someone has a headache and a carbon fiber bike frame is an easy sell when someone is trying to shave seconds off his or her race time.
Ask yourself if your product solves a pain point with your customers or serves to satisfy one of their passions?
14. Product Turnover
Q. What will my product turnover look like?
As a new business and brand, selling a product in a high turnover market like smartphone and tablet cases/covers can be risky. Before you get a chance to build your brand and sell your inventory, you may find the market has already released a new smartphone version. Now you face the question of re-developing your product for the new version and buying new inventory while you still have stock of current inventory.
Ideally, you want to find a product/niche with low or no turnover so you can focus on creating an information rich website and continuing to build your brand instead of spending all your time dealing with manufacturing.
15. Consumable or Disposable
Q. Is my product consumable or disposable?
If your product is consumable or disposable, it give you an automatic reason for your customers to come pack to you and for you to sell into your current customers again and again.
Q. Does my product have a shelf life, what is its perishability?
Although this won’t affect the majority of businesses you should question if your product is perishable or degrades over time. This can include food products and health product. They your product is perishable or degrades, how long do you have? Will you have to account for a % of waste product in your business model?
17. Restrictions or Regulations
Q. Do my products or market have any restriction or regulations?
Restrictions and regulations on products can be time consuming and costly. Make sure you check with someone knowledgeable about importing product from overseas like a customs broker before committing and ordering inventory.
Q. Will I be able to scale this product/niche/business?
You should always begin with the end in mind. That said, consider right from the start how you can scale your business if things begin to take off. What are your supplier/manufacture limits? Does your selected shopping cart offer room to grow? If you are using a fulfillment warehouse, are there any restrictions there?
Q. Can you sell/position this product better than others?
What can you do better than everyone else? Can you bring a different marketing strategy to the table? Can you offer better pricing or selection?
Are you able to offer a superior product or customer service?
Anyone can find a niche and open an ecommerce store; but in the end, what separates the successful ones from the less successful ones is what they did different. How are you going to do it differently?
Q. Are you passionate about the product/market/niche?
As cliché as it sounds, passion does matter. Building a successful online business requires time, money and a solid commitment. It is guaranteed you will run into some bumps in the road and without passion for what you are doing, it can be too easy to throw in the towel too early.
Are you ready to proceed?
Now you know the 20 questions to need to ask yourself before moving forward on any ecommerce business. Of course, you will never find a product or niche that comes out on top for every one of the criteria but using this as a check list can help you better understand your product, the market and yourself, giving you the highest possible chance of succeeding in ecommerce.