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When beginners try to enter the e-commerce world, they often make the mistake of trying to take on Amazon. Unfortunately, Amazon has successfully cornered the price-sensitive commoditized market. Competing here is brand suicide for all but the most experienced of e-commerce stores. To overcome this pitfall, you have to look within and determine which type of entrepreneur you are.
When boiled down to their basic building blocks, there are two types of individuals who create their own businesses: those who are motivated by passion and those motivated by profit. The passion-driven entrepreneurs are committed to an ecommerce business ideal and a deep desire to manifest their dreams. Their product has already chosen them. Their path is clearly marked.
Those driven by profit are in love with the strategy of making money. For them, choosing a product is part of the process. It involves method and planning. These folks are able to overcome any unsexy product and gain motivation through the thrill of the game.
For them, they look to fill a need by reaching a niche market. This is easily the most challenging, complex and crucial step to launching a successful e-commerce site and selling online. To find your niche, you’ll want to do your homework.
1. Check buyer interest
Before you set up a niche store, you need to gauge consumer interest. This will ultimately save you from the heartache of a store full of products that nobody buys. One good indicator of profitability is a targeted keyword search.
Check the keywords for your niche using Google Keyword Tool. When someone searches online for a specific product, they’re demonstrating interest. Too much traffic and a term will be overly competitive, too little and your time may be best spent elsewhere.
You can also simply ask the manufacturer. They can often give you a ballpark figure for their best selling items.
2. Research your competition
After you’ve decided whether there will be buyers, you need to research the competitive space. First, check Amazon for any products you’re considering offering in your store. If it is a product carried by Amazon, you’ll never be able to compete on price. Don’t even waste your time. Trust me.
To survive in a niche, you have to climb the ranks of your industry and place yourself on the first page of Google. The best way to do this is by doing some deep SEO research on your competition. Sites such as Open Site Explorer and Similar Web are excellent tools to get started. With these and other options like the Google PageRank Extension, you can analyze the strength and diversity of opponent’s backlinks and site authority.
3. Focus on business ideas with strong margins
If you’re not going to make money, why be in business? Before you risk everything to start your store, you want to make sure you’ll have good margins — but how much is enough? Based on my experience, I wouldn’t advise anyone to pursue anything less than a 20% margin on lower priced items. Less than this, and the razor thin profits and potential returns become dangerous, making the business extremely difficult to scale.
If you’re selling your own original creation this often becomes less of an issue, but in dropshipping these determinations will make or break your business. As a rule of thumb the margins in dropshipping are awful. Generally these will range anywhere from 5-30% depending on your supplier and the industry in which you choose to target.
The best possible approach is to find manufacturers who enforce minimum advertising pricing policies (MAAP). This effort on the part of the manufacturer prevents price wars and allows the products to retain value and much higher margins. It also eliminates price as a differentiating factor in sales and forces ecommerce owners to truly add value to earn the customer.
4. Determine the cost of success
Finally, you’ll want to check to see if the cost of the product is worth the work. If it takes almost the same amount of effort to sell a hundred dollar item as it does to sell a thousand dollar item, why waste your efforts going after small fish.
When you’re looking for a niche product to sell online, your best bet is to find higher ticket items with enforced MAPPs. I’ve found the traditional range of success for an e-commerce store hits its sweet spot in the $200-$2000 price range. These prices justify quality customer service and still bring a profit per order that makes customer acquisition easier to accomplish.
Don’t worry about price sensitive shoppers. You may be losing some of them at higher price points. In the end, it’s more favorable than low cost, mass market plays where large volumes are necessary to succeed.
No niche is perfect and no plan guaranteed. That said, doing your research will much more quickly allow you to determine the potential every industry has for success. Inevitably many of the amazing niches you attempt will crash and burn. This is the nature of entrepreneurship. Learn from your failures and the experience of others in order to maximize your chance of success and propel business more quickly along the path of profitability.
Above all, the most important part is that you never lose passion for developing new business ideas — and acting on them.
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