Your Business Idea: How To Assess The Competition And The Demand For Your Products Before You Launch

Based on several emails that I’ve been receiving lately, it seems that a few of you are hesitant to start a business because you’re hung up or stuck on selecting a business idea to pursue. And the number one concern seems to be whether there is enough demand or too much competition in your niche to succeed.

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I received an excellent email in my inbox a few weeks ago that pretty much summarizes where a lot of people are getting stuck so I’ve decided to dedicate a blog entry to the topic.

I just came across your site and it seems like an awesome resource. I have a question for you, that might make a nice blog post. I did a search of your site, but could not find the answer to my question, so here it is:

My wife has an idea for an ecommerce store. It seems to us that she’s found a pretty good niche. The niche seems to be emerging and trendy, but not a fad.

It seems to me that there are two aspects to identifying a profitable opportunity: market demand and market competition.

In order to assess demand, I’ve looked at the google keyword tool and there does seem to be plenty of searches. Are there any other good ways of determining market demand for an ecommerce store?

In order to assess competition, we’ve been googling to find competitors and there are a bunch. Then I’ve been using alexa/compete.com (flawed, I know) to see what kind of traffic these sites get. It appears that with a few notable exceptions, most of our competitors do pretty low traffic. Of course, I’m under no illusions that we’ve found all of our competitors either. I would also note that the google keyword tool indicates a high level of competition for most of the keyword terms.

Does you have any other suggestions for determining the level of competition?

The third remaining problem, is that I don’t know how to compare the market demand to the market competition. We’re just not sure if the demand / competition ratio is high enough to pursue this further. I just can’t think of a good quantitative way of measuring the demand / competition ratio.

Any tips on analyzing market demand / market competition ratio for an ecommerce store?

I guess it all boils down to: We believe there to be significant demand, how do we know whether or not there is TOO much competition to be successful? (we would define success in this venture as allowing her to quit her job, like your wife!)

Eric

Before jumping into anything, it is indeed extremely important to estimate the supply and demand for the niche that you are selling into. Here are some of the ways that my wife and I assessed the strength of our business idea before we got started.

We Used Keyword Analysis

Eric mentioned using keyword analysis as one of the ways he checked on the demand for his idea. With keyword data and the number of searches performed per month, you can also make some decent back of the envelope calculations to see if your niche is large enough for you to make a decent living.

For example based on your idea, you should be able to easily determine what your approximate profit per sale is by looking at your competitors’ prices and your wholesale cost. Then, by making a conservative estimate of your click through rate and conversion rate, you can obtain a range of profit numbers for your business idea. In fact, I go through this analysis in more depth in my article on How To Determine If Your Business Is Viable. While these calculations are crude, it is a good way to eliminate poor ideas with little demand right off the bat.

We Used Ebay

While Ebay is a horrible place to host your full blown business, it is very useful for determining demand and pricing for your products. Look for similar products in your niche and take a quick glance at the completed listings for relevant auctions. Based on the ratio of completed auctions and the ending price, would this be enough profit for your business to survive?

If you there are very few completed listings available, throw up a few auctions of your own and see how much people are willing to pay. As you are performing your experiments, it’s important to keep a few things open in the back of your mind. One, Ebay items tend to sell for much cheaper than normal online shops. This is because the majority of Ebay shoppers are looking for bargains and the seller’s brand is much less of a factor. Just to give you an idea, similar products to some of the ones we carry can be found on Ebay for up 20% less. However, the quality is hit or miss and most of our larger customers prefer dealing with an actual company as opposed to individual Ebay sellers.

Two, the item you are trying to sell may not be a good fit for Ebay. If you are selling unique hand crafted products or something with a completely new concept, it might be hard for shoppers on Ebay to find your stuff. The main reason is that shoppers on Ebay do searches for products rather than searches for solutions like people do on Google. In any case, if you are seeing a good amount of completed auctions, that’s a pretty good sign that the demand is there.

We Used The Forums

The forums are especially helpful for coming up with ideas for products to sell and for getting an idea of what people are looking for. Simply go to a popular forum in your niche and do a search for any of the following terms.

  • “trying to find”
  • “advice about”
  • “I hate it when”
  • “I need help with”
  • “I’m looking for”
  • “can’t find”
  • “have no clue”
  • “question about”

Obviously, there are other terms you can search for but you get the idea. People use the forums to ask questions and based on these questions you can come up with solutions to sell for their problems. If you already have a product idea, do a search. Are people looking for or talking about it?

The forums are extremely powerful. Early on with our wedding linens store, we used The Knot and The Wedding Channel forums to communicate with would be brides about what products to populate our store with. People on the forums are very responsive, especially if they believe you can help them out.

We Used Adwords

These days, throwing up a store is quick and easy, so why not just put something up and drive some targeted traffic to it as a test? In the beginning, it’s not about making a profit. Go to a store and buy the product if you have to and then see if you can sell it.

Adwords is extremely powerful in this respect because you have full control over what types of traffic you want to drive based on your keywords and your ad copy. Starting an online store is not risky from a monetary standpoint, so it’s in your best interests to stop guessing and get some real hard data to work with. After all, you can speculate all you want and analyze your competitors to death but you’ll never truly be able to tell until you try….which brings me to the last and most important thing I have to say.

Don’t Worry About The Competition Too Much

If I were to do it all again, I would care less about the amount of competition as opposed to the quality of the competition. If you have a unique spin on the products you want to sell and you are confident that you can stand out among your competitors, then go for it!

If you find that your store is getting lost in the crowd, pick a narrower niche to pursue and specialize! When my wife and I first started out, we were considering selling generic wedding favors. But the main problem was that there 4 or 5 huge players already in the market. As a result, we decided to go much more narrow and focus on wedding handkerchiefs. The end result was that we were able to rank much higher in search than our competition because our website was so targeted to a single topic. It’s counter intuitive, but focusing on selling less variety is to your advantage.

Once you’ve found your niche, find out who your top competitors are for your keywords and then do a search for all of their backlinks. Basically, you are trying to determine what it takes to become #1 in Google for your products. Because the number of backlinks largely determines your search ranking, you can assess how much work you are going to need to do to overtake your competitors. Again, if your keywords are too competitive, you may want to consider focusing your business more.

Conclusion

The key thing to realize is that opening an online store is not like opening a brick and mortar store. And sometimes it takes more work and time to do analysis and speculation than it does to actually throw your store up. Of course you have to do some amount of due diligence, but if you truly believe that you are unique and can stand out among the crowd, then I say pull the trigger! What’s the worse that could happen?

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24 thoughts on “Your Business Idea: How To Assess The Competition And The Demand For Your Products Before You Launch”

  1. I like the forum idea, I haven’t seen anyone use the forums that way. What I have seen is that worrying about the competition is tough and that if there is no competition that is tougher still. If there is no competition it could be that the market is very small or just not online. I’d rather see some a vibrant market and try to develop a niche of it.

    1. @Tyler
      Having no competition in your niche is tough because you’ll have to expend a lot of money and energy convincing people that they need something they don’t already have. It also means that no one is going to be searching for your product organically and you will require a larger marketing budget to get the word out. Definitely easier to enter a market with a good amount of competition already.

  2. I would stick with Google’s relatively new Search based keyword tool, as it has the raw searches done for a particular keyword. It also allows you to tunnel down from a broad keyword to more specific ones, so you can assess the competition in more specific keyword sets rather than relying on the broad terms alone.

    I agree that ignoring the competition is a better strategy than trying to keep up with what everyone is doing. The best way to determine if your idea has legs, and if there’s room for you, is to put a “fake” storefront and get actual, live traffic and see what your potential profit could be. I’ve done this with several ideas and realized that no matter how thick the competition is, there’s always room for more if the demand is there. After all, there’s no way to predict how good customer relations are with the current competition. It’s best to fire your idea away and make solid decisions from real world numbers.

    1. @A-ron
      Agreed. A fake storefront is totally the way to go. By purchasing a template or an existing web design, you can throw up a store with products in just a weekend. One of my friends put up a handbag store with only a few samples on hand before pulling the trigger on full production. If the market is big enough, there’s probably room for you. Aron, I’m curious is to what store ideas that you’ve tried.

  3. The author of the email seems like he is worried too much about failing to get started. I can understand that they want to start an e-commerce site with their best foot forward and have all the details worked out about which keywords they want to target and which niche they want to focus on.

    But even after all their research things probably won’t go as smoothly as they hope. My method is just dive in and if one site fails you’ll learn from those mistakes and you can apply them to your next site. Plus don’t spend too much money at first test things out and if they work gradually ramp up traffic.

    1. @Steve
      You are right. Things never go according to plan. In fact my wife and I changed our target market a few times in the beginning before we settled on the wedding industry. Same products completely different customers.

  4. Wow!

    Nice guide to picking a niche. Very comprehensive and a good read for anyone considering an online store.

    The forum idea is good too, although I wonder if a newcomer to online business would have trouble finding the right forum for the niche he or she was investigating.

    Of course, one piece that isn’t mentioned is whether or not the idea is doable. For example, there might be a lot of “we need” type posts in the forums–but, that might be because it’s not really practical to supply that need.

    Overall, your post provides some good actionable steps that anyone can follow.

    1. @Laura
      I think it really depends on your niche. I guess brides on the wedding forums tend to be more vocal about what they are looking for, and many of them will tell you their life story if asked. In general though if your niche is popular and there’s competition, chances are that there’s a forum for it.

  5. Great article Steve.

    I agree with Laura S. on the forum idea. It is hard to find the right forum for the niche.

    Another thing that troubles me is that how niche should we go? Your online store is really niche down to a very specific product. Do you suggest that we should start very niche product and then eventually expand into more lines?

    1. @Jeff
      In general it is always better to focus on only a few product categories for your store. In fact, I would not target more than two or three distinct topics for your website. It’s better to open up a completely different store altogether than dilute your focus. The main reason is because of search. Since many of your customers will be coming from Google, it is in your best interests to let the search engines categorize you properly. If you are too broad, you won’t match for anything. So yes, I would recommend starting narrow and gradually expanding.

  6. Great great thoughts Steve, these get at the core of an initial search into how to start crafting something for the niche you have in mind. I think these pertain specifically if you have a hard product, although they don’t have to, I wonder how these tips might change if your selling a service or digital product, and what technologies you’d use. Good stuff!

    1. @Rob
      In terms of picking a niche for an ebook or a digital product , the forum idea outlined in the article works especially well. For example, in searching for topics for this blog, I regularly comb the ecommerce forums for questions that people are asking and transform them into full on blog posts. With these topics, I’m in the process of creating a full blown course on how to create a successful online store.

  7. A-Ron says:

    @Steve
    I haven’t tried it for stores, but I’ve done a few for some web app ideas. The one that I currently tested (successfully) is tourneyking.com. The same principle applies. I just threw up a website using wordpress then ran an adwords campaign for a few days and measured the response. There’s a ton of factors to consider but the most important is how many people are willing to break out the credit card.

  8. Another great article,

    I like the forum idea, it was actually suggested to my by another coach and I am putting it in motion now. It takes time, but there is really no better place to find your target market than where they hang out and need info and answers.

    You can’t be worried about failing or not making the money, you just have to focus on doing it. Without focus, you are really at a loss from the start.

  9. Gday Steve,
    I love your work!

    I’m evaluating top 10 results and the Yahoo Directory listing is the only thing that worries me, meaning 9 out of 10 have a Yahoo Directory listing, PR0s and 0 links search volume 2600 , would you still maybe consider that niche? Would it be just a bit more difficult to succeed, or a LOT harder?

    Regards,
    Marcelo

  10. Hi Marcelo,

    Unfortunately, I don’t have enough information from you to make that assessment. Which keyword are you trying to target?

  11. Grace says:

    Wow! Great stuff you got there! Putting up an online business takes a more brilliant and determined mind to succeed. There are so many things that need to be considered first before launching the products. When it comes to competition advice, here is an awesome video that will help you make a good idea on how it works and the great strategies that we can even apply. http://marieforleo.com/2012/01/how-to-deal-with-competition/

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