The 3-Pronged Approach to Finding a Suitable Market for Your Store
The greatest barrier for people in terms of starting their own business is that they are never sure what to sell or what market to enter. Although this might seem trivial, finding the right market or niche could be the deciding factor as to whether you make it and thrive or struggle. We can’t come up with the idea for you, but here is a comprehensive way to identify if the niche you are looking for is one worth exploring.
PHASE 1: Market project analysis
PHASE 2: Demand analysis
PHASE 3: Economic analysis
PHASE 1: Market Project Analysis
When looking for a market, you have to make sure it’s characterized by several essentials:
- Customer dedication: these markets have clients that maintain a high level of enthusiasm and consistency in the long run. Golf, tennis, healthy lifestyle, music, internet marketing – they’re all markets that maintain people consistently interested in the subject matter. To benefit from the enthusiast market, look for acute problems that people want to solve (for example – golfers may want to find out how to hit the ball further, pup enthusiasts will always be looking for better ways to potty train a dog, etc.).
- Evergreen appeal: you don’t want to enter a market that’s hot right now but that will become obsolete in five years. Always try to identify and evergreen market like dating & relationships that people were interested in 50 years ago and will still be interested in 50 years from now.
- Recurring income potential: a profitable market is one that has customers spending money on products/services regularly. People who are interested in health will spend money on supplements and gym memberships every single month. Business consulting to address digital vulnerabilities is also needed regularly as cyber threats evolve.
- Big-ticket back-end opportunities: just going for the niche of golf isn’t sufficient. Seek good margins. You can accomplish the goal by offering golf vacations in various destinations, for example. People will also spend money on going to golf school or participating in courses that are offered by well-known instructors in the field. There are people spend $50,000 to travel to an island to play golf with a professional. This is good for margins and can help to buffer any mistakes.
- Affiliate opportunities: pre-existing affiliate opportunities will help you benefit from an already existing and well-established network. This means you don’t have to build the network as it already exists.
All 5 – Green Light
4 –Yellow Light
1-3 – Red Light
Competition analysis can give you a ton of valuable information about a niche.
You want to enter a market that has a good level of healthy competition. If the niche features a few well-established players, it definitely has profit generation potential. You don’t want an empty niche and you also don’t want to enter a field that’s highly competitive. Look for competition in the niche that is spending money on paid advertising as that (paid marketing) is the best indicator of whether someone else is making money in your market.
Before analyzing a niche you want to make sure that you look at the number of competitors present in that market. A good market can feature anywhere between three and five direct competitors. More than 5 competitors means the market is way too competitive. Fewer than three to five could be indicative of mediocre opportunities.
When doing competition analysis, you should look for the following:
- At least one major hole in the market: is there any aspect of the market that’s ignored or under-represented? The relationship niche, for example, is heavily focused on women. Focusing on the needs of men could create excellent opportunities.
- Are the top three competitors doing fine, regardless of their shortcomings? This is how you find your competitive advantage.
- No segmentation
- Under-optimized email follow up
- Under-optimized one-click upsell path
- Under-optimized back-end sequence
These are 6 competition analysis elements.
4 – 6 present: Green Light
3 present: Yellow Light
1 – 2 present: Red Light
What’s the potential for attracting online traffic to your store? Answering the question is dependent on analyzing several key elements pertaining to the online behavior of your prospects.
Traffic availability can be analyzed via:
- Google AdWords search – are people running search ads on the industry keywords? Google AdWords offers keyword planning and research tools you can access by creating a free account
- Bing search: Google isn’t the only search engine out there that people rely on – check the alternatives, as well
- Google AdWords display: this determines the potential for running your own ads within relevant platforms and attracting a targeted audience. Ask yourself “are there sites that I can run my ads on?”
- Facebook: does your idea have the potential for reaching a big number of people on prominent social networks like Facebook
- Established affiliate network: are there networks of affiliates already selling in that market
5: Green Light
3 – 4: Yellow Light
1 – 2: Red Light
Your idea may seem good in the start but does the market provide growth opportunities?
How big can your business get in six months? A year? Five years? What is the potential opportunity?
Start by calculating the amount of traffic you could get through paid Google search ads, Google display ads and Facebook campaigns. Once you know the scope of people you could reach, determine what your conversion rate is going to be.
To calculate potential leads, you can use a simple formula:
3% CTR + 20% opt-in rate on Google Search +
0.5% CTR + 15% opt-in rate Google Display +
0.7% uCTR(unique click through rate) + 10% opt-in rate FB = Total Potential Leads
Calculate this number MONTHLY, then divide by 30. If your available leads per day are:
More than 1000: Green Light
500 – 999: Yellow Light
Less than 500: Red Light
Finding Search Volumes
Knowing what your search volume is going to be can turn into a challenging task. This is especially true for startup owners and entrepreneurs who have little knowledge of search engine optimization and search ads.
Still, you can rely on various formulas to make accurate estimates.
Here are a few of the key calculations you’ll have to make when assessing market potential:
Google search traffic
- Log into Google AdWords
- Go to tools and keywords planner
- Enter all keywords (broad match) that are representative of your direct market
- Look at the monthly range
- Add search partners
- Then get estimates
If the number is 130,000, then:
- 130,000 * .03 = 3,900 potential clicks /month
- 3,900 * .2 = 780 leads available/ month on these keywords
Google Display traffic
- Log into Google AdWords
- Go to display planner
- Campaign type – direct response
- Get placement ideas
- Look at relevant keywords and exclude keywords that aren’t relevant
- Exclude percentage of mobile traffic
If the number is 500,000,000 then:
- 500,000,000 * .005 = 2,500,000 potential clicks/month
- 2,500,000 * .15 = 375,000 leads /month
- 375,000 / 30 = 12,500 leads per day in google display
- Go to the Power editor in Facebook ads account
- Look for audiences
- Enter in audience demographic profile characteristics (gender, age, precise interests, categories, etc.)
- When you enter all relevant requirements, you will get number of total potential customers you are marketing to
Here’s an example based on 2,000,000 people:
- 2,000,000 * .007 = 14,000
- 14,000 * .1 = 1,400
When you have all of these numbers, add them to get the total leads generated in the month and divide the number by 30:
Total leads generated in a month: (780 (search ads) + 12,500 (display ads) + 1,400 (Facebook ads)) = 14,680 leads a month
Total leads generated in a day: 14,680/30 = 489.33
Now let’s assume that we can convert 5% of our opt-ins into paying customers. Assuming your product costs $50 and with you convert @5% of opt-ins:
- With 1000 leads @5% conversions = 50 buyers * $50 = $2,500/day = $75,000/month
- With 500 leads @5% conversions= 25 buyers * $50 = $1,250/day = $37,500/month
- With 100 leads @5% conversions = 5 buyers * $50 = $250/day = $7,500.month
PHASE 2: Demand Analysis
Could you anticipate large demand for your product or service after you’ve identified the right market?
To determine the demand for a product, we will run cold traffic to a Deep Dive Survey to figure out how passionate people are about the problem you are solving or the niche. The deep dive survey is a probe you use to find out problems people have in a particular niche that are addressable, how many people have that problem, what the solution looks like and how much they would pay for it. At its root it is meant to look at the biggest problem they have facing a particular niche.
If on the Deep Dive Survey (cold search traffic), you get:
- More than 10% Opt-in Conversion: Green Light
- 7 – 10% Opt-in Conversion: Yellow Light
- Less than 7% Opt-In conversion: Red Light
Remember, you are not looking for challenges, you are looking for set ups. If you find yourself with a turd, you can spend eternity polishing that turd to make it the best turd in the world but at the end of the day, you still have a turd.
To determine how passionate people are, you want to look at something called hyper-responsiveness. Are people keen on sharing a lot of information about the problem they’re facing? How many respondents go into great detail and provide information of how they’d like to have the issue addressed?
Deep Dive Answer Quality (Hyper-Responsiveness) calculation that’s based on the number of hyper-responses you get:
- More than 300 hyper responses: Green Light
- 100 – 300 = Yellow Light
- Less than 100 hyper responses = Red Light
PHASE 3: Economic Analysis
Now it’s time to take a look at some numbers.
How much does the process cost and what would it take for you to break even? Here’s a simple calculation that you have to make. While it is based on several assumptions, this one provides a good starting point:
Start with the actual cost of the Deep Dive Survey and cut the number in half.
Take into consideration the following assumption: Can I make this work if I’m getting:
- 5% sales to opt-in
- 7.5% sales to opt-in
- 10% sales to opt-in
What will it take to break even on the front-end, assuming your product price?
(When it comes to the product price, you also want to look at what is the precedent in the market. If everyone is selling for $50, the product you sell should be at $50)
Copy first, innovate later!
Let’s say the survey costs you $5.00 per participant.
Assume CPL (cost per lead) will be $2.50 (after the first survey is done, the ones you follow up with will cost less, so halve the number)
- if you sell your $50 product, you’ll need to convert @ 5% to break even: Green Light
2.50 / 50 = 5%
- if product a $40 product, you’ll need to convert @ 6.25%: Yellow Light
2.50 / 40 = 6.25%
- if you sell a $20 product, you’ll need to convert @ 12.5%: Red Light
2.50 / 20 = 12.5%
If you got a green light throughout all the steps, then congratulations, you have found a great niche and its time to build out your funnels.
About the Author
Reginald Addae is the Director of Marketing & Special Programs for Jumpstart Media with over 10 years of experience in Digital Marketing.