Selecting the Right Niche For Your Website: Quantitative and Qualitative Considerations
Choosing the right internet niche is a key differentiator between strong and sustainable web companies versus web companies that experience limited profitability over time. It is also an important success driver that cannot be understated. While may investors tend to make decisions around perceived areas of opportunity, intuition or areas of preference, I strongly advise doing the proper amount of homework before launching your web business to ensure that you are not spending time, energy and investment on a web business in an internet segment that is unviable, marginal or already saturated. Moreover, it makes sense to be diligent with this work so that you can optimize returns generated by your internet venture.
There is some fairly straightforward data based analysis that I recommend that every web entrepreneur perform prior to launching their web business.
The first premise that I would convey is that areas online that are generally more interesting are often also more crowded. These are typically categories that are hobbyist, general interest or recreational. An example of this may be the sale of “model trains” online. In this category there may be hundreds of other hobbyists that have crowded the market. Not all of these will be sites that are ecommerce. Many may be websites that are informational, some that are displaying images, instructional information or guidance to other model train enthusiast, others that are selling ebooks and of course those sites that are actual ecommerce stores and selling model train kits and product online. The net result though for you as a new entrant is a veritable search engine glut of websites in the category.
Moreover, many of these sites may be websites with a strong search engine presence, lots of well developed content and high levels of legacy strength and agedness. Therefore, you will typically see an inverse correlation between the general interest level of a category and your ability to achieve search engine success as well as economic benefit. On the other hand, websites in categories that do not have the same level of broad appeal may fare much better and may have substantial less competition in a less crowded space. As an example, a site that sells human hair wigs may perform far better in generating online traction than attempting to launch a website in the baby products market or golf segment that have much broader overall appeal and traffic around a host of different types of sites.
The data based factors that I typically suggest a buyer review in detail prior to launching a new web venture are listed below:
1) Average monthly keyword volume: This basically implies how many people typed the relevant key terms associated with your industry into the search engines every 30 days. This is a key metric because you want to identify a website that has strong organic searches that meet appropriate threshold requirements. A term that is too esoteric simply may not have adequate monthly searches to support the sales and traffic requirements of your web business. I generally suggest a minimum of 5000 searches per month for the primary terms for the industry that you select.
2) Strength of the existing competition: All online industries or markets are characterized by strong competition. However, in some categories this competition is even more pronounced. This may include websites that are also robust and legacy based that are very well established and therefore extremely difficult to overcome in the rankings. With the understanding that just about every major niche is replete with competition the goal is the find categories or industry sub-segments where you can actively compete over time. This may mean finding a niche with sites that are weaker and less established or categories where the total number of competitors may be limited. Moreover, you will want to look for categories where the existing sites that rank for the relevant key term may not be optimized for the ranking. For instance, for a key term like “birthday gift baskets”, companies like The Fruit Company or other major gift basket firms may rank. These websites may be really optimized for the terms like “fruit baskets” or “gift baskets” and additional rankings for peripheral terms like “birthday gift baskets” are coming from internal pages. If you are targeting a web business that focuses on an optimization strategy that is targeting “birthday gift baskets” you are no longer going head to head with the home pages of these large sites. Rather, you are competing with these sites in terms of the power of their internal page rankings. Over time, you specialized site on “birthday gift baskets” stands a reasonable chance in outranking these larger sites for this sub-segment keyterm as internal pages will be much less powerful than the homes pages of larger sites and a new site that you develop will ultimately be providing the more positive user experience for consumers given the focus of your site.
3) Average order values: There are many key words in the marketplace that appear, at first blush, to have the right characteristics and attributes in order. The key word may have lower relative thresholds for competition, the term may have great overall search volume both for the primary term but also in terms of how well the term fragments. However, the item being sold has a very low price point and therefore makes the category much less attractive. This may mean a product that is being sold for only a few dollars. With these types of businesses, the amount of individual orders necessary to achieve revenue goes up dramatically. The amount of work also required to process the high volume of individual orders also may become onerous. I would suggest finding products where the Average Order Value upon checkout (AOV) is $50 per order or higher. I have been involved in many industries where price points or AOV for items being sold in the several hundred dollar range. This may imply specialty knife sets or under counter reverse osmosis water purifiers kits or other products that tend to be more expensive. The one caveat is looking at these industries also in terms of the size, weight and bulk (and potential freight expense) for the items being sold. An item that can still ship UPS or FedEx ground is largely preferred. With a specialty knife set you still may be at an AOV of $200 per order with easy shipping versus selling portable air conditioners or large pieces of furniture.
4) Average Pay Per Click Bid Rates: One of the key metrics that gives you a tremendous amount of market information regarding the attractiveness of certain industry niches is what other advertisers are currently willing to pay for the key term within those niches. Again if using the example of the “birthday gift baskets”, you have no PPC activity for this term or advertisers are only willing to pay low rates for the terms (just a few cents per visitor acquired), this is a very strong indicator that the term is not attractive and that other retailers have not made money selling product within the space nor can they monetize the traffic very well. Conversely, terms that have very high average Pay Per Click rates tell us that the term is extremely appealing and advertisers are very interested in acquiring traffic in the segment. A good example of this may be terms associated with cites and the key term “personal injury attorney” where the value of that lead to the attorney is atypically high due to the value of the clients and revenues generated. I have seen with these types of terms Pay Per Click rates being has high as $30 per click or greater. Therefore, I typically look for sites that meet all of the standard requirement like Average Order Values, strength of competition and keyword volume but also look for potential markets to also conform to this metric as well. In particular, terms that may be currently selling through the Google Adwords program at rates of $3-5 per click or higher. I have seen the average industry wide usually range between $.75 to 1.50 which certain terms that offer advertisers healthy margins when a customer is acquired and a conversion is effected to be substantially higher. There are many online tools to determine these rates including signing up for an account with Google Adwords itself which will give you the current Pay Per Click detail for selected key terms. There are also other online tools like Spyfu.com that also provide some of this information and can provide general information for the cost of various terms.
5) Key Word Fragmentation: Another criterion that needs to be evaluated is the key term depth of any particular term. In short, how well does the term fragment or diffuse. In the case of a term like “birthday gift baskets” there may be myriad terms that are associated with this primary term like “30th birthday gift baskets”, “40th birthday gift baskets”, “50th birthday gift baskets” and so on that serve as variations or sub-category search terms. There may be other major second tier terms like “gag birthday gift baskets” and other terms that get strong traffic surrounding “birthday gift bakets” for which your site can optimize and rank. The fragmentation associated with these terms lends to sources of new traffic and the ability to develop a site rich in large and diverse number key words. There are other sites that exist that have a very narrow keyword focus but I strongly advise that one adopt a diversified key word strategy where one develops an optimization approach around dozens of key terms all driving targeted traffic to the site.