13 Factors to consider when picking a niche for your eCommerce business

So you’ve embraced your entrepreneurial spirit and decided to start an eCommerce business however your not sure the niche you should enter in or the products you should sell.

According to Tech.co, 80% of eCommerce start-ups fail and the single biggest reason that causes these failures is “Lack of Demand/Market”. Therefore, it is imperative that you pick the right product/niche to set your business off in the right direction and improve your chances of eCommerce success.

Here are 13 factors that I believe every eCommerce owner should consider when picking the perfect product(s) for his/her business.

1. Potential Market Size

Choose a product that has a large potential market size. For this to be possible, it will have to cater to a wide demographic of people. Avoid going too niche as smaller target markets tend to be the most expensive to reach in terms of marketing.

2. Competition Environment

Strong competition in a particular niche may not always be a bad thing, it can be seen as a sign the niche is lucrative. However, if you are planning on entering into a highly competitive market, you will have to come up with a unique method of attracting & retaining customers.

3. Customer Trends/Seasonality

Avoid picking products that just have short term trends. The best products have long-term sustainable trends. Use Google Trends to get a more in-depth analysis on the product’s search history. It will help you determine if your product is on a decline, holding steady, or in a growing market.

4. Local/Offline Availability

Ideally, the product should be difficult to find offline or by other local retailers. This would make it easier to entice customers to buy from your store.

5. Target Audience

Make sure your ideal target audience are people who live in circumstances which make it convenient for them to make purchases over the internet. (Computer Savvy individuals, Live in areas with a good postal system, internet connection, etc)

6. Markup Potential

In eCommerce, they are a lot of small fees that will eat away at your profit margin so having a high profit margin is essential in order to remain profitable. It is recommended that you choose products that can be sold at a minimum of 5 to 10X markup.

7. Selling Price

The most ideal price point for eCommerce products is £75-£150. This is because:

• The price isn’t too low where you have to sell in large volumes (and find more customers) to make a decent revenue.

• The price isn’t too high to point where customers will be wary and would require extensive customer service to make sales.

8. Limited SKU’s

Avoid selling products that have too many different variations, Reasons for this are:

Products with a lot of variations would require a larger investment for its initial stock which would also mean a larger risk.

Harder to manage inventory – more chances of customers receiving wrong order, stock getting lost, etc Ideally you want products that have no more than 15-20 variations.

Increased storage costs

9. Subscriptions/Recurring Customers

Studies have revealed that acquiring new customers is roughly 7x more expensive than selling to existing customers. As an eCommerce store owner, it would be beneficial to consider your method of retaining customers. This would be easier to do if the products you are selling can be sold to customers on a subscription-based model or if customers have to come back to your store to replenish their items.

10.Durability

Products that are fragile have a higher chance of getting damaged during shipping. This could lead to potential stock loss, unhappy customers & higher return rates which would definitely hurt your business’s profitability and reputation.

11. Customers with a passion or problem

The products that are easiest to sell online are the ones that solve a problem, alleviate a pain or are related to something that consumers are passionate about. *Most consumers will not hesitate to spend high amounts of money to support their passion or are already in pain and looking for a solution for it*

12. Product Turnover Rate

Products lines that change often require a lot of time and resources to manage in order to prevent becoming outdated. Selling a product line with limited turnover would allow you to invest more resources into your maintenance & marketing of your eCommerce business.

13. Restrictions & Regulations

Before investing in inventory for any product, make sure they are no rules & regulations from your shipping courier, local customs, or warehouse that will affect the product. Not doing this will could end up in a lot of wasted resources.

Don’t rush on trying to find the perfect product thinking that you are running out of time. Don't worry, eCommerce isn't going anywhere. I would recommend spending at least 1-2 weeks on conducting this product/market research for your business. if you find one product that matches most of the above criteria, don’t just jump on it and assume it’s the best one. Try to find at least 3-5 good product niches and then pick the one that resonates with you the most.

You can also use tools such as Google Trends, Jungle Scout, Ahrefs, SEMRush, etc…. to aid with your research endeavors.

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