Module 2: How Experts Choose Their Dropshipping Niches
What we'll cover in this module:
|HINT: Just like in the previous modules, each step below contains a 'Learn' section (indicated by the icon) that teaches you why the step is necessary, then an 'Execute' section (indicated by the icon) that indicates how to actually complete the step. We'll again indicate the differences between model 1 and model 2 stores, and if you need a definition of each you can see that here.|
2.1 The "Big 3" Factors (For Each Store Model)
Choosing a great product niche is one of the most (if not the very most) critical steps of our process. If you don't choose a winning niche up front, the chances of a smashing success store are significantly smaller!
In this section I'll introduce you to the "Big 3 Factors" (a unique list for each store model), but we won't actually brainstorm niche ideas yet. So at this point, just try to get a good understanding of each of these 3 factors for whichever model you've chosen, and why they're important.
Seasonality (Applies to Both Store Models!)
Before we jump into the "Big 3 Factors" for whatever store model you've selected, let's quickly talk about seasonality...
Seasonality is not a "Big 3 Factor" for either store model, but it is something you should take into consideration when searching for your store's niche.
Virtually every niche out there is "seasonal" to a certain extent. Most product lines get a “bump” around Christmas and also sell particularly well a specific season of the year.
So you're not looking for a niche that has perfectly even demand throughout the entire year. You just need to avoid product lines that only sell well for a short period of time each year (3 months or less!), particularly for your first store or two.
The most obvious examples of highly seasonal niches are Halloween costumes and Christmas trees (those that coincide with a specific holiday). But you also want to avoid product lines that have a sharp decline in demand for long stretches of the year.
|HINT: If you want to get more advanced here and make sure your product line has pretty solid demand throughout the year, you can enter your search phrase into the Google Trends tool and verify that very easily!|
Here are the "Big 3 Factors" for model 1 stores (if you chose model 2 you can jump down to the "Big 3 Factors" for that store model).
model 1 - Factor #1: Poor Selection with Mega Retailers
It's absolutely critical that we avoid direct competition with the major retailers of the web like Amazon. The "Mega Retailers" of the world have billion dollar annual advertising budgets, and we don't, so it's truly vital that we find a product line that's being generally overlooked by these major retailers.
The most frequent question I get from newbies to niche eCommerce is "how can I compete with Amazon?" and the answer is "you can't & you shouldn't try to!".
This might be the trickiest factor to judge, simply because it comes down to a judgement call on your part!
As we know, Amazon is by far the biggest retailer online, and we cannot compete directly with them. So in this step we need to determine whether or not Amazon is "overlooking" the product niche in question. Since this is the #1 factor, you can eliminate the niche idea completely if it doesn't pass this (and in that case it won't even make it into your niche ideas sheet that you'll be downloading here in a minute!).
The first step is to see how many brands of this product type (aka niche idea) Amazon offers, if there aren't many available you can assume it's being overlooked. And if there are many offered that span multiple brands, you still need to see if Amazon's prices are competitive. If they aren't, you can still consider the niche product line as being overlooked by Amazon! Here's how to check each and determine whether your niche gets a 'PASS' or 'FAIL' for this factor:
How many brands are offered on Amazon?
Start off by searching Google for the niche phrase you want to check (i.e. Google search for 'bird cages'). Ignore the 'Ad' results up top, but go into the top couple of high ranking websites and write down the brands they carry on a piece of paper (brands are usually listed in the sidebar or within the navigation menu).
Now that you have an idea of what brands the top couple of ranking websites carry, go search for the same niche phrase (i.e. 'bird cages') on Amazon and note the brands they offer (also noted in Amazon's sidebar).
If they only carry a couple (or less than half) of the ones you wrote down from the top ranking websites in Google, this means Amazon is overlooking the niche and you can consider this a 'PASS'. If Amazon does carry most or all of the brands you wrote down, that's a bad sign, but they still may be overlooking the niche if they aren't priced competitively.
|HINT: Unknown to most, the majority of products being sold on Amazon are not products that Amazon themselves carry. Most products on Amazon are being sold by individuals (and other 3rd parties) who are not affiliated with them (other than the fact that they sell products through them!). These individuals and 3rd parties sell as "Marketplace sellers" and are charged fees upwards of 15% by Amazon in order to use the platform for selling. And in order to cover those hefty fees, they will often "jack up" their prices and that makes Amazon's listings quite uncompetitive with other online retailers!|
How to determine whether Amazon's prices are competitive or not
Simply open Google Shopping in one tab, and Amazon in another. Randomly select a handful of specific product models from within each brand name you wrote down and compare the price on Amazon with the prices that other retailers are listed at on Google Shopping.
If Amazon is the same or lower than most retailers on at least half of the products you look up, I would consider this niche a 'FAIL' and move on. Otherwise, give your niche a 'PASS' for this specific factor and move on!
model 1 - Factor #2: High Price Point
With this type of niche eCommerce store you're not going to be making dozens and dozens of sales every day. (Sorry to burst your bubble, but you're probably not going to become the next eBay or Amazon or a household name.)
You're not going to be able to rely on a crazy high sales volume to make up for a low amount of profit per order. So unless you're in this for the education and experience (instead of the money – doubtful!), you'll typically want to sell higher-priced products where you'll likely net a good $50+ per order.
Typically, this means selling products that retail for at least $250 (given the fact that most products are going to have around a 20-30% profit margin when everything's said & done). Keep that in mind as we move into the brainstorming stage below!
If later on when you find a product type you're unsure of what the average product in that niche is selling for, go to Google Shopping and search for a few product models from the brands you noted when seeing if Amazon was overlooking this niche. That will tell you what products from the main brand names in that niche are selling for, and at least give you an idea of what the average order amount will be.
|HINT: Many niche product lines will include products that are sold in quantities greater than '1' and/or sold with almost "must-have" accessories or upgrades. You won't know exactly what the average order will look like, but right now just use some common sense and give it your best guess.|
model 1 - Factor #3: Shopper Demand
Having a product niche that's "under the radar" is ideal, but at the same time it's critical to ensure that people are actually looking for the items you want to sell. If you're selling something that's too absurd and unusual, there won't be enough demand to drive the traffic needed to make regular and consistent sales.
This step is simple, and it's basically just to verify that the niche product line you're considering actually gets searched for by shoppers! Unlike the other 2 factors above, this one won't be a 'PASS' or 'FAIL', it will be the number of searches that are done for that specific niche phrase monthly (i.e. 3,050).
To get this number go to any free keyword tool (like this one) that pulls Google's monthly search volume and enter the 'root phrase' that best represents your niche in singular form (i.e. 'bird cage') and plural form (i.e. 'bird cages') and simply note the higher of the two. This number will be entered into one of the fields in the niche ideas sheet we will be sharing with you in the next section.
|HINT: You do not need crazy search volume in order to build a successful store around a niche phrase. We've built very successful niche stores that make thousands a month around phrases that show only 3,000 monthly searches, so don't get too caught up with this number. Also keep in mind that there are usually dozens of related keyword phrases and longer tail phrases that also get searched for in every product niche, so the number of searches for the main phrase is often just a small sampling of the real total search volume for any given niche.|
Now, here are the "Big 3 Factors" for model 2 stores (you can jump past these if you selected model 1)...
model 2 - Factor #1: The "Wow" Factor
Basically, does the product really grab your attention when you see it? Some marketers refer to this as "spectacle factor" - meaning that it's something you've gotta stop and take a closer look at!
If the product draws eyeballs and is something that a viewer would think is "really cool" (after a few seconds of observing) then it has "wow" factor.
model 2 - Factor #2: Feeds a Passion or Solves a Problem
If your product does any one of these things you're "golden" on this factor.
- Let's talk feeding a passion first. This simply means that the "type" of person the product is made for would consider it a "must have". A great example of this is the Mom & Child Tree of Life Necklace in the eyes of a proud mom of 1. When they see it, they need it, and that's what you call feeding a passion!
- Now let's talk solving a problem or making something easier. This one is pretty self evident. Kitchen hacks that save time & effort are a perfect example of this. For instance, apple slicers that core an apple and cut it into eight pieces simultaneously in a single step are a great kitchen hack.
(Just know that if you go the "hack" product route that you should avoid something that's already a well known & accepted product (like that apple slicer!). You really want a new "hack" that people haven't already purchased or considered but passed on.)
model 2 - Factor #3: Anticipated $20+ Profit Per Order
This will probably be the trickiest of the "Big 3 Factors" to those of you who are doing this for the first time, simply because it requires you to learn a new way of looking at products.
But don't overcomplicate it for yourself, it really comes down to a) what you think an item could be sold for, minus b) what you can expect to pay for it at wholesale.
Below I will show you where to get products at "wholesale" prices, and all you have to do is "guesstimate" what you think people would be willing to pay for them. If the difference is $20+ you're good-to-go!
Again, you don't need to know how to actually analyze niche ideas yet - we will do that later on - but I just wanted to introduce you to the "Big 3 Factors" and get you familiar with them. It's important that you start considering these factors and try to wrap your mind around why they are important (for whichever store model you've chosen to go with).
No action required.
2.2 Brainstorm Niche Ideas (For Both Store Models)
Before we jump into how to brainstorm niche ideas for each store type, let me make sure you understand exactly what I mean when I say "niche". That word is simply referring to a product type that shoppers would buy.
It's a word (or phrase) that represents a "line" of products you would see grouped together in a department store. For example, all forms of cages to house birds would be defined as 'bird cages' and all forms of homes for dogs would be referred to as 'dog houses'.
So don't overcomplicate this, a "niche" is simply the word(s) used to describe a grouping of similar products.
(Only review the brainstorming techniques for the store model you've selected.)
First are the brainstorming techniques for model 1 (jump down to the ones for model 2 here).
model 1 Brainstorming Techniques:
You can come up with niche ideas however you want to! All that matters is that before we move on to the next step we have a handful (5+) of niche ideas on your niche ideas sheet.
|HINT: If you don't already have a program that can open & edit Excel files, we recommend downloading and using OpenOffice (a free program).|
How to fill out the niche ideas sheet:
As you find good niche ideas using the brainstorming techniques in this section, simply add them to the spreadsheet you just downloaded above. As you'd expect, each niche idea gets 1 row (left-to-right) in your spreadsheet, and each column is reserved for a piece of info about that niche idea.
Here are the columns and what to enter within each:
- COLUMN A (Niche): Simply enter the keyword phrase that represents the product line you've discovered (i.e. 'bird cages')
- COLUMN B (Overlooked On Amazon):Simply enter 'PASS' or 'FAIL' based on your analysis of whether the niche is being overlooked or not
- COLUMN C (Avg Price Point): Enter a dollar amount that represents the amount you expect the average order to be for this product type (i.e. '$300')
- COLUMN D (Shopper Demand): Enter the amount of times the keyword phrase that represents the niche is searched for each month using the Ubersuggest lookup tool (i.e. '430')
- COLUMN E (Comments): Enter any notes you want to take for yourself that may help later when you're analyzing further (i.e. 'might be a bit seasonal?')
REMINDER: Ideally the niche ideas you save will be product lines that aren't too seasonal, not readily available in a wide selection with the mega retailers online, and ones where the average order will be $250+ (as that should ensure we net $50+ per processed order, you'll understand why that's so important later on when we start advertising our products!).
|HINT: The higher the price point of your niche ideas the better, but for newer online retailers without much experience I recommend staying under the $1,000 price point.|
model 1 Technique #1 - The Online "Everything" Mega-Retailers
Why? Well because between them they sell millions of products! And even though we intend to find a niche product line that mega-retailers are overlooking - so we don't have to compete with them - these are great places for sparking ideas (aka brainstorming!).
Simply go to either site and either cruise through the site by using the categories in the navigation, or use a root word (a noun like 'bird', a verb like 'sleep', or an adjective like 'wooden') to see matching products. Once you find a specific product type, search the site specifically for that (i.e. bird cages) and see what kind of results are listed.
If the product type you search for meets the "Big 3 Factors" discussed above for model 1 stores, add it to your niche ideas sheet and move on. Ideally the selection for that specific product type on Amazon and/or WayFair won't be too phenomenal (i.e. only a brand or two, not great prices, and/or not a wide selection).
model 1 Technique #2 - Online Shopping Portals
Shopping portals are websites where web store owners list their products and consumers go shopping for specific product types (much like Amazon before it existed!).
BizRate is one of the oldest, biggest shopping portals on the web, and for some reason they've chosen to publish their sitemap (publicly) online. This is truly the best list of high-ticket brand-name products available today, so use it & abuse it!
As you'll see when you get there, down the left side is a list of 18 categories. Each one of those 18 pages has hundreds of product types to go through and consider! Add any that pass the "Big 3 Factors" to your list!
model 1 Technique #3 - Check Website Marketplaces
Some of our better store ideas have come from cruising through the website marketplaces where successful web businesses are being sold. Here's a list of the biggest profitable website marketplaces online:
- Shopify Exchange - The Exchange is a marketplace (that Shopify maintains) where website owners (like you) can sell their website. For the most part it's a website junkyard, simply because people typically only list here as an alternative to close their store, but you can still find some great niche ideas here. And remember, it doesn't matter where your niche ideas come from, so just looking at online stores can spark ideas (it doesn't need to be the same product lines you're looking at!).
- Flippa - This is another website marketplace where website owners can attempt to sell online businesses. Much like the Shopify Exchange, we don't recommend necessarily buying any websites here, but just cruising through the listings can spark niche ideas! If the product meets the "Big 3 Factors" discussed above for model 1 stores, add it to your niche ideas list and move on.
- EmpireFlippers - a fair amount of the sites in this marketplace are "garbage" sites that manipulate Google search rankings to sell ad space and/or promote affiliate products, but you can find the occasional "gem" here and there on this marketplace. Just don't bother looking at sites that are monetized as affiliate or ad space sites!
- Store Coach's Website Marketplace - This is our website marketplace where we sell web businesses that we're brokering for 3rd party owners. Most of the sites listed here were built by Store Coach students like yourself!
- BizBuySale - This is a site that brokers use to get more exposure for the web businesses they are trying to sell. So you will see a lot of overlap here with the other marketplaces, but it's still a good place to look!
If you come across any cool niche ideas while searching through this website marketplaces, add them to your niche ideas list!
model 1 Technique #4 - Keyword Searches on Google
Use Google's free Keyword Planner and enter any random noun, adjective, or verb that comes to mind. You'd be surprised at some of the excellent niches we have found by typing in single words like “train”, “barn”, “clock” , "sleep", "wooden", "glass", "running", and then cruising through the results that it spits out (always listed in highest-to-lowest search volume (aka "shopper demand")).
Many times, we have no clue what the phrases are that it comes up with but when we Google them, we find some very interesting niches (like "barn door hardware" and "train horns"). Take the phrases and search on Amazon or Google to see what product line the phrase represents.
Any potential winners go on your niche ideas sheet and then it's on to section 1.5!
model 2 Brainstorming Techniques:
Remember that for model 2 stores we search for product ideas, not actual niches initially. Once we find a product that we love, we then find several additional products within that same niche (i.e. 'cat toys' or 'mom jewelry') to build our store around.
Initially just add any and all products you find & like to your product ideas sheet, regardless of what niche they are in. In the next step we will choose which "niche group" to settle on, and if you don't have a handful of products in that specific category that can be sold together you can simply search for a few more (or even just launch your store with 1-3 products!).
|HINT: If you don't already have a program that can open & edit Excel files, we recommend downloading and using OpenOffice (a free program).|
How to fill out the niche ideas sheet:
As you find good product ideas using the brainstorming techniques in this section, simply add them to the spreadsheet you just downloaded above. As you'd expect, each product idea gets 1 row (left-to-right) in your spreadsheet, and each column is reserved for a piece of info about that product idea.
Here are the columns and what to enter within each:
- COLUMN A (Product & Link): Enter the product name and hyperlink it to the website address of where you found it (i.e. 'stainless steel apple slicer') - you hyperlink by right-clicking on a field and choosing the 'link to' option.
- COLUMN B ("WOW" Factor): Simply enter 'PASS' or 'FAIL' based on your analysis of whether the product idea has "wow" factor or not
- COLUMN C (Passion/Problem): Simply enter 'PASS' or 'FAIL' based on your analysis of whether the product feeds a passion and/or solves a problem or not
- COLUMN D (Estimated Retail): Enter the dollar amount you expect to sell this product for once you've "private labeled" it (i.e. '$30')
- COLUMN E (Estimated Cost): Enter the amount you expect to spend per product after having it delivered to a customer in your region (i.e. '$10')
- COLUMN F (Net Per Item Sold): The dollar amount in this field is auto-generated by the spreadsheet and you don't need to enter anything here
- COLUMN G (Categories): List any categories you think this product would fit into (i.e. 'kitchen gadgets')
- COLUMN H (Comments): Enter any notes you want to take for yourself that may help later when you're analyzing further (i.e. 'might be a bit seasonal?')
REMINDER: Ideally the products you save will be ones that a) have "wow" factor, b) feed a passion and/or solve a problem, and c) have anticipated profit of $20+ per order. (You should also avoid anything that's extremely seasonal, at least for your 1st store!)
model 2 Technique #1 - Find "Early Trend" Products with Sell The Trend
Sell The Trend (STT) is an awesome tool for finding products you can private label. It pulls data from AliExpress - the world's largest PL product database - and makes it easy to see what products are "early" in their upward trend.
Follow this guide on finding private label products w/ STT to learn how we use the tool to find products that can be added to our ideas spreadsheet.
model 2 Technique #2 - Search Amazon for 'White Label' Product Ideas
White label products are 'base products' that can become private label products by simply adding your own logo and/or packaging to them.
The most common forms of white label products on marketplaces like Amazon are print-on-demand (POD) products (i.e. coffee mugs or t-shirts with custom printed text on them), and health & beauty products (i.e. essential oil with a custom label with branding).
Searching for white label product ideas on Amazon is pretty simple & straightforward, just go to Amazon and enter root words into the search bar.
You can really use any single word that you can come up with, but we recommend starting off with words the represent topics you're passionate or knowledgeable about, as that'll make sourcing products and building your store easier for you.
Once you search, you're looking for products that appear to have a standard "shell" or "base" with custom printing on it, custom colors, or even just a label/logo added. Here are some examples:
This wine glass is a 'shell' white label product that has been customized (to make it a "private label" product) by simply screen printing a funny phrase onto it. This is a very typical "customized" product that can succeed on ANY online marketplace or standalone site with targeted advertising.
The retailer of this product is either a) having this printed & shipped direct to customers by a POD service each time one is ordered, or b) they're buying 100+ at a time from a POD service (to lower their cost-per-unit) and shipping them to a warehouse that fulfills orders for them (very likely FBA, Amazon's fulfillment service).
These are 'white label' products that are being private labeled by simply taking a generic base product (i.e. essential oil blend) and adding a custom label with a branding on it (and sometimes changing up the bottle the product is in).
There are private labeling providers (like this one) that will sell you base products in "light bulk" and put your custom labels on the product! (We will talk more about sourcing products at wholesale prices in the next module!)
So simply cruise the Amazon marketplace and jot down any ideas you come across that appear to pass the "Big 3 Factors" for this store model.
model 2 Technique #3 - Search eBay for 'White Label' Product Ideas
Just like how we searched for white label base products that are being private labeled on Amazon, we can identify solid product ideas on eBay as well (or really any auction type site you can think of!).
Use the same approach of searching based on root words that we used on Amazon on the eBay marketplace.
Once you have a dozen or so product ideas on your sheet from the 3 brainstorming techniques above, move on to the next section to analyze your ideas.
2.3 Choose Your Niche
Alright, now it's time to sort through your niche/product ideas and determine which one is the best one to build your store around.
First let's talk about seasonality, because even though it's not a "Big 3 Factor" for either store model, it's a factor that should be considered for both store models.
Anything that's extremely seasonal should be eliminated from your ideas sheet at this point. So just go one row at a time and ask yourself if this product type is likely to only really sell well for a short period of time each year. If the answer is yes, simply delete it from your sheet and move on.
(We're covering model 1 first, so those doing model 2 stores can jump down to the instructions for that model by clicking here.)
model 1 Store Niche Selection
If you filled out the niche ideas sheet correctly, yours' should now look something like this:
(FYI, the numbers I've added to the above example were made up and are not accurate, they were strictly for the purpose of creating this example.)
There's really not a wrong answer, you can choose any niche idea from your list, as long as it has a 'PASS' in column B, a price of $250+ in column C, and a number of 80+ in column D.
Don't overthink this! To be 100% frank & honest with you, there are many factors you just won't (and cannot) know at this point, so don't get paralysis from over-analysis! Just choose the niche phrase you feel the best about and move forward without looking back!
If I'm truly torn between a couple niches, I simply choose the one with the expected higher profits. Of course, at this point, we don't yet know the profit margins but all we can do is assume that they are all at 20%. That being the guess, you can multiply the average dollar per sale (column C) by the number of searches and figure out which ones give you the best total dollar potential.
Also keep in mind that you will be needing to write quite a bit of unique content for your website in the upcoming steps, so if there's a niche that you are truly passionate about, you might want to favor it over another one if the numbers are close.
Further Reading For Those Building model 1 Stores...
There are definitely some product types that don't tend to do well for model 1 stores. Be sure to read our article, What NOT to Sell Online for model 1 Stores.
Then, if you want hints at the type of products that you might make a killing with on model 1 stores, check out it's companion article, What TO Sell Online for model 1 Stores!
model 2 Store Niche Selection
Choosing what niche category to build your store around is a bit unique for a model 2 store. You start off by choosing your favorite product idea from your product ideas list, and then build a store around whatever niche that product falls within.
STEP 1: Choose the product you like the very most on your list. If there isn't one that stands out to you most, either choose the one with the most net per item sold (column F) or the one that's within a topic that you're passionate about.
STEP 2: Once you've selected a product idea from your list, eliminate all products from your list that aren't within the same "category" (as shown in column G). - It is okay if every product idea is eliminated besides the one you choose!
STEP 3: The category for the product you chose is now the niche your store's branding will be in (i.e. if you chose a 'cat toy' that means your store will be built around cat toys!).
So now you have your niche and also at least one product you'd like to sell within that niche store. Before moving onto Module 3, I recommend making sure you have at least 5 products that fall within this niche that can be in your store's starting catalog.
|HINT: If you need to brainstorm additional product ideas within the niche you've now selected, simply use a root phrase (i.e. 'cat toy') within the search field at each place you explore to find additional products. This will allow you to search for potential winners that are specifically within your store's niche topic.|
Once we build out your store and launch it, the first step will be running some "test ads" to make sure you have at least one winning product in your opening catalog before you start scaling your store. So it's ideal that you have a good handful (5-6) of product to start with.
|Next: Module 3: Source Wholesale Products For Your Store|