Have you ever wondered what the first three rules of finding profitable niches for drop shipping are? Have you been left scratching your head, thinking that maybe drop shipping isn’t for you?
If so, this is some vital information that will get you prepared to turn your drop shipping business around. Discover the three criteria Olisa uses to find profitable niches that will have you making a full-time living off your eCommerce store. You may be surprised at what they are… and we can guarantee you will use this information for years to come!
eCommerce Niche Selection Research is Essential
So, you’re ready to start an eCommerce drop ship business. Congratulations! The first step is the biggest one of all. That step is not just saying that you “want to start an online business” but actually taking action and moving towards getting your first sale.
One of the largest mistakes that is made when starting an eCommerce drop shipping business is not enough research. Many times at first glance, a niche can look like a gold mine ready to start bringing in the big bucks. But, after some diligent research it can quickly be found to be infiltrated and overrun with competitors. This would mean very little profit, and the opposite of your goal.
Olisa will explain the tips to avoid this costly mistake.
The Importance of The Right Niche Selection
Here are three great tips from Anton on selecting the right niche while keeping three of the most important things in mind: Price, Target Market, and Brand Loyalty!
The first step of the drop shipping process is called “Niche Selection”.
This section will cover the first step towards building a profitable eCommerce business by choosing your niche. A good niche will meet three prices of criteria: it will fall into our target price range, it will appeal to the upper-middle class, and consumers will have no brand loyalty which we will be explained in-depth later.
When selecting a niche for a new eCommerce store you should look for a set of products that meet certain criteria. Olisa constantly reminds us of how important it is to do this profitably. How to choose profitable niches and how it can actually be easy.
Now, the problem is you can still make money if you do it the wrong way. Except it will be a lot harder to get to your desired outcome. Which I guess is making a full-time living, right? Making a lot of money with eCommerce..
Below are three tips from Olisa, and he will better explain the tips and strategies to nail picking the best niche for you.
Tip #1: The Importance of Pricing
There are three tips for selecting a profitable niche that will actually make money. Now, here are a few pieces of criteria I look for. The first thing is always the price. That means product’s price, what you’re going to sell this product for.
The average product price should be $200 or more. This is because your average profit margin (when you are drop shipping and using our method) will be about 25% of the gross revenue. What does that mean in practice? Well, if you sold something like a water bottle, that’s not at least $200. So that is not going to be a niche that I recommend get involved with.
The same amount of time will go into processing an order for $20 as it will for processing an order for $200 or $2,000. If you’re going to be doing the work you might as well have a chance of making some real money on each sale.
It is important to note that although I do have websites that sell products for $999 and up, I have noticed customers placing an order that large prefer to call in to place their orders.
If you are comfortable on the phone, then this will not be a problem, but if you want to run an online store where the majority of orders come in before the customer even contacts you, I would recommend selling items priced between $200 and $700.
Now, on the other hand, if it is something like a cell phone, that’s more than $200. That would pass the price test, but it would not pass the third test that you’ll hear about later.
Tip #2: Your eCommerce Niche Target Market
I have sold products online that appeal to the wealthy, products that appeal to the middle class, and products that appeal to lower income households. From all of my experience, I have learned that it is best to appeal to the upper-middle class, meaning online shoppers who have a household income of $100,000 or more. It’s sad to say but if you sell products that appeal to low-income households you will have a lot more work to do.
Once we make sure our price is above $200, we look towards our target market. Now, if you are involved with marketing at all (if you ever studied marketing) you’re familiar with demographics. And the truth is you could break up the world into probably a billion different demographics.
When people don’t have enough money or spend their last dollar to buy your products, you better believe they are going to have more questions. They are going to be inspecting the items more carefully. If anything is wrong or even if they think anything is wrong, you are going to hear about it non-stop.
With the wealthy, it’s the same thing. When they are investing money or buying products, they expect a certain level of customer service that requires really a different type of business owner.
And there is nothing wrong with that.
But, just expect that if you’re going to go that route, you are going to be more of a concierge rather than someone that makes money online.
Again, that is why when we are looking at demographics. Remember, stick with the upper-middle class. I define that as having a combined household income of above $100,000 U.S. dollars.
When people have that kind of money, they are very comfortable with spending online. They are used to buying items that are $200 or more. They are not going to be calling or emailing you as much.
So again, this demographic makes niche selection a lot easier. It makes your business run a lot smoother. It makes it a lot more profitable if you choose niches that fall into that target demographic. If that’s who the products appeal to.
Tip #3: eCommerce Brand Loyalty
The final tip from Olisa is just as important as the first two regarding your target demographic and pricing. Now, we will talk about brand loyalty. As was mentioned earlier that while cell phones fall into the price range criteria, they don’t meet one of my other criteria and that is because of the brand loyalty.
When someone is going to buy a cell phone, in general, they are going to buy an iPhone or they are going to buy another Android phone, they pretty much already have a brand in their head of what product they want.
Same thing with people that are going to buy headphones. There is probably four or five big headphone companies. Right? There is Sony, there is Bose, there are Beats, and there is Sennheiser. There are all these big companies and people already know what they are going to buy.
So the third thing that you are going to look for when trying to choose a profitable niche is to pick an industry that has no brand loyalty. It’s going to make a big difference.
That’s because if you try to sell in a niche where people already know what company they want to buy from, it’s going to make it that much harder for you to get dropship suppliers. Harder for you to actually be able to sell these products, for you to be able to compete in terms of price. It’s impossible.
Remember The Target Market for eCommerce Niches Are Vital!
After two years of experience selling products online, I’ve realized that selling products to low-income households require much more pre-selling, more customer interaction, and more complaints/returns. The same can be said about selling to the wealthy. They expect more personalized service and require much more of an effort to close the sale.
We are looking to start a business that requires as little effort as possible while generating the most sales possible. We are looking to sell to single people or families with disposable income who are used to shopping online and comfortable making large purchases over the internet.
How Brand Loyalty Affects Your eCommerce Niche
What kind of computer or cell phone do you have? Is it the same kind of brand as your last one? Chances are if you own a Mac, the next computer you buy will also be a Mac.
Why? Brand loyalty.
When selling online, you want to avoid selling products that customers already have brand loyalty for…
For example, I wouldn’t try to sell TVs online. Most customers who are buying a TV do the research on which TV is best for them or purchase the same brand TV they have had in the past.
They already have researched which TV brand has the best picture quality, the best warranty, and the best reviews online. If I wanted to sell the TVs that people are actually buying (Sonys, Panasonics, LGs, etc) there is no way I would get approved for an account with the same payment and pricing terms as Best Buy or any other big box stores.
So, what type of products do I look to sell? Products that customers are thinking about buying, but will not be diverted from buying it because it isn’t from a specific well known brand, or cause them any reservation because they could think it is “off-brand.”
Here are some examples of eCommerce niche markets that I would want to target:
Let’s say I live on a lake and I decide I want to get into stand-up paddle boarding. I know I need a paddle board and a paddle but I have no prior knowledge of this sport or what brands are well known. I could care less what company makes the board as long as I can find some good reviews and the price is right.
This is a great example of a product to sell online. The average cost of a stand-up paddle board and the paddle is over $700, the average customer does not care what brand they are buying, and this sport is likely to appeal to the upper-middle class and would be purchased with disposable income.
Here is another example:
Mr. and Mrs. Smith move into a new home, there is a huge chandelier that hangs in the entryway. Mrs. Smith hates it. They go to the local The Home Depot & Lowe’s but can not find a replacement that they agree on.
They know what style they are looking for but they can not find it locally. Mrs. Smith goes online and searches for a 30” x 30” entryway chandelier. She finds a website with hundreds of options including one that she and husband can agree upon.
This is another great example of a product to sell online. Chandeliers are expensive, they appeal to the upper middle class, and the average customer does not care what brand they are buying as long as they like what they see.
- No Brand Loyalty
- Appeals to Upper-Middle Class
Take some time now to think about other products that meet these criteria. Write a list of as many product types as you can think of.
If you’re crunched for time, let us help you by providing you with some niche ideas.
eCommerce Niche Selection Conclusion:
These are some excellent first tips that are sure to be valuable and help in honing your strategy when choosing the right eCommerce niche.
Remember that these three rules for profitable and effective eCommerce niche selection are crucial: the target price, the target demographic, and brand loyalty cannot exist – because if it does it is going to make your life and eCommerce drop shipping business a lot harder.