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Dropshipping Niche Research: The Essential Guide
Now that you know where to look to do the research that precedes selecting a niche for dropshipping, the next question arises- what the research is that you should be doing? What are the factors to check when you choose a niche, but most importantly, why are they so important?
Research might sound like an unnecessary step in the race to start an online store and count your dollars, but all successful entrepreneurs study first and then take action.
Imagine you decide to sell a beautiful Indian textile: by all means, it is a unique product; but your target audience resides in the Netherlands. While the product is lovely and inexpensive, the material is suited to tropical temperatures, and Dutch weather is anything but that. Now even though the product is excellent, sales might be downright terrible, and you have nothing to blame except the lack of research.
We have all heard that ‘a great marketer can sell anything’, but why sell something that does not add value to the customers’ lives?
The answer to ‘What dropshipping products should I sell’ is a combination of multiple factors that need to be considered before the decision is made. From cost analysis to demand, there are multiple variables to selling a product online, but don’t worry--they can all be covered in a day or two’s work!
Additionally, your product needn’t score a 10 in every single of the below factors, but knowing where your product stands will help your dropshipping business.
Before we delve into the details, here’s an overview to what you need to keep in mind when selecting a niche:
1. What is the wholesale price of the item, and what profit margin is available to you?
2. What is the size of the market?
3. What does the target market look like?
4. What sort of competition can you expect to face?
5. Is the dropshipping niche steady or just a fad?
6. Is the product available locally?
7. What would the shipping time for the product be?
8. Can you find reliable suppliers for the niche?
9. Is the product perishable/disposable/renewable or seasonal?
Let’s dive right in and explore the above points!
1. What is the wholesale price of the item, and what profit margin is available to you?
Once you have a few product ideas on your hand for your dropshipping business, the first step is to check the general retail price of the products in the market and compare it with the wholesale prices you will be able to purchase the product for.
On Spocket, the listing prices and the suggested retail prices can give you an idea of the profit margin.
However, that is the price of the product excluding the shipping costs and possibly customs. If your profit margin can still be sustained after the extra charges are added to the wholesale price, then the niche is good to go.
If the product is incredibly unique, a slightly higher retail price would not be a deterrent for purchases, provided that there is demand for the product, but with products that can be sourced from a competitor at a lower price but the same quality, you would want to think twice.
For example, wooden home decor signs show an average of $35-45 in terms of retail price, and these products have a $10 wholesale price on Spocket.
Add to that a $3.95 domestic shipping cost, and you have a profit of about $32 dollars, which is a great chunk.
However, shipping abroad would cost you $22, which would mean just a $13 profit margin.
Also check for processing fees which are 2.75% of your sale, as well as custom duties, if applicable. Lastly, you might also want to consider the cost per acquisition: how much money you are spending in advertising to get a sale.
This will give you a fair idea on what to expect from the niche, and how to maximise your profits.
2. What is the size of the market?
Narrow niche ideas are picking up: this online store sells only scissors of different types, but with much gusto:
While this may seem like a small niche, the market size is quite huge, considering everyone uses scissors at some point: and their speciality is the one product that they sell.
You might want to check Google trends for the amount of traffic keywords related to your niche generate: for example, a great number of people search for shoes on search engines such as Google, but perhaps not as many will be looking for red shoes sized 8.
A fairly broad niche with enough demand for your store to sustain and grow your ecommerce store seems like a great solution: but general stores, which seem to have the widest possible audience range may not be exactly the best.
We have found that niche based stores can focus on a select bunch of people, and gain higher conversions. This is because general stores are often unable to establish a relationship with their customers in terms of interest or passion.
All good products either solve a problem or cater to a passion, and your goal with your product is to make the potential customer realize the problem that you are solving or show them how their passion leads to this product. With general stores, it is difficult to hit these specific goals with your ads.
And obviously, most people would rather buy sportswear from Nike than the sport section of Walmart.
How much you can sell is definitely going to depend on the size of the market, so this step is crucial: use Google Keywords planner, look up similar products on sites such as Amazon and make the most out of social media for research.
3. What does the target market look like?
With regards to online shopping, different sections of customers prefer not just different products, but also have different reasons for purchasing a product. You will need a basic idea of what your target customer will look like to decide which products in the particular niches will fit best with your store and how exactly you will sell them.
For example, if you sell to the UK, while you are a resident in the US, you might want to make sure customer support is available to them without too much of a delay or if you target college students, payment methods such as PayPal are available.
For example, the company Old Time Candy sells..you guessed it: candies from the 50s, 60s, 70s, 80s and 90s.
A lot of their audience comprises of Baby Boomers. With this audience, it is essential to create a personal connection: phone support would work better than chat based support, referral programs might work significantly better than online reviews in obtaining conversions, and loyalty programs might be a great bonus. You would also want to ensure that the journey from the shopping cart to the purchase is easy!
Check into this before your finalize a niche!
4. What sort of competition can you expect to face?
Is the market saturated with thousands of stores selling the very same product as you? What are the popular products in your selected niches, and who are the companies selling them?
If there are no competitors for your product, is it a product that no one would purchase? You must find out if your product is an innovation or simply unnecessary by delving into market research. Alternatively, if there are a few competitors, but are all performing poorly, that may be a cue that the product does not sell well. If they are making great sales, then you can rest assured that the niche is a good one.
If there are a number of competitors, you might want to think on a way to differentiate your product and brand from your competitors.
Marc Chapon, who built his business in the pet niche, says that no market is saturated: he simply made sure that every visitor received a free e-book with recipes for dogs, photos, tips and stories on pet care.
He updated blog posts regularly to help customers with more than just products. He provided the best customer experience possible to his customers, and made $178,490 in just three months.
5. Is the dropshipping niche steady or just a fad?
There are a four categories of niches. We call them:
- Long term products
- One hit wonders
- Blossoming niches
- Trending products
Now, long term products are essentially products that have a consistent, steady demand in the market. These are products that you can sell through the years. They do not undergo major fluctuations or upheavals. Products that fall under utilities usually fall under this category.
For example, a towel is a product that is unaffected by bumps, and does not decline or grow rapidly.
One hit wonders are products that suddenly soar in popularity: everyone is purchasing the product all at once. But these products fall off the charts just as quickly. They sell extremely well for a very short period of time, after which they become obscure.
A fidget spinner or Pokemon Go can be considered fads that passed away in a month or two.
Blossoming niches are ones that are slowly growing into steady markets. The demand for them is brought on by a cultural shift or a change in people’s lifestyle, and the niches show growth consistently.
Leggings are a growing market, brought about by a shift towards yoga and fitness. Athleisure clothing has been gaining a lot of pace and 2019 shows an even greater appeal for leggings, sports bras etcetera. This is clearly a niche that will stabilize.
Trending products are ones that do not peak or drop like one hit wonders but have a limited lifespan usually. They grow slowly, stay around for longer and then gradually decline. Sometimes it does grow into a steady market, but often fizzles out.
Keto diets are a very popular subject in our times, and have overtaken the stable markets. However, many weight-loss, fitness trends have appeared on the scene and vanished, which predicts the fate of the niche.
Trending products grow faster than blossoming niches but slower than one hit wonders.
Here is how the growth of all four types of markets looks in graph form:
You might want to tap into the niches that have a growing market or a stable one. Even trending products can be utilised for a business, but products that are associated with fads can make you money during a certain high, but will be unsellable later.
6. Is the product sold in the area you are targeting?
These are product considerations that may affect how your business takes off. If a product is available locally, people might be hesitant to purchase it from you, unless you offer a reduced price or an extra benefit.
If you sell a product that the customer might not find around, turning to an ecommerce platform will be their only option. Your shop can swoop in and sell the product.
You can still sell online the products that are available locally: if you add your own twist to them. For example,
Have a Rest is an eCommerce website that sells suitcases, but the suitcases are designed to perfection and are equipped with features that your regular luggage would not have:
7. What would the shipping time for the product be?
Believe it or not, shipping time is a huge factor in whether people purchase a product or not. Most of dropshipping consists of products that take a month to deliver, which is an immediate no-no for most customers. Only if your product is extremely unique or valuable to the customer will this delivery time be acceptable.
For example, if you choose generic pet toys that are manufactured in China, your customers will not be happy to hear that it will take you 2 months to ship it to them.
Choosing products manufactured in countries close to your target market is the best solution. If you are going to be selling to the US, it is best to target suppliers that are based in the US.
8. Can you find reliable suppliers for the niche?
The product is the core of your brand--it is what will ultimately decide the fate of your business. You will need to start scouting for suppliers that can be trusted and are reliable.
The products you sell will need to adhere to certain quality standards, have shorter shipping durations and must be reliable.
Reliability consists of a number of factors: does each order of the supplier stick to the same time guidelines with regards to shipping, will the supplier be quick to reply in case a query pops up, how are their returns handled--all these questions need to have favourable answers for a supplier to be good.
Of course, finding suppliers is quite a task, which is why, we at Spocket have vetted the suppliers for you. Every supplier on Spocket has products of the highest quality, with shipping times ranging from 3 days to 2 weeks at maximum.
If you're interested in dropshipping from Aliexpress and vetting your own suppliers, consider downloading Aliscraper chrome extension. This way, you'll be able to import products to your store immediately and filter by shipping country (for example: USA).
9. Is the product perishable/disposable/renewable or seasonal?
Seasonal products might see a flatlining market during all other seasons: for example, selling Christmas or Halloween products exclusively might only get you sales during the last few months of the year.
Perishable, disposable or renewable products on the other hand bring a new opportunity to your store. Subscriptions. For products such as beard oil or snack boxes, a store can create a periodical subscription service which guarantees that the customer continues using your store.
However, with perishable products, you might want to make sure that your products reach at the right time to avoid unhappy customers!
Sometimes, products that you would not traditionally expect to do well in subscription packages show a great uptake. For example, would you think socks would be a product that people would want in subscriptions? Nope. But here they are.
Sock Fancy, Sock Panda, Say it with a Sock--the list is countless. Subscriptions are amazing because customer acquisition costs drop by a tonne when that one customer pays you every single month/recurring period!
Conclusion
With these factors in mind, you will be able to select a niche that you understand completely. Whenever you begin a business, the most important part is knowing all the cards--understanding the product, the market and how you use your niche’s strengths and weaknesses to your benefit. Once you have those taken care of, the rest of the game is easy.
If there was one advice to give at parting, we would say: give value to your customers. Do what you love, and show your customers your passion. Provide value in terms of your product, your store, or maybe by starting a blog to share your passion with like-minded customers.
Go for it!
