Think Niche and Grow Rich Minicourse

Approximate Reading Time: 10 Minutes

Part 3 - "How to dramatically increase your probability of
online success"

By Joe Garris

In Part 2, we learned how to find the hottest niche markets.

Now that you have plenty of ideas, the next step is to evaluate those ideas to determine
the online profit potential.

In order to evaluate the profit potential of an idea, you should analyze:

1.) The size of the target market

2.) The competitiveness of the target market

3.) Whether or not people are paying to advertise within the market
and if so, how much they are paying to advertise in that market

The following is a manual step-by-step process:

Step 1: Go to Overture's Suggestion Tool located at the following url:

http://inventory.overture.com/d/searchinventory/suggestion/

The tool should look something like this:

This tool allows you to look up the number of searches for the previous month on specific words within Overture.com's Partner Network (some partners include Yahoo, Altavista, MSN and CNN). The tool also returns a list of keywords related to the keyword you submitted.

Step 2: Pick a word or phrase from your list and go ahead and type it into the suggestion tool.

We chose the word "bartending" for this example and received the following results:

This shows that 16,529 people searched for the word "bartending" in a month throughout Overture.com's (a leading pay-per-click search engine) network.

We try to have at least 6,000 searches/month before we consider the topic worth pursuing (You might decide more is better or less...this is just what we have found to work best for us). However, this one search might not tell the complete story. You may also want to search synonyms for your words. For instance, check out the word "bartender guide". There are 7,371 searches for it alone. You can find alternate words by asking people in the specific industry. You may be very suprised at the alternate words people use.

Google has a tool called the Google Sandbox that can help you generate a list of
words as well. Unfortunately, they don't have any count information with the words.

https://adwords.google.com/select/KeywordSandbox

Step 3: Go through the list and copy all the words that are closely related to your idea with the Count information into a spreadsheet. Add up all the count numbers to get a total demand figure.

This information gives you an estimate of the demand or market size for your idea.

Step 4: Visit Google.com and type in each one of the phrases separately to get supply information for each individual word. Type this information into the spreadsheet in a column next to the Count (Demand) information. Make sure you use quotation marks (called an exact phrase search) around each phrase so you get a clearer picture of the supply/competition.

Here is an example of what we would see using the word "bartending":

As you can see, our search returned 342,000 competing sites. This is a little more competition than we like to see. Especially if this is your first niche site. However, you may still be okay because you will always have other words in your list that are more targeted. For instance, if you were to combine the phrases "bartending book", "bartending guide", "bartender guide", "bartender recipe "bartending recipe" and "bartending tip", you would get a demand of around 13,280 searches in a month. A google search reveals the total competing sites numbering 35,719 with 27,400 coming from "bartender guide". This is a little better and could have potential...Maybe.

We are not quite done yet.

We have a good read of the demand and supply of the market but our philosophy stands that if no one else is paying to advertise the overall idea then it is either a really hot find (doesn't happen too often anymore) or is not able to support the advertising (i.e. people ain't buying). Here is the manual way to find bids on specific keywords:

Step 5: Go to Overture.com and type in a word or phrase on your list. Click the "View Advertisers' Max Bids" link in the upper right hand corner.

A new window should open (you willl have to put in a security code if it is your first search during your browser session) that looks something like this:

This shows you the maximum bid each advertiser is willing to spend per click for their placement. For instance, the first advertiser is willing to pay $0.10 to Overture.com each time someone clicks their advertisement. You can see that each of these advertisers has the same Maximum Bid. In this case, the company that advertised first will have the top placement.

We normally use the top 3 bids in our profit potential calculations.

Step 6: You should go through this procedure for each of your words and phrases. This will show all the bids for that particular word on Overture. Write down the top 3 bids for the word and put this in your spreadsheet. You should also do this on several other PPC (pay per click) search engines. You currently cannot accurately calculate the bid price at Google for the listings but the assumption is that if you have to advertise your idea then if you can't make it work on at the Overture bid prices then you probably can't make it work at Google either.

You then repeat the procedure for every keyword you have and list your findings in your spreadsheet with each bid in a separate column.

There are several programs that calculate the profit potential of ideas based solely on the supply and demand data. I for one find this pretty naive. There are just too many factors that can skew that data. For instance, think about all the content sites that are getting high search placement but don't sell a thing. These sites are at first seen as competitors but could be your most profitable Joint Venture partners.

We prefer to calculate potential profitability based on the demand of the market and the advertising dollars that are being spent on the specific idea.

With that said...

Let's calculate the Profit Potential for a Month

The formula is broken into 2 parts. Revenue & Expenses

To calculate the Revenue, the first thing you do is take the total demand count for the words that you deemed closely related to your idea from Steps 2 and 3. Let's use our bartending example and assume the total count only included the the phrases "bartending book", "bartending guide", "bartender guide", "bartender recipe", "bartending recipe" and "bartending tip", for a total demand of around 13,280 searches in a month.

Since we took the figure from Overture.com, we multiply the total count by 2.5 to get an estimate of the overall paid search impressions. This is based on our management of thousands of PPC campaigns across many different PPC search engines and can be lowered or raised depending on the current pay per click market share information. Now, if you are only planning on advertising with Google or only with Overture, you can't use this multiplication. You will have to drop it down or don't multiply at all.

The next part of the formula is where we can have a little more flexibility. It is the click through rate that you would expect for your advertisement. We have managed hundreds of thousands of keywords on Overture and Google and have seen very low click through rates and very high click through rates (over 60%). For this manual process, we will use the click through rate of 1%. You should easily be able to get your overall average click through rate up to this number with a little tweaking of your titles and descriptions. You can also adjust this figure to see how it impacts your monthly profitability.

Also, we need the expected sales conversion rate. I normally start with 1% here. That means that on average, 1 out of every 100 visitors to your site will buy. If the idea doesn’t show good profitability at 1%, then it is my experience that it will be difficult to make the idea work online.

Finally, we need to figure out the expected average revenue per order. Basically, this is the order price of your product. You can always adjust this figure to see how it impacts the economics of your idea. For this product, we will assume that the price point is $19 and it is the only product sold so the same figure is the average revenue per order.

For the Expenses Side:

In addition to the demand and ad clickthrough information, we also need to figure out the Average Cost per Click Amount you would have to pay for each word in your spreadsheet to maintain a top 3 position. Then, Average that amount across all the words to get your total idea Average Cost per Click. You also may need an estimate of Non-Advertising Expenses. These could be manufacturing costs, printing materials, communications expenses, etc.

So, assume we have the following words and averaged top 3 bids for our bartending idea:

bartending book - $0.11
bartending guide - $0.10
bartending tip - $0.08
bartending recipe - $0.10
bartender guide - $0.11
bartender recipe - $0.08

*So, the overall average cost per click we would use in our calculation would be: $.10

*In the PIPE software program, we actually use a weighted average formula since we understand that a keyword with a demand of 8,000 should be treated differently than a keyword that only has a demand figure of 2,000. For example, assume we have only 2 keywords in our list and the total demand of both keywords together is 10,000. If keyword 1 has a demand of 8,000 and an average cost per click of $1 and keyword 2 has a demand of 2,000 and an average cost per click of $.50 then the
weighted average cost per click would be:

Keyword 1- $1 X .80 = $0.80

Keyword 2 - $0.50 X .20 = $0.10

Where .80 and .20 are the percentages in decimal format that each keyword makes up of the whole demand of 10,000 (Keyword 1 had 8,000 which is 80% of 10,000 and Keyword 2 had 2,000

You add these together to get the weighted average cost per click:
$0.80 + $0.10 = $0.90

For the Bartending example, here are the calculations we would use to figure out approximate monthly profit potential using the manual process:

Approx. Total Monthly Revenue = ((Total Count *2.5) * Ad’s Clickthrough Rate X Sales Conversion Rate) X Average Revenue per Order)

Approx. Total Monthly Revenue = ((13,280 * 2.5) * 1%) X 1% X $19 = $63.08

Approx.Total Monthly Ad Cost =
( (Total Count *2.5) * Ad’s Clickthrough Rate * Overall Average Cost Per Click)

Approx. Total Monthly Ad Cost = (( 33,200 * 1% * .10) = $33.20

Other Expenses – I usually just take a percentage of Revenue to cover this. Other expenses could include manufacturing costs, printing, office supplies, etc. I stay with information products so my other expenses are normally quite low. We will use 10% of Revenue for this example.

Estimated Monthly Profit Potential = Total Revenue – Total Ad Cost - Other Expenses

For our example, the figures would be: $63.08 - $33.20 - $6.31 = $23.57 / month

I know it is not too exciting a figure. Remember, in this example, we did use only a few of the keywords listed for this product idea.

Now, as I said before, I like to automate everything . So, we have taken this evaluation procedure one step further. If you have downloaded the free trial of our Product Idea Profitability Evaluator software and have used it, then you know how easy we have made this evaluation process. You can view a sample evaluation report by clicking the following link:

SAMPLE REPORT

Since you are taking this course, You qualify to receive a free no obligation trial of our
Product Idea Profitability Evaluator Software (P.I.P.E.).

If you haven't downloaded the trial and have a Windows-based PC and preferably a High Speed Internet Connection, you can get it here

Disclaimer: This is not meant for you to use as your only business planning tool. It is only showing one means of evaluation that has worked for us. Your results may vary.

In Part 4, you will learn the secrets of creating products quickly and at a very low cost.

PIPE Software is Currently Unavailable For Purchase