How to choose the right niche for an online store
JP Arnaud-Marquez
·March 2, 2022
Starting an online store has never been easier, with a wealth of tools available for merchants to create their own business. For instance, more than 1.7 million merchants worldwide sell using the Shopify platform alone.
All-in-one ecommerce platforms like Shopify make it a seamless process for merchants to source inventory, set up an online shop front, process payments, manage customer support, and fulfill orders – all from one centralized location.
However, the lower barrier of entry also means there is more competition than ever before.
To compete in a crowded ecommerce marketplace, you must differentiate yourself from other players in your space.
How to choose a niche
If you want to build a profitable online store, find the right niche to sell in.
Here are a few pointers to get you started:
Think about who your target buyer is
Instead of thinking about your products, start by thinking about your customers. Who would you like to buy from your store? What are their pain points, and what are their desires? What are they interested in, and where do they spend their time online?
Building detailed buyer personas will help you document the types of people you’re trying to attract, so that you can build your product inventory around what they’re most interested in. Once you’ve nailed down your buyer personas, you can conduct market research to understand where they shop online, and identify how you can set your shop apart from your competitors.
Pay attention to profit margins
When selecting your products, it’s also important to pay attention to your profit margins. If you’re not able to recoup your operating costs and other expenses with your sale price, you’ll have trouble breaking even in your shop.
A Marketing Sherpa study found that the average profit margin for small businesses in ecommerce was 30%, and for larger businesses it was 37%. You can use Shopify’s profit margin calculator to help you understand how much you’d need to get for each product in order to make a profit. Once you have a tentative price list built, research your competitors to ensure that you’ll be in line with industry standards.
Look at current buying trends
Use Google Trends and other consumer data search tools to understand what shoppers are looking for. With tools like these, you’ll be able to understand specific buying patterns tracked by region or time of year, so that you can plan your inventory stocking around what’s most desirable for your target buyers at every time of year.
By understanding current trends, you’ll be able to leverage data to find a niche that consumers are hungry for.
Focus on what you know
While gathering data on what’s popular and profitable is part of driving a successful online brand, it’s also important to focus on your own expertise as a shop owner.
What special knowledge and skills do you have that you can leverage within your shop?
For example, if you’re a lifelong knitter, starting an online yarn and knitting supplies store could be a great niche for you. You’ll be able to focus on growing an audience from your existing contact network and their friends while making content creation for your marketing efforts easier.
By choosing a niche that you have a personal connection with, you’ll be able to build on your passion to educate and engage your customer base.
Niches to explore
So what are some ecommerce niches you might want to consider?
Your choice might vary based on your specific interests, and the customer base you’re interested in serving. But here are a few potential niches that might be worth exploring:
- Nutrition/health supplements
Nutritional supplements and other health aids are a popular and rapidly growing niche. When considering what types of products to sell, pay close attention to online trends, read reviews in detail, and sample the products for yourself to make sure you understand their effects. It’s also important that you avoid making any false claims about the success rate of the supplements, or you may be liable for FDA fines.
- Pet food and products
Americans spent more than $103 billion on their pets in 2020, so it’s safe to say that there’s no shortage of money to go towards ecommerce businesses in the pet space. Your shop might sell a variety of products including pet food, snacks, leashes, bedding, toys, and any number of other pet-related products. You might focus exclusively on one type of pet, such as cats or birds. Whether you build a one-stop shop for pet owners, or focus on a small group of products, you’re bound to find a profitable market in the pet niche.
- Organic/natural products
Many consumers are willing to spend more for organic products. Whether you sell cleaning supplies, snacks, soaps, apparel, or other forms of organic products, you’re likely to find a strong market if you can keep your pricing competitive and showcase your organic bona-fides.
- Kids’ toy trends
What’s the next Pop-It? If you pay close attention to buying trend insights, you might be on the cutting edge of identifying some of the hottest toy trends before Christmas, which can help you build a booming business with just a handful of product lines. Just make sure to switch up your inventory when you know the trends are changing, or you may be forced to slash prices to get rid of excess inventory.
- Imports
Do you have a strong relationship with businesses in another country? By leveraging those relationships, you’ll be able to source inventory from other countries, and resell them to your customer base at a higher cost, if you can deal with the hassles of customs and importing compliance.
- Something unique
Do you have a special talent for something customers may be willing to pay good money for? Then build an ecommerce store around your unique niche. Selling custom artwork or hand-crafted baby shoes can help you build a product line that customers will value and refer to their friends and family.
Optimizing your profit margins with exchanges
Regardless of which ecommerce niche you choose (the possibilities are endless), it’s important to put practices in place that maximize your revenue retention.
Up to 30% of your product sales may end up as returns, which can take a big chunk out of your potential revenue. By using a returns management solution like Loop, you can optimize your returns process to encourage customers to make exchanges, instead of returning items for a refund.
Loop customers typically retain 40% of revenue on returns by transforming them into exchanges. Instead of terminating the relationship at the point of the refund, you’ll be able to build continued value from each relationship, and use it to drive additional referrals.
It costs up to seven times more to acquire a new customer than it does to keep an existing customer, so by focusing on winning back customers who want to return items, you’ll be able to transform your returns from a cost center into a profit center – no matter what your niche is. Contact our team for a demo.
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