#TheGreatBuild: Product & Niche Evaluation

Welcome to #TheGreatBuild, a series dedicated to starting an ecommerce business from scratch. In this series, the founder of A Better Lemonade Stand, Richard Lazazzera, shares the lessons he learns and the strategies he tries as he builds his own ecommerce business from the ground up. This series has been created with the intention of showing other new entrepreneurs what it takes to start an ecommerce business so it will hopefully inspire them to start their own online business, too.

To read all the blog posts included in this series, navigate using the Table of Contents down below.

 
In my first post for #TheGreatBuild, #TheGreatBuild: Choosing a Product to Sell Online, I discussed where to look for ideas for your own ecommerce business. Additionally, I introduced you to the 18-point criteria I use to quickly get a better understanding of the product or niche I am considering.

In this post, I am going to use my 18-point criteria on choosing the perfect ecommerce product to quickly evaluate my chosen product idea and niche.

Most of the time I will do a quick rundown of each point in my head, but for the purpose of documenting this project I have broken it down in this article so you can see my thought process. For each criterion, I give some general thoughts and I grade it on a standard A+ to F scale.

It’s important to note that these criteria aren’t meant to deliver a definitive “yes” or “no” in terms of moving ahead with your idea, but rather works as a framework to better understand the strengths, weaknesses, opportunities, and threats for your product or niche idea.

Niche Evaluation Criteria

Market-Based Criteria

Potential Market Size: Grade: B+

My chosen product category as a whole is a $4.5 billion industry and I will be going after a small sliver of the industry with my niche. Although small, it still represents a significant and growing market base.

I have given this a respectable grade of B+ because although it’s a small niche, it’s been consistently growing year over year.

Competition: Grade: B

This niche hasn’t been ignored. There are several well-established players competing in this space as well as hundreds, if not thousands, of smaller competitors and startups. Having competition can be both good and bad; it’s good because it helps to validate the niche but also bad because it means I will have to fight that much harder to be different, deliver more value, and win customers.

Trend, Fad or Growing Market: Grade: B+

The Wall Street Journal recently called my chosen niche, a “growth industry.”  In 2012, established companies in this space reported a 39% increase in sales of this particular niche.

Although it is a growing market I feel strongly about, I’m not sure how confident I am in its continued growth. I could see a possibility of the market peaking this year or next year, or it may continue to grow for several years to come — it’s difficult to say.

Take a look at a Google Trends report I pulled: I searched for several keywords that are associated with my chosen niche. You can see a fairly steady climb since 2010 for the major keywords.

I have given this a grade of B+ because, as I mentioned, it’s a growing market, but I’m not sure how long I can see it maintaining its continued growth pattern.

Limited Local Availability: Grade: B+

My chosen product/niche is available locally in all major cities, but aren’t always the easiest to find. When I was doing some competitive intelligence gathering here in Toronto (Canada’s largest metropolitan city), I was only able to find a handful of stores selling similar products.

I am holding back from giving this criterion a higher grade as I believe more and more stores will begin stocking similar products in the near future.

Target Customer: Grade: A

My primary target market for my chosen product/niche are young professional males. I have jotted down some attributes of my target market below. This is not supposed to be an in-depth analysis, it’s simply my thoughts from my personal knowledge and some cursory Google searches on the market.

• Age: Young adults, middle age
• Gender: Male
• Education: College or university
• Income: Medium, high
• Family Life Cycle: Single, newly married, without children or with a new child
• Lifestyle: Trendy, social
• Social Class: Middle, upper
• Opinion: Opinionated

The primary reason I gave this criterion an A is because I am essentially the target consumer for my particular product/niche. This gives me the advantage of being able to better understand the target market and market accordingly.

Product Based Criteria

Markup: Grade: C-

In my next post, I will discuss pricing in a little more detail. But the estimated initial markup (pure product cost vs. potential selling price) is around a 7-10x markup. It’s not great, but not terrible either.

Selling Price: Grade: D

Definitely not ideal. It’s been generally recommended to go for products with a selling price between $100-200. Even at a stretch, the highest price this product could fetch is around $25, likely closer to $20. The low selling price represents one of my biggest concerns with this particular product which is why I gave it a grade of D.

Limited # of Products (SKU’s): Grade: B+

My chosen product has the potential to have hundreds of variations, but I believe the brand is more valuable when there are less than a dozen variations at any given time. I generally try to avoid niches that will require dozens or hundreds of products/variations/styles as it complicates many things like minimum order quantities from manufacturers, storage and fulfillment.

Subscription: Grade: A

Although I originally sought out to do this project as a subscription-based business, I have decided to go a different route. At a later time, there is always the option to pivot to add a subscription model.

A subscription model is generally considered a very desirable business model as it’s much easier and cheaper to keep selling to the same customers than to always have to market to and find new customers.

Product Size & Weight: Grade: A

My chosen product is small and light. This is particularly important to keep shipping costs as low as possible since the potential selling price is very low. The size and weight of my chosen product will allow me to ship my product through regular mail, avoiding high parcel post costs for shipping.

Durability & Breakability: Grade: A

For the sake of argument, I’m calling this product unbreakable. I don’t foresee any major issues of returned broken units or units being broken during shipping.

Seasonality: Grade: B+

I wouldn’t call this a seasonal product as it’s bought and used all year round, however, the Christmas season brings a massive spike in sales to this particular category/industry. Check out the Google Trends graph again:

Passion/Pain Product: Grade: B+

Amongst my primary target market, this would definitely be considered a passion product.

Low Product Turnover: Grade: C

Ideally, your chosen product doesn’t require constant updating, new versions, styles, etc. For my chosen product, I will have to turn over inventory at least twice a year to keep things fresh for customers.

Consumable or Disposable: Grade: B+

The more consumable or disposable your product is the more times it will need to be replaced by the consumer. My chosen product is a consumable product in the sense that the product naturally breaks down over time with regular use. The average lifespan is approximately 1 year.

Perishability: Grade: A+

The product is non-perishable on its own, so holding inventory won’t be an issue with respect to the product perishing on shelves or in the fulfillment warehouse.

Restrictions & Regulations: Grade: A+

No known restrictions or regulations.

Video Marketing: Grade: B+

There might be some options to add value to the product through video. My business partners on this project own a well-established video agency so we have full capability and resources for some amazing video content.

Conclusion

In this particular case, I see a few red flags around pricing and margin, but overall I believe it’s a very viable business. In my next post, I will reveal what my chosen product and niche is and I will show you the validation process I used for my product and niche.