How to Research an Ecommerce Business Idea

Ecommerce is well known as being a low overhead route to market but that doesn’t mean that you can be complacent about your business model.

I’m going to give you some ways in which you can test out your ecommerce business idea before you get in too deep.

A common way to set up an ecommerce site is to start with your business idea, talk to a design or web agency who will provide you with a project proposal to design and build your website. Once built and paid for you then begin to wrestle with ways to generate traffic to your new website, given that the site is new and has few (if any) inbound links you’ll soon be setting up your Google AdWords account and paying for visitors on a Pay Per Click (PPC) basis.

Given that you’ve just paid to design and build the site and are now paying for your traffic, this isn’t a good time to find out that there simply isn’t the demand you thought there would be for your products, or that given the cost of traffic and overheads you can’t make a profit on what you sell.

Let’s look at some ways of avoiding a situation like this. By taking a range of steps using existing online tools and services you can get some real world research to find out a bit more about your potential market, and then with a minimal investment test how receptive that market is to your proposed products and price point.

Step 1. Where is the search?

Your first step should be to write down a list of the phrases you believe potential customers would use to find your products, once you have these phrases use some online keyword research tools to find out how much traffic there is for each term, as well as the level of competition each phrase has.

You need to bear in mind that the figures for search volume will vary dependent upon where you go for the figures and the marketplace you are looking at. Google’s keyword research tool is geared towards AdWords and by default will give you figures based upon their ‘Broadmatch’ setting which includes similar searches, and as such by default gives unusually high traffic figures.

I prefer to use Yahoo! or Wordtracker for this kind of information as the figures are more realistic, if you do use Google’s keyword tool then make sure you enclose the search term in speech marks as this will match the phrase directly.

Step 2. How many competitors are there?

You might find that you have a healthy search volume, but then if this is an already well mined niche with many existing competitors you will be at an immediate disadvantage as your competitors will be trading with an established website and you will be starting from scratch.

There are 2 pieces of information we will need for each phrase to give us a complete picture of the situation. One is the number of direct competitors who are already in Google’s index for the phrases we are interested in and the next is a keywords effectiveness index (KEI) which combines search volume with competitors volume to derive an index figure which highlights the potential of each phrase in our list.

Step 3. Get to grips with the competition

Not all search phrases are created equal as some will have more sites competing for them than others.

Imagine you have a search phrase in your list with 100 searches per month, are you competing with 10 other sites for that traffic or 10,000,000 other sites? By using an effectiveness index you will see at a glance where there are gaps in the competition and if you decide to go ahead with your new ecommerce site you can use this information to help optimise your website for these phrases.

In order to find the number of competing sites for a search phrase, do a search in Google with the search phrase in speech marks and take a look at the “Results 1 to 10 of about xxx” the xxx figure is the amount of websites that are in Google’s index for that exact phrase.

The KEI equation is searches x searches / competition = effectiveness for example 100 x 100 / 10 = 1000 KEI which is a great opportunity as ultimately you have 100 searches with only 10 direct competitors for that phrase. Whereas 100 x 100 / 10,000,000 = 0.001 KEI which is dreadful!

If you know a bit about search engine optimisation you will recognise these techniques as they are often used in the keyphrase selection process when optimising an existing site, but given that this research can easily be completed before any website has been built it makes sense to employ these techniques to get a feel for the nature of the opportunity presented online for your particular business idea at the outset.

Step 4. Test your business idea with PPC

This technique requires more of an investment but rewards you with some more tangible results.

You will need to set up a few web pages for your key products with a click to purchase button that sends you an email. Tell your prospective customers that you are out of stock and ask if they would like to be informed when the product is back in.

Now set up a PPC account with Google and spend a couple of hundred pounds/dollars on getting traffic to the page, you’ll soon get a feel for the cost of traffic and the kind of conversion rate you’d be starting with.

Step 5. Prototype your ecommerce website with SaaS

These days there are many low overhead software as a service (SaaS) web applications for ecommerce that are ready to use with nothing more than an online sign-up.
This kind of service utilises existing functionality that runs on a webserver and has no design/build overhead so you can simply start trading and pay as you go for the service.

Pick an ecommerce service provider that you like the look of, upload your products and set it up with a low cost payment system such as PayPal and off you go.

If you did the phrase research you’ll also have a good starting point to set up an AdWords account and a strong lead on the phrases you should include in you site content to attract search traffic.

Essentially in this last step we are setting up a fully functioning ecommerce website, however as we are only paying for the service monthly and there is no design/build overhead we can quickly get to grips with the nature of the business and see if it has legs or not without sacrificing all of our capital, which if things go well we are then in a position to spend on improving an ecommerce site we know works rather than simply gambling on a hunch.

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