Estimating Niche Profitability in 12 Minutes

You plan to create new affiliate, AdSense or e-commerce web site. How to find if it will be profitable, or not? How to estimate your future earnings? How to find the most profitable niches? Here is a quick and easy method based on keyword research, real experience and common sense.

Sample research is based on the real data - I was running web template business in 2003. All numbers are real, I proved the efficacy of this method number of times. The method itself can't be used to write a business plan or take business decisions - it's just an estimation that helps you to decide if any particular niche is worth its further research, or not.

Warning: manual research can take much longer than 12 minutes. I used free tool from http://www.thedowser.com/ to automate it.

Let's say you plan to open web template store (sell web templates for $39). You want to know how much you will be able to earn.

1. Open Overture Keyword Selector Tool (http://inventory.overture.com/d/searchinventory/suggestion/), enter "web template". You will find that people searched for web templates 41,113 times last month. In fact people used not only "web template" keyword, but "html template", "web site template", "web site layout", etc.

2. Find other popular keywords people use to search for web templates. Open Google AdWords Keyword Tool (https://adwords.google.com/select/main?cmd=KeywordSandbox), enter "web template". You will get a long list of keywords. Leave good keywords only, remove misspellings, company names and other junk keywords.

3. Discover keyword popularity for all keywords in your list using Overture Keyword Selector.

4. Sum up keyword popularity numbers - you will get about 250,000 searches per month. This number is for searches in Overture network only. Number of Google searches is about 5 times higher, therefore you get about 1,250,000 searches per month. It's 1,250,000/30 = 41,600 searches per day.

5. Calculate how much traffic you will get from AdWords. If you are AdWords master, your CTR will be about 10%. If you are a newbie, your CTR will be close to 1%. Let's say you are not a guru, therefore you will get 41,600*1% = 416 clicks per day.

6. Calculate how much sales you will get from AdWords. If your templates and sales copy are great, you will get 1% conversion rate on average. It means that every 100th visitor of your web site will actually buy your templates. You need 100 clicks to get a single sale, therefore you will get 416/100 = 4 sales per day on average.

7. Calculate how much profit you will get from AdWords. Your templates cost $39, therefore you will get $156,00 in sales per day on average. You pay $0.10 per click on average, therefore you will spend 416*0.10 = $41,60 per day on average. Your profit will be $115 per day, or $3,450 per month.

8. Calculate how much traffic you will get from natural listings. Imagine that you are SEO guru and you optimised your web site to be on the third position in Google search results for 10% of keywords you found on step 2. CTR of this position is about 70%, therefore you will get 2,912 clicks per day.

9. Calculate how much sales you will get from natural listings. Search engine traffic is a bit worse than AdWords traffic, therefore your average conversion rate will be 3-5 times lower. This way you need 300-500 clicks to get a single sale, therefore you will get 2,912/300 = 10 sales per day.

10. Calculate how much profit you will get from natural listings. $39*10 = $390 per day, or $11,700 per month.

11. Calculate how much profit you will get total. Your AdWords profit estimation is $3,450 per month, natural listings will earn you $11,700 per month. You will end with $15,150 per month.

12. Be realistic. Our life sometimes differs from our plans, therefore you can easily reduce your estimation by 50%. $5,850 per month is what you can expect to get.

Max Pastukhov
Software Developer
http://www.pastukhov.com