Over 30% of the e-commerce industry use dropshipping as their primary retail model and it’s something that you can adopt too. It’s low cost and low risk, but it’s also a tough one to nail in terms of margins and differentiation.
With so much e-commerce competition, you have to zero in on a dropshipping niche that will be profitable. Big stores will have the broader categories covered and you can’t hope to compete, but if you can find a good niche you can corner a piece of the e-commerce market for yourself.
Here are some great tips on finding your dropshipping niche for 2018;
Recommended reading: How to go from a local seller to an international brand and beyond
Think about how much profit you need to make per sale
The reason you are starting a dropshipping business is to primarily make money, so you need to make sure you choose a niche with products that have healthy profit margins.
The easiest way to do this is to choose a niche with a high purchase price. The average dropshipping profit margin is usually between 15-20%, so the more expensive your product is, the more money you will make. For example, if your average order is $300, you’ll be making a profit of $45-$60 gross profit per sale.
However, selling expensive items can make for a slow-moving business, so the other option is to sell a larger volume of cheaper items. If you’re selling products for $30, you’ll only be making a profit of $4.50-$6, which isn’t much, but the low-profit margin will offset itself if you are making a lot of sales.
Having a diverse product inventory (but still sticking to niche relevance) can help you diversify your revenue streams. Push the products that are most profitable to you, but also stock ones that your customers are likely to need to discourage them shopping elsewhere.
Take a close look at the competition
Once you’ve decided on some potential niches, it’s vital that you research the competition. Current trending niche products include everything from beard oil to wooden glasses, so don’t just presume that you’ve hit on previously untapped niche: make absolutely sure of it. Do a search online — if the niche has more than four or five strong dropshipping competitors, move on to something else.
If you find a niche that only has a couple of competitors, you’re on safer territory, but take a closer look and find out how established these companies are. If they have been in business for a long time, have brand credibility, and appear to have a lot of loyal and happy customers, think twice before trying to break into the niche.
It might be less work to keep looking for a new niche that you can make your own unless you can do some seriously smart marketing. If you find there aren’t many competitors, it might be because there isn’t a big enough market for the product, or you’ve found the holy grail: an untapped dropshipping niche.
Do some research on future trends
So, you’ve found a product that offers good profit margins and low competition – so far, so good. What you need to figure out next is whether your inventory will continue to sell into the future, enabling you to build a solid and sustainable business.
Of course, you haven’t got a crystal ball to help you make these predictions, but there are some methods available to help you get a fairly good idea. Google Trends is a great place to start; you can search for keywords and find out their popularity over a period of time.
Take power banks for charging mobile phones. Most of us live in fear of running out of juice, so portable power banks have increasingly become a must-have device for many people:
Smartphones and other electronic devices that rely on a battery, such as laptops and tablets, aren’t going anywhere, so you can sure that this trend is going to remain stable or increase.
However, take a product like digital cameras. Now smartphones come armed with a top quality camera, standalone digital cameras have fallen steeply in popularity and are unlikely to regain it:
The really great thing about dropshipping is that you can easily experiment with new products, even when you’re just starting out on a small budget. So, do some research, experiment, and find a dropshipping niche that’s on an upward trend.
Consider the importance of seasonality
Be brutally honest with yourself about whether your product has the potential to sell throughout the year and, if it doesn’t, whether you could make enough profit during your peak window to make it through the rest of the year on low sales.
Seasonality can be split up into three categories:
- Year round. This is the ideal: a product that there is a consistent demand for throughout the year, with spikes during the holiday season. An example of a product like this is wine.
- Semi-seasonal. Not quite as ideal, but still has plenty of potentials. Semi-seasonal products are things like outdoor equipment or sporting goods, which peak during summer, drop off during the rest of the year, but won’t completely dry up.
- Highly seasonal. These are probably best avoided. Highly seasonal products will only sell during a very particular time of year, for example, fireworks or Halloween costumes. They are good for a secondary business, but not necessarily for your main method of making money.
Will your customers make repeat purchases?
If you can find a product that you can sell over and over again to the same customer, you’ve got it made.
Take subscription boxes: visits to subscription company websites have grown by over 800% since 2014, giving them an enormous amount of repeat customers. For an e-commerce business, a high CLV (customer lifetime value) is a great profit-making strategy.
If you sell something that is perishable or consumable, you have a very powerful and potentially profitable business idea. Your profit per product is likely to be small, but because you can sell so many, and keep selling them repeatedly, these small margins will soon add up.
Some good ideas for potential repeat items are food and drink, cosmetics, cleaning products, and arts and crafts products. If you can find a niche that allows you to sell expensive repeat items – such as fine wine or environmentally friendly toiletries, you’ll be in an even better position.
There’s no such thing as the perfect product, but through a process of weighing up and elimination, you’ll be able to find a niche that is just waiting to be made profitable. Once you have found your niche, market it well, provide great customer service, and you’ll easily make dropshipping work for you in 2018.