So you have an internet business idea.
You are excited about it, and even think about it in the shower. You are full of ideas about how to put it into action. Daydreaming daily of your future riches, you feel unstoppable wonder how the world has survived thus far without your entrepreneurial contributions.
There’s just one thing. One question that badly needs to be answered.
Does anyone want what you’re trying to sell?
This question is best answered before you go through months of product development. While it is easy to fall in love with your own idea (and it’s the right mindset to be in for the long haul), you almost also remember to be honest with yourself about exactly who your target market is and how badly they need your product or service.
To avoid wasting your time building (and then trying to monetize) something that people did not want or need in the first place, try this simple online market sizing exercise.
It’s easy, and only takes 30 minutes or so per idea:
- Check search volume statistics on Google to get a sense for market size
- Assess competitors: see who is advertising already in the same niche
- Look for existing communities organized around this niche
Let’s assume my idea is to set up a two-sided marketplace for English tutors.
I sense that this could be a huge opportunity – the British Council estimates that ~1 billion people are currently learning English worldwide. I also see a lot of new grads becoming English teachers abroad, often with no formal experience in teaching anything (to anyone). If everyone wants to learn English, then surely there has be a way to filter out the good tutors from the mediocre ones.
At this point I’m itching to brainstorm some company names, register the domains and get cracking on the site development. Will I use Rails or Django?! There’s not a minute to lose – it’s only a matter of time before someone else figures it out and gets it out there!
Well, just a second. It does not matter how fancy the website looks or how much effort I will put into its creation… if no one will actually pay for it.
How viable is this idea? What is the existing market like?
Let’s answer these questions using the framework outlined above:
1.) Get a feel for market size with Google’s Keyword Tool
As the world’s #1 search engine by usage and market share, Google processes a few hundred million search queries per day. Almost everyone who uses the web knows about Google, but only a handful (in comparison) know about the amazing research tools the search giant makes available to everyone for free.
The first thing I do is bring up the Google AdWords Keyword Tool and see how many people are already searching for a similar service. Selecting just “Phrase” for the Match Type and isolating results for United States (in all languages), I enter “find an english tutor” and get the following:
Wait a second. 1 billion people allegedly learning English and only 36 global monthly searches for phrases containing “find an english tutor”?
Well, that’s OK. The tool offers information for all variations of the original search. Perhaps that combination of words is just not very popular. After all, there are 12,100 monthly searches for “english tutors” worldwide, with ~45% (5,400) from the United States. And an additional 40,500 monthly searches for “english tutor.” Clearly, there is some need here.
Already, I am discovering something about my target market. There’s a significant chunk of searches related to online tutoring, and even some that expect to find one for free! Scrolling down the list of ideas, it is also clear that many searches are from people looking for information on how to become english tutors.
Competition is rated “High” for most of the relevant keywords, which means people are bidding competitively on these keywords when they advertise on Google. In fact, the estimated CPC (cost per click) for “english tutor” is a whopping $4.65. This means that advertisers are willing to pay almost five dollars just for a single click (essentially, one visit to their URL).
Assuming that 2% of visitors to my (hypothetic) english tutoring site end up becoming customers, I would need to drive about (100 * 0.02) 50 visitors to the site for each successful conversion. If I end up paying 4$ per click on Google AdWords, I would need to pay (50 * 4) 200 dollars per customer.
That’s a high cost of customer acquisition (CAC) for someone who may or may not actually book a tutoring session!
At this point, I’m already thinking of other ways to drive leads to my site. The results from the keyword tool may be intimidating, but at least they confirm that there is a target market out there. And advertisers are paying a lot for their attention, which means that money is exchanging hands.
Is this a typical case?
To get a sense of how these metrics can fluctuate across niches, check out the comparative volumes and CPC prices for “lose belly fat”:
And for “buy generators”:
Even though there are just 170 searches a month from the United States for “buy generators,” this could be a lucrative opportunity given how much each generator sale is worth. To top it off, clicks are being bought for just ~$1.5 (compare that to the price for “english tutor” clicks).
It’s all about finding the right balance of need and competition.
2.) Size up the competition with search results
I have confirmed that there is a need for english tutors – now for some quick competitive analysis.
We can do this by simply searching for the same phrase (“find an english tutor”) on Google:
There are about 36,600 results – a healthy amount of existing websites closely related to the keyword. Aside: there were ~25,000,000 results for the same keyword without quotes (broad match). It is helpful to use “phrase” match for keyword research to drill down on only the sites relevant to the niche.
I can also see that there are plenty of advertisers bidding for that keyword – the top 3 sponsored results (faintly highlighted in yellow) are all relevant and targeted. The paid results continue on the right side of the organic (non-paid) search results. All 11 first page search ad slots are taken.
This is a competitive niche indeed. I can also see that there are already solutions in place that aggregate tutor listings – wyzant.com and care.com/tutors seem to be doing exactly what I had in mind.
Is all hope lost?
Not just yet. The keyword volume and search results have reminded me of something – there is actually a significant need for english tutors abroad. All those global searches are coming from somewhere. I pop over to Google Trends to identify the regional interest in search volume for “english tutor”:
Well, all of this makes sense. Many countries in Asia put a high value on learning English, especially for career/business purposes. I see that the term is especially popular in the Philippines and in Hong Kong.
But what about the other cities in China? Where is the Chinese consumer, rising onto the world stage with energy (and a lot of cash)? Well, that’s where Google won’t cut it. China uses Baidu, and that’s where all that search volume would be.
I could now decide to target the Asian markets, starting with the Philippines. After all, there are probably opportunities abound in less technologically mature markets.
So how can I confirm that there is significant interest in the niche?
It’s time to look for online communities.
3.) Look for existing online communities built around the niche
There are a few social websites that capture a disproportionate share of people’s time and attention. The major ones are social networks, link sharing sites and forums. These sites can be invaluable for quick market research, as people self-identify their interests and organize themselves into interest-based communities.
A fast way to gauge the size of a given niche on a community site is by pretending you’re an advertiser, and would like to reach that niche. I like getting instant data on the size of the targeting pool. This means I stick to sites with self-serve advertising built in – my favorites are Facebook, LinkedIn, and Reddit.
First, I go the Facebook self-serve Adverts tool to get an estimate for how many people are currently learning (or interested in studying) English:
As soon as you change any of the targeting parameters, Facebook instantly updates the audience estimates. Notice the differences between geo-targeting the U.S. and the top countries (from the Google Trends above):
The suggested bids are Facebook’s estimate for how much it will cost you (per click) to advertise to the selected audience. I can already see that it would be at least three times cheaper to reach the audience in Asia.
Of course, there are tradeoffs and considerations. A major issue with this exercise is that the audience identified by Facebook may not be the actual buying demographic. That is, if the decision to hire a tutor is mostly made by the student’s parents.
In any case, the Facebook ad tool is a great way to get an estimate for the size of any interest-based niche.
I also like to check LinkedIn’s ad tool to get a sense of how many professionals identify themselves as English tutors or teachers:
With over 200 million users, LinkedIn is great for targeting professionals. One caveat is that paid LinkedIn traffic is very expensive (minimum is $2/click), and often will only make sense for large B2B sales and for corporate recruiting.
Finally, I check for communities centered around learning/teaching English on one of the most active community sites in the world – Reddit.
Reddit is great for quickly finding communities centered around interests. For example, the TEFL subreddit (sub-section) of the site has 4000 subscribers. Simply browsing around the typical conversations and posts on a relevant subreddit offers insights into the real issues and pain points of a niche.
You could even create an account and post to certain categories of Reddit, asking for tips and suggestions for your startup. Don’t be afraid of revealing your idea to the world. I do this every time I need quick feedback or a sanity check about something. Users on Reddit are creative and, for the most part, eager to help out anyone starting something.
Now I’ve sized up the market, researched some competitors and have seen first-hand what potential future customers talk about.
All this can be done in just half an hour, and is an excellent habit to have – especially for anyone with no shortage of new ideas.
Sizing up a market helps you focus and identify the potential underserved gold mines out there.
There are countless opportunities to make an impact, with new industries and niches cropping up every day.
Less speculation, more action
Note: While all this can be done without even leaving your house (or couch!), there is nothing more valuable than talking to real people about your idea. Even better, to talk to enough people that you get a list of confirmed pre-orders. Money talks.