5 Real Market Sizing Questions For Your Online Store

5 real market sizing questions for your online store

I’m a big fan of Shark Tank.  I’m a sucker for entrepreneurial stories and ideas.  I love the fast pace of the show and I love how the sharks tell it like it is.  The show is a perfect example of what we should be exposing children to.  It promotes building companies and working hard.  Theres a funny thing though that I have noticed on the show.  I’m not sure if this is a problem with entrepreneurs or whether the producers prepare them for this.  Just about every single pitch starts by answering market sizing questions.  The problem is that nobody really asked.

Let me explain.  These answers come in many different forms but you will see it show after show.  The entrepreneur gives there pitch and then starts into their specific market size.  There are 10 million people with two arms.  Of those 10 million people 99% of them wear shirts.  If 10% of them wear my shirt, I’ll be a millionaire.  I cringe when I hear this every time.  Its useless information.  You have a panel of extremely talented sharks.  They pretty much know the market size of most industries.  Yet you see it over and over again.  The entrepreneur stands up there spewing facts.  They start answering market sizing questions that haven’t been asked of them.

Besides answering these market sizing questions, the assumptions are always ridiculous.  So because people have two arms and wear shirts, you are going to make millions?  It preposterous.  I like to refer to this game as the calculator game.  If you are an entrepreneur you have played this game.  You may not know it by this name but you have played.

Market Sizing Questions Calculator Game

oooh. I’m going to make so much money.

What I’m referring to extrapolating nonsense numbers to justify that you are going to make a fortune.   If there are 5000 people looking for yellow sombreros every day and I can just take 10% of that market share that’s 500 people. If 20% of them buy a yellow sombrero, (keys punching in the calculator), I’m going to make $5000 a day.  At $5000 a day, I’m going to make $1,825,000 a year.  This my friends is the calculator game.  Its incredibly fun and never accurate.

Stop playing the calculator game and face reality.  Here are 5 real market sizing questions.  These are the questions that I think you should be asking yourself about your online store before you start it.

5 Market Sizing Questions

1. How many people are searching for your specific product or service monthly?

One of the first things you should be researching when deciding on a niche for your online store is traffic. You may think that everyone is looking for red wagons but maybe they’re not.   I don’t care that there are ten million people in the world who like red wagons.  If they aren’t looking for red wagons online then how are you going to sell to them.  The point of starting an online store is to sell to people online.  You’re not going door to door with these. What if you could tell exactly how many people were searching for bean bags on Google?  The good news is that you can.  Google offers one of the most powerful tools to help you answer your market sizing questions.  The tool is called the keyword planner.

Googles keyword planner is the first step in answering your real market sizing questions.  You can find this free tool by signing up for a Google AdWords free account here.  Once an account has been created you are going to navigate to the Tools tab and select Keyword Planner.

Market Sizing Questions Tool

The first tool to help answer the real market sizing questions for your online store.

Once in the keyword planner you can type in any term you want.  This will show you the exact number of searches each month both locally and globally for your keyword.  Even better, you will be able to see similar terms that you may not have thought about.  Maybe its not red wagons that people want but actually blue wagons that are all the rage.  Lets take a look.

Market Sizing Questions Numbers

The numbers for our for first real market sizing question looks promising.

Well this looks promising.  If you combine all the combinations of red wagons, there are about 15k searches a month.  This is good.  This means there are people looking for it.  There is clearly an interest and a positive result for the first of our market sizing questions.

2. Can you reach these people or are they unattainable?

Now that we have confirmed that people are searching for red wagons, what next?  We need to know if we can reach these people?  The first thing that you need to do is go to Google.com and search for red wagons.  Below are the search results for red wagons.

market sizing questions competition

The competition for your market

Now that you have the results, you need to eye your potential competition.  At first glance this looks like stiff competition.  What I want you to focus on is the left part that are organic results.  These are results that are being shown for free and not paid ads like the smaller results on the right.  What we are trying to determine is whether you can compete in this space.  When we look at the results we see, RadioFlyer.com (the original creator of the red wagon), Amazon, Walmart, Toy R Us and Redwagons.com.

This is not going to be an easy battle. My first concern is that you are competing with some of the largest retailers online for relevance.  Its not to say that it can’t be done.  The site of interest in the group is Redwagons.com.  They have done it and are competing with the big boys.  They have muscled their way in to the second free result behind the original creator of the red wagon.  My guess is that they are doing pretty well for themselves.  People are always looking for an alternative to big box options and this works for them.

The question for you is can you compete as well.  All the big boys are here and there is a smaller guy who has pushed his way in.  Can you differentiate yourself from him?  Are you going to have more selection than him? Do you have anything that is a competitive advantage.  He has quite a head start here and a domain name that perfectly matches the search term.  Read our post about selecting a good domain name.  I would be concerned with this competition.  It’s not going to be an easy fight and maybe one that I would reconsider.  This answer to the second of our market sizing questions is maybe.

3. Are these people searching with an intent to buy?

Our third of our market sizing questions focuses on intent.  One of the things that Googles keyword planner does not show us is intent.  Are people actually looking to buy red wagons when they are searching for it.  What if people are just doing research on what a red wagon is?  Maybe they have no idea what a red wagon is an they are researching it.  You want to try and determine peoples search intentions.

The good news in answering this question is that Google again has done most of the work already.  If you look back to the search results page, you will notice a couple of things.  A good first indicator is that Google has decided to show their Google Shopping box at the top of the page.

Market Sizing Questions Intent

Google Shopping Results

Google doesn’t show their shopping results box unless they believe its relevant to the search.  This means that they have determined that there is buying intent when people are searching this keyword.

Besides the Google shopping box, you will see that all the results on the first page are Ecommerce results.  You don’t see any informational sites like wikipedia or other blogs.  This is good.  This means that people searching for Red Wagons are looking to buy.

Google uses hundreds of factors when showing search results.  One of these factors is called bounce rate.  Bounce rate refers to the percentage of people who leave a website after landing on it.  Google is able to track if someone clicks on a link and then leaves the site quickly to go back to the search results.  If people are bouncing from the page over and over, Google sees this.  They assume the page doesn’t have what they are looking for.

Because the first page is full of Ecommerce results, this means that they have weeded out what people aren’t looking for.  What remains is Ecommerce sites.  This means there is shopping intent.  Furthermore this means the answer to the third of our market sizing questions is a resounding yes.

4. Is anyone currently tailoring to this market and is there enough to go around?

The fourth of our market sizing questions focuses on differentiating your online store.  When we look at the search results we see large online stores like Walmart and Toy R Us.  These stores are tough to compete with but are they tailoring to the market?  Are they offering something different?  People like variety and people like specialization.

With this particular search term, there appears to be someone that is tailioring their message to the market.  RedWagons.com appears to be specialized.  They offer a personalized feel and are doing a nice job of focusing in on the niche.  This doesn’t mean that you couldn’t compete.

Market Sizing Questions Niche

He has been at this for some time. Since 1998 is almost 20 years.

I could argue that his product descriptions are weak.  His photography of the products is limited and there are no videos.  There is room to compete to some extent but he has concentrated on the niche.  It’s not going to be as easy to just squeeze yourself in here.  You are going to have to go toe to toe with Mr RedWagons.com.

The market is large though and people are buying lots of red wagons.  There is enough to go around, but there appear to be a lot of hands out.  So my answer to the fourth of our market sizing questions is no.  There is someone tailoring to this market already and I’m not sure there is enough space for you to squeeze in here as well.

5. Does this product or service sell well elsewhere?

The last of our market sizing questions is how well the product sells.  We know people are searching for red wagons and we know they have the intent of buying.   What we don’t know though is how many red wagons are actually selling each month.

The first thing we are going to do is head over to Amazon.com.  We are going to search for Red Wagon.  When we enter the term, the first thing we see is a huge selection.

Market Sizing Questions Sales

With a section like this, you can be sure they are selling a lot of red wagons.  Lets dig further.  Lets click on the first result that is at the top.  This is probably their best selling red wagon.  You will note the one with the canopy below it says #1 Best Seller but thats specifically in the Pull Along Wagons section.  Amazon is showing the first result for a reason.  It sells.

Once we click on the individual wagon at the top we are going to scroll down the page looking for the product details.  From here you are going to look at the Amazon Best Sellers Rank.  This red wagon is number 1,516 of all Toys & Games.  That is enormous.  That means of all the toys and games on Amazon this product is in the top 200o.  Furthermore its number 3 in Pull Along Wagons and 21 in Riding Toys.

Product Rank on Amazon

This Red Wagon is moving online

Now these numbers are impressive but remember that we just selected one type.  There was a page full of red wagons.  Clearly, Amazon is selling a lot of red wagons online.

The next step in validating sales is to go over to ebay.  You are going to click on the Advanced link at the top of the page to the right of the search box.  This will take you to another page.  From here you are going to enter the search term “Red Wagon.”  Before searching you will make sure you selected completed listings.  Once selected you will click on the search button to get the results.

market sizing questions sales volumes

Searching completed auctions on ebay for sales volumes

The results will show up but will include many things that aren’t relevant.  We will need to further refine the data to make sure we are looking at the items we are trying to check.  As you can see in the results below, our search for red wagon included all kinds of irrelevant data.  We want to make sure we now select the specific category which would include red wagon toys.

Market research questions search results

Once you click on the category on the left for Toys & Hobbies, the results are showing relevant wagon sales.  Now its important to note that you are looking at completed sales.  This means these auctions have ended on ebay.  This allows you to look at two factors.  The first thing you should observe is the selling price of these items.  This will give you a good idea of the price that they are selling on ebay for.  You should pay close attention to the condition of the wagons.  Make sure you aren’t comparing sales prices to used or antique red wagons.

The next thing you are going to pay attention to is the completed dated next to the results.  As you scroll down through the results you will be able to see how many have sold each day.  Looking at our results for red wagons it looks like 4 to 5 red wagons are selling a day on ebay.  Theres something interesting to note here.  Despite the fact that ebay was not showing on the first page of the search results, they are still selling four or five wagons a day.

Red Wagon Sales Ebay

So based on the ebay sales as well as the Amazon data, its safe to see that red wagons are selling online daily.  The answer to the fifth of our real market sizing questions is a clear yes.  The product is selling well elsewhere online.

Market Sizing Questions Review

After reviewing this specific red wagon example, there is clearly a market.  People are looking for this product in large quantities.  Not only are they looking for it, they are purchasing them online.  The potential problem with this niche is the competition.  The big boys are all over this particular product.  Additionally someone is already catering to the niche with an alternative shopping experience.  They have a smaller, toy store type feel and probably are doing well for themselves.

When looking at these factors, I would say you should pick something else.  The market is large and the demand is there.  The competition is too stiff and you are better suited looking for something else.  When you ask yourself these market sizing questions, you need to look at it as a whole.  You are looking for a perfect score.

So the next time you talk to another person starting an online store, listen carefully.  If they start telling you about their market size, make sure they’re not just playing the calculator game.

Update

red wagon retargeting

The retargeted red wagon ad that I was presented with from Amazon

I can’t help but add this tidbit to the post.  For a week after I finished writing this post I was getting re-targeted aggressively by these online stores.  They were hot to sell me a red wagon.  They must be selling.  This is another factor to further reiterate, maybe another niche would be a better selection.

 

 

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