How to find your niche and exploit it for profits

by: Skip McGrath

In the early days of eBay, the site was predominately used to sell collectibles including sports cards, comics, toys and beanie babies. As eBay expanded more expensive collectibles and antiques began to be sold. Within a very short time consumer goods started showing up. At first most of these were used or overstock items and ASOTV items. During the first two years almost every eBay seller was essentially working in a narrow product area or a niche.

What denotes a niche market? A category is not a niche. For example, if you sell all kinds of toys, you are a toy vendor. If, however, you only sell action figures, then that is a niche. It used to be if you sold only digital cameras that would be considered a niche, but today the digital camera market on eBay is so large that you would have to sell only one brand of cameras, such as Nikon, to be considered a niche in the camera market.

Benefits of Niche Marketing

There are two primary benefits of niche marketing:

  • Sourcing
  • Selling

Let’s look at sourcing first. The more time you spend in a market or product category you will learn all the sources of supply for that market. The more you know about a product the better you will be able to buy it. When I was in the antique business, I used to sell a broad line of 18 th and 19 th century American antiques. However, within that, I used to specialize in the niche of early American woodworking tools. After a couple of years I developed an expertise and a feelĀ for the products. I could recognize makers, spot reproductions and I knew what tools were in high demand from collectors that would command high prices. Once I developed the expertise, my profits shot though the roof.

Remember our adage on pricing: You make money when you buy not when you sell. Well I became a very savvy buyer –well able to spot bargains. Also, as word spread that I specialized in old woodworking tools, people with things to sell started seeking me out. At one point I was the largest old tool dealer in our state and I routinely bought tools that I could sell at markups of 200% to 300%.

When you decide to specialize in a niche of any kind the first thing you want to do is become expert in that area. Learn and read everything you can about it. Study the history of the product. Get to know the companies that manufacturer the product and their distributors. The more you know the better you will be able to buy.

The other benefit of niche marketing is selling. The very fact that you are selling in a narrow market segment means you will have less competition and therefore you can command higher margins. The other factor is that people prefer to buy from someone who is knowledgeable. Terry Gibbs is one of the largest and most well-known sellers of antique toys on eBay. People seek him out for his knowledge and his integrity. Everyone knows that when Terry describes a toy in one of his auctions, the description is accurate, he doesn’t sell fakes or reproductions and he will stand behind everything he sells.

I get lots of questions from eBay buyers. If you are selling something and you get a question, as an expert or a specialist you will be able to answer the question with authority and detail that will give the bidder instant confidence and more than likely result in a bid.

The other selling advantage of niche marketing is the ability to accurately describe products in your auction descriptions. The added knowledge you have from being a specialist allows you to add more data and ‘insider’ information that someone else can not. A potential bidder looking at your auction will have more confidence and perhaps bid more liberally than otherwise.

Finding The Right Niche

Finding your niche is a matter of research and brainstorming. You may already have a hobby, interest or life and work experience in an area that would make a good sales niche on eBay. This is where you should start. Work is always more fun and usually more profitable if you are doing something you like. If, for example, you enjoy computers, this is a great area to start your search for a niche. So many people, and even large companies, sell computers on eBay. You would need a large amount of capital to compete in this area. But, the computer field has many sub-categories and there are many niches within these sub-categories. Monitors are a large sub-category, but flat screen monitors could constitute a niche. It takes a lot less capital to buy and build an inventory of flat screen monitors than it does of complete computer systems. You could buy monitors in lots of 100 for what 20 complete computers would cost.

Another area might be all the little accessories such as network hubs, cables and connectors, computer speaker systems and so on.

Perhaps you like travel – specifically you like to travel off the beaten path. Selling in the broad travel category could be daunting, but maybe you could work with a local travel agent and package adventure tours or specialty tours that you could sell on eBay.

Movie DVDs are a very large category crowded with hundreds of sellers. Yet there are several players within the Movie DVD category that have found niches such as old movies, How-To DVDs (I.E. Learn to play golf or Trick Billiard shots, etc., educational DVDs, Documentaries, and so on.

The same thing goes for Music CDs and DVDs. Entering the broad music category could be difficult and take a large amount of capital to compete, but one could carve out a nice niche in jazz or folk music or alternative rock.

Almost any broad category on eBay has sub-categories, some of which are small enough to qualify as a niche, and others in which you can find a niche. The key is that the niche you find be active enough to generate large sales and not be crowded by hundreds of other sellers.

If you find a niche that is already dominated by one large seller, don’t let that stop you if you think you have the ability to compete. A little competition is good for everyone, you, your competitor and the customer. Anyone can do something better. By studying your competitor’s auctions and policies, perhaps you can find a way to compete that doesn’t require one of you to fail for the other to succeed.

Once again, start your search in areas that interest you. When you have found several areas that interest you, then you need to start your research. First use the eBay keywords report to see if people are searching the terms or keywords for the items you want to sell. Next use the eBay search engine and the Andale Research tool to determine the viability of the market. I would also use Hammertap’s Deep Analysis program to further drill down into the categories you are interested in.

You may find a very profitable niche, but it is just not deep enough to sustain a large eBay business. It’s no good to totally own a niche if your monthly gross merchandise sales (GMS) is only $2000. You want to look for a niche(s) that will support a minimum of $5,000 a month in GMS. $10,000 to $25,000 is even better.

Sometimes you can combine related niches. Going back to the computer example, you could sell monitors and keyboards. If you go into the automotive area you could sell both performance exhaust systems and air-intake systems. These are two different products from different ends of the vehicle, but performance enthusiasts often buy these two components to improve the horsepower of their cars.

When you find a potential niche(s), ask your self these questions before deciding to focus on it or before ordering inventory to sell:

  • Is this niche large enough in terms of potential GMS to run a sustainable business?
  • Do you have or can you obtain the knowledge and expertise to work this niche?
  • Does the product area interest you?
  • Is the competitive situation in this niche manageable?
  • Do you have a reliable and cost-effective source of supply for the goods to supply your niche market?
  • Are the margins available to your for these products large enough to run a sustainable business
  • Can the niche be expanded or are there complimentary products you can cross-sell and up-sell?

Remember you do not have to totally ‘own’ your niche to be successful, but you will need to be one of the handful of major players to have consistent, predictable and long-term success.

Skip McGrath