Before starting an online store, it's important to find out if there is enough demand for your product. I would highly recommend NOT ordering $10,000 worth of doggy snowsuits from a Chinese manufacturer without first knowing if people are going to want to buy them! Spending money on R&D or inventory without first determining demand is a great way to flush all your startup capital down the toilet.
No matter how great you think your idea is, make sure you know some solid facts about the demand for your product before investing a lot of time and money in your idea.
I'm going to explain several different ways to test market demand, but it's probably best to use some combination of these.
1. Observe search trends related to your product
This is a super-easy way to get a preliminary idea of demand in under 5 minutes, and for free. Go to Google's Keyword Tool and do a search for keywords related to your product. Google will then tell you how many monthly searches are performed for various related keywords. These days everyone uses search engines to find what they need, so if no one is searching for what you want to sell, that's not a good sign. On the other hand, if thousands of searches are being done for keywords closely related to your product, you might want to do some more research and take the next step!
UPDATE: This video by Andrew Youderian from eCommerceFuel.com does a fantastic job of walking you through using Adwords to do keyword research.
Another cool tool you can use is Google Trends. Do a search for a product idea and then view the search volume for that keyword throughout the past few years.
As an example, I did a search for "iPhone cases." Check out the history of that search term below: Any guesses as to what the spikes in search volume were? I did a quick Wikipedia read on the iPhone's history, and it just so happens that the spikes in search volume for "iPhone cases" coincide with either A) the release of a new iPhone model or B) the availability of the iPhone on new mobile carriers. Based on that information and the general trend pictured above, it's pretty obvious that demand for iPhone cases will spike when the next iPhone comes out or becomes available on a new carrier. That's no surprise, but you can use Google Trends to predict demand for other products and search terms as well.
2. Perform a test Google Adwords campaign
In his article "How I test the market validity of a product," Leevi Romanik tells a story of how he tested the demand for an ebook he was thinking about writing. Before spending countless hours writing a book before even knowing if it would sell, he created a sales page for the book including a "buy" button. He then used Google Adwords to run PPC ads and send traffic to his sales page. Rather than collecting payments, however, when someone tried to buy the book it simply collected their email address and then said that servers were down and the book was currently unavailable. This allowed Leevi to get an idea of the percentage of people that visited his sales page who would likely purchase the book if he were actually selling it.
Note: I don't recommend collecting people's email addresses without honestly telling them why you are asking for it. Rather than having users think they are actually placing an order, it's probably a better idea to say something like, "This product is not yet for sale. Enter your email address to be notified as soon as it's available!"
How much should you spend on these ads?
I'd recommend getting a few hundred visitors to your site to test conversion rates. Depending on what keywords you are using, this could cost you up to $500 or so. If you are a lean startup like me, this may seem like a big investment, and you're right--this isn't the best approach for every situation. However, time is money, and I'd rather spend $500 to learn that a product idea isn't going to work than waste months developing the product only to find out that no one wants it. Even if you find that your first idea isn't going to get much traction, the money hasn't been wasted--it's simply enabled you to move on to the next idea that might be successful!
Each idea that you can cross off your list as unlikely to be successful moves you one step closer to a great idea that will be successful.
Before you jump into spending money on Google Adwords, I highly recommend that you do some research and make sure you know how to set up a PPC campaign effectively. It's easy to throw a lot of money away with Adwords without gathering much useful data. RedFly Marketing has created some great tutorials on the basics of Adwords, so I'd recommend reading the tutorials and watching the videos before spending any money on Adwords.
3. Analyze your competition
This one is free and easy. Figure out what other companies are selling the same/a similar product, and see how these companies are doing. This is as simple as doing a Google search for your product (or a similar/generic product), and finding out if other companies are successfully selling the same thing. Here are a few specific criteria to look at:
- Do your competitors have a strong social media following? Check out your competitors' Facebook and Twitter pages, among others. If they have many followers, and especially if they are actively engaged (by liking, commenting, sharing your competitor's posts), this is a good sign that a market for your product exists!
- Can you find many reviews of your competitors' products online? Finding lots of reviews of a similar product to yours is a good sign, since people are obviously buying it. Even better, if you find reviews by customers who aren't happy with the service they received or the quality of the product, this could be a need that you can fill by providing better service and quality!
- How long have your competitors been in business? If you don't know their age, go to WHOis.net and enter the URL of a competitor. Look at the Creation Date, and you will see how long the website has been around. If it's been around for awhile, this probably means that the company is making sales to stay in business. Note: This isn't always accurate, because this tool just tells you when the domain was registered. If a company bought the domain from someone else, the domain could be older than the company.
4. Set up a Kickstarter project
Kickstarter is a place to raise funds for creative projects. This method definitely takes some effort and planning, and it's not for everyone, as Kickstarter limits itself to creative projects in one of their listed categories (Art, Comics, Dance, Design, Fashion, Film, Food, Games, Music, Photography, Publishing, Technology, and Theater).
Also, Kickstarter says in their project guidelines that you can't use a Kickstarter project to fund an ecommerce business, but my understanding is that you CAN use Kickstarter to fund a specific product.
Ok, with those disclaimers out of the way, Kickstarter can be an effective way to measure interest in your product. If you have a product idea and need to raise funds to complete the design or first manufacturing run, why not create a Kickstarter project to raise funds? If the project generates a lot of buzz and you successfully raise funds, that's a good sign that people are interested in your idea.
5. Take pre-orders
This is a fantastic way to gauge demand for your product before manufacturing or buying inventory. This is similar to #2 above, except that you are actually taking payment for products before you are ready to ship them. By taking pre-orders, you can set up a website and drive traffic to it to test the viability of a product before you ever spend a dime on the inventory/manufacturing. Your website will tell people that the product is not ready to ship yet, but give them an estimated date for when it will be ready. If you later decide that the product won't work, you can refund people's money.
This isn't just guessing at market demand--this is demonstrating it.
Outside of simply gauging demand for your product, taking pre-orders provides some additional benefits:
- Pre-orders provide you with additional cash to fund manufacturing or purchasing of inventory.
- Pre-orders give you a good idea of how much inventory you'll need on hand when you do start shipping and taking normal orders.
- Pre-orders can help generate buzz about your product, especially if you make a special offer for pre-orders (20% off if you pre-order by June 15, for example).