This part is simple: Choose a product that people are buying.

Your primary concern is choosing a product that will make you money. It might be more fun to choose a product you're passionate about, but few things are less fun than having a business that fails. While your enthusiasm for and knowledge about a product can give you an edge that will help your business flourish, don't commit to a business model until your research has demonstrated that there is a market for what you're selling.

If demand is very low, if you face stiff competition, or if you can't find a wholesaler who will sell you that product at prices you can afford, then your chances of succeeding are very low. You're always going to be better off focusing on products where you can make money, regardless of your passion.

Of course, if you can find a product you're passionate about and there's a demonstrated online market for that product, then you've got the best of both worlds. So, by all means, begin your market research with ideas and products you love. And, hopefully, you'll be able to make a nice living selling something you truly enjoy. But do your market research before you jump head-first into any business and avoid markets that are likely to be marginal or unprofitable.

If you already have a product in mind, then you can start doing market research right away. But if you're still looking for something to sell, consider browsing the categories at some of the big shopping sites and comparison engines, such as:

• Yahoo Shopping - http://shopping.yahoo.com/
• AOL Shopping - http://shopping.aol.com/
• MSN Shopping - http://shopping.msn.com/
• Froogle - http://froogle.google.com/
• eBay - http://www.ebay.com/
• Shopping.com - http://www.shopping.com/
• NexTag - http://www.nextag.com/
• BizRate - http://www.bizrate.com/
• Overstock.com - http://www.overstock.com/

While there are thousands to choose from, some sample niche markets include:

The eBay category list is really a gold mine of niche product ideas.

You won't know if you can market those niche products profitably until you do the market research, of course. At this point, you should simply choose a category that's appealing to you. This will allow you to move onto the next step, which is determining how to purchase that product for resale.

First, start by finding a wholesaler for the product you want to sell. There's little point in doing market research if you can't find a wholesaler to supply you with that product. There's four primary types of wholesalers:

• Drop Shippers.
• Light Bulk Wholesalers.
• Bulk Wholesalers.
• Liquidators and Overstock sellers.

Each has it's own pros and cons.

Drop shipping - In this approach, the product is shipped directly from the manufacturer or wholesaler to the customer. You never handle the product at all. You simply take the orders and foreword them to the drop shipper, who places them in a package with your name on it and ships it to the customer.

This is the easiest and lowest cost way to sell niche products on the Internet. Unfortunately, it also has the lowest profit margins. After all, wholesalers give you discounts on bulk purchases—the more you buy, the steeper the discount. Drop shipping means you're buying just one item at a time, so there's no discounts for bulk purchases.

Drop shipping can still be a very profitable way to do business online, but you have to closely analyze your market to make sure you can still offer your products at a competitive price. You may find that your competition is purchasing in large quantities and receiving discounts that allow them to offer the same product at a much lower price than you can afford to.

Light Bulk Wholesaling - This involves buying products in bulk, but in lower volumes than true bulk wholesaling. The advantage is that you don't need to spend as much (generally just a few hundred dollars). This lowers your risk, so that if your business doesn't succeed, you're not left with a hefty bill and a garage or storage space full of unsold products.

The downside to light bulk wholesaling is that you're still not getting the full discount you would be if you were buying true bulk wholesale, so some of your competition may still be able to undersell you. Also, time is money, and the time you are spending packaging and shipping orders (or hiring employees to do so) means a reduction on your overall profits.

Bulk Wholesaling - Buying in true bulk wholesale quantities means you'll be receiving very steep discounts on the products you buy, thus enabling you to offer your own products at a very competitive price and still pocket a nice profit.

However, you'll need to be purchasing in significant quantities, so purchasing bulk wholesale can often entail substantial investment and risk, particularly for a new business.

Liquidation and Overstock - This is where you find a company who's going out of business or has products left over from last season they want to get rid of. Liquidation and overstock products can be very cheap when you find them, but it's a one-time deal. Once you sell those products you can't order more, so it's generally not a good fit for most businesses, although it does suit itself well to selling on eBay.

WorldWide Brands offers an extremely valuable tool called OneSource which will automatically find the best dropshippers and wholesalers for your product. Often, the hardest part of getting started selling online is finding a reputable wholesaler to supply you with your product. WorldWide Brands has established themselves as the Internet's top resource connecting merchants with the best wholesalers, and we highly recommend their service.

Once you've selected a niche you think has potential and found a wholesaler to supply you with products, you then need to determine if you can sell those products profitably. That is, can you purchase those products at a low enough price that you'll still make money selling them? Remember that your competition may be able to get lower prices than you if they're purchasing in greater volume and you may not be able to compete with those prices and still make a profit.

Your first step will be to see what price your competition is selling their products for. A quick way to do this is to use some of the shopping comparison engines mentioned earlier, such as Froogle and NexTag. See what the typical retail price is for products in your niche. Also, do some Google searches for those products and see what prices the top ranking merchants (in both organic and paid search) are offering.

Once you have a good idea of the typical online retail price for some of your potential products, compare that with the wholesale price you're able to get from your distributor.

• Take the maximum price you believe you can charge per unit for a product and still stay in business (generally this will be the average retail price your competition is offering).
• Subtract from that the per unit wholesale price that you'll be able to purchase that product from the wholesaler for.
• The amount left over is your profit.

Determine profit margins for the group of products you're planning on selling. For instance, if you're thinking about selling pool cues, you'll want to determine profit margins not just for pool cues, but for billiard balls, ball racks, pool table covers and lights, cue cases, and other related billiard supplies, since those are all things you're likely to be selling in your store.

Remember, you're going to have to cover the cost of advertising (SEO, PPC or otherwise) and order fulfillment and still have enough left over to pay yourself and any employees you may have.

In some cases, you're going to find that you simply can't compete in that niche. If so, it's good to know that before you invest in setting up a website and placing a wholesale order.

To sum up, here's the step you need to take:

• Find a wholesaler.
• Determine what price you can get the product for.
• Determine the lowest price you can sell at and still be profitable.
• See what price your competition is selling at. If it's lower than you can afford to go, move on to another product.

Some products (such as computers, electronics, gaming systems, CDs and DVDs, and designer clothes) you often simply cannot sell. Generally the wholesaler won't dropship or offer small volume, and you can't afford to buy large volume, then you don't have a product to sell.

Once you've determined that you can obtain your niche product and sell it profitably, you'll need to evaluate demand for that niche. After all, in order to make money online there needs to be people searching for what you're selling.

There are three tools every niche marketer needs to evaluate a products demand:

• Wordtracker - The leading keyword research tool on the Internet, critical for determining the number of searches for niche phrases.
  
• The Google AdWords Keyword Tool - Get keyword search volume and seasonal performance data straight from Google. Unfortunately, Google doesn't supply exact numbers, instead using graphs to show relative demand and competition levels.
  
• The Overture View Bids Tool - See what prices advertisers are bidding for a keyword in Yahoo Search Marketing. The higher the bid, the more money there is to be made, but there will also generally be fiercer competition.
  
• Until recently, we would also have included the Overture Keyword Tool in this list. However, Yahoo recently broke this tool (rendering many popular keyword tools that depended on its data mostly useless). It still works occasionally, but is by no means reliable.
  Yahoo is currently in the process of phasing out its old Overture brand and merging it with Yahoo Search Marketing, so we expect to see this tool return in the near future in a modified form under the Yahoo brand name. Fortunately, Wordtracker recently rolled out their own version which replaces the Overture tool nicely.
  

Evaluating online demand is all about keywords and the search engine traffic those keywords receive. Wordtracker will give you the clearest picture of how many people are searching for a keyword in a given month. Think about the word most people will be typing into search engines to find your product. This is your primary keyword.

Type your primary keyword into each of these tools. For example, if you're considering selling golf clubs, type golf clubs. If you are considering selling collectable figurines, type figurines.

Ideally you'll want to see at least 1000 searches per day in Wordtracker for your primary keyword, as well as several related keywords getting at least a few hundred searches per day. Anything less than that shows a lack of customer traffic and a difficult to sustain business model.

Products with a larger profit margin can support somewhat lower traffic numbers. Also, niches with a large number of related products don't need traffic numbers for the primary keyword to be quite as high, as long as the searches added together are at least a few thousand per day. Successful niche business typically offer a range of related products.

Keep in mind that keyword tools can only give you an approximation of how much traffic you might receive for a keyword. If you want to know exactly how many people are searching for your product, you'll need to run a PPC campaign (AdWords for Google, Yahoo Search Marketing for Yahoo, or adCenter for Microsoft Live) and track how many impressions your ad gets.

Obviously, this will cost you a bit of money, though you can minimize the expense if you bid just high enough to keep your ad on the first page of search results. Let this run for a week or a month and you'll know exactly how much traffic that keyword gets in a given search engine over that time frame (if you have a new AdWords account this technique can take a bit longer, as Google can delay showing ads regularly if the advertisers haven't established a history of creating ads that get decent clickthroughs).

However, exact numbers are not important. Rather, you're trying to get a big picture perspective and simply need to determine whether

• The keyword has a large number of searches and can support a business, or
• The keyword has a small number of searches and cannot support a business.

Also important is how the demand for that keyword is changing over time (i.e. is it growing or declining). This data can be acquired using Google Trends and adCenter Labs' Keyword Forecast tool.

Choosing the proper keywords and establishing that a demand exists is critical to successful niche marketing. The full range of keyword research techniques would require more space than we have available in this report, but we cover them in depth in our detailed set of guides, The Ultimate Keyword Primer, parts One, Two, and Three.

Once you've determined that there's a demand for the niche you've chosen, then you must determine if you are able to compete against the established players. You'll need to know:

• Who's ranking in the top 10 in Google for those keywords? ...and how hard will it be to dislodge one of them to achieve a top 10 ranking for yourself?
• How many Pay-Per-Click (PPC) advertisers are there for that keyword? ...and how high are they bidding? (Use the Overture View Bids Tool.)

Unless you can get on the first page in Google (i.e. a top 10 listing) you're unlikely to see much search engine traffic. It doesn't matter if there's 20 or 20 millions pages competing for that keyword - there's only 10 spots that matter. And if you can't knock one of the existing players off the first page in Google, then there's little point in targeting that keyword.

However, know that it's rare to instantly rank a new site for a competitive keyword in Google. What you need to determine is whether you'll be able to achieve that top position within the first year of optimizing your site, or whether the established players are so entrenched that it'll be prohibitively expensive to ever get a spot on the first page.

A similar case exists for Pay-Per-Click advertising. As mentioned, it takes time to achieve top 10 rankings for a competitive keywords, so until you're able to do that you'll typically need to rely on paid clicks (and long tail keywords) to drive traffic to your site. But if the price per click is so high that you can't achieve the profit margin you need to stay in business, then again it's futile to target that keyword.

However, you'll generally want to see at least a few advertisers. A large number of PPC advertisers is an indicator of market demand, since it shows that several businesses are already competing for an established marketplace.

In order to determine your ability to rank in Google's organic search results you'll need to evaluate each player in the top 10 according to the following criteria:

• Domain Birthdate.
• Total Alexa unique IP incoming links.
• Total incoming links.
• Total incoming links to homepage.
• Total incoming links to the specified URL.
• Deep-link ratio.
• .EDU Links
• .GOV Links
• DMOZ Links
• Yahoo Directory listings
• Wikipedia listings:
• PageRank

Your goal is to determine if you can compete with the sites currently ranking for the product keywords you'd like to target. There needs to be at least one slot in the top 10 that you have a good chance of outranking if you hope to get search engine traffic.

Essentially what you're doing is competitive analysis to determine the quality of your competition, a topic we cover in great detail in our recent report: The Top 10 Quality Indicators that Separate the Top Ranking Websites from the Rest . By evaluating these quality indicators and seeing how your site stacks up against the top 10 in Google, you'll be able to determine your chances of getting search traffic for that keyword.

To streamline this process, we've created the SEOInsites.com Website Quality Indicators tool. This extremely useful tool will give you a snapshot of just how powerful a site is in the eyes of the search engines.

Not only can you use it to quickly determine if you can compete against another site, but you can also use it to analyze your own site's ranking power.