You've just decided to start an online business. You have a great idea for a product, the adrenalin's pumping and you're anxious to get started.

One important question -- have you done your market research? I know -- market research, how boring!

But before you tune out and disregard the question, think about what it will take to start your online business. You're going to be investing lots of energy and time as well as money. Don't you want to make sure your product or service has potential?

You bet you do! If you don't, all your efforts and money could be wasted and your business may become another online casualty. It happens all the time.

So, before you get too anxious, consider the following:

Is there a market for your idea?

Don't assume that just because you, your family and friends love your idea, it's going to be a profitable one. There's a big world out there and what you consider a great idea may not be suitable for the rest of the world, so let's make sure it has potential.

There are 3 things you need to consider:

- What is the online demand?
- Who's your Competition?
- What kind of profit can you make?

Online Demand

The simplest way to find out if your product or service has potential is to simply find out what the online supply and demand is.

This is done by taking the supply or the number of competing sites for a product or service and dividing it by the demand or how much the product or service is searched for. The lower the result, the better.

For example, let's say you want to sell 'porcelain dolls' but you're also considering selling charm bracelets. Let's see what the better choice might be by looking at the supply and demand.

My search engine of choice is Google so when I type in 'porcelain dolls' into Google it returned 3,630,000 competing sites as of this writing.

My keyword search tool of choice is Overture, so when I type 'porcelain dolls' into the overture search term tool the results are 17946.

When I divide the number of Google's competing sites by the number of Overture search count, the total is 202.27 (3,600,000 / 17946 = 200.60)

Now let's do the same thing for 'charm bracelets'.

At the time of this article Google returned 1,950,000 competing sites and Overture returned a count of 50417. The result was 38.67 (1,950,000 / 50417 = 38.67).

Charm bracelets is the winner because the ratio between searches and the number of competing sites will make it easier for your site to be found.

This is online demand in it's simplest form but it can give you a good idea of what you are up against.

Next you must research your competition

Always know what your competing sites are doing and how they are doing it. Let's say you decide to sell those charm bracelets. Type 'charm bracelets' into Google and take a good look at the first few pages of listings that come up. Look at each site and study it. Make a chart and note the following for each site.

- What products do they offer?
- What are the strengths and weaknesses of each site?
- What information or services does each site provide?
- What did you like or dislike about each site?.

Once you've compiled your chart this will help you determine how you can make your site better and what information or services you might want to include that would offer better value and/or service. The key here is to find out what is out there and how you might deliver it better.

What kind of profit can you make?

Profit is calculated after all your expenses are met. It's basic business 101 but sometimes online business owners forget that.

If your porcelain doll cost you $10 and you sold it for $30 you may have made $20 but your profit may be lower. You also need to take into account what it cost you to make that sale, advertising, website costs, merchant account costs, shipping, etc.

After expenses, 30-50% can be very good. Anything more would be ideal, however if you can't show a profit after expenses it won't be worth your time.

Study your competition, keep your costs down ,keep your price competitive, offer something free if you can, stress your value and be sure to take all facets of cost into account.

About the Author:

Elizabeth McGee has spent 20 years in the service and support industry. She has moved her expertise to the world wide web helping businesses find trusted tools, enhance customer service, build confidence and increase sales. You can visit Elizabeth's sites at:
http://www.homenotion.com
http://www.pro-marketing-online.com

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