Great entrepreneurs make data-driven decisions.
The problem, however, for many entrepreneurs is that they aren’t sure which data they need to make the best decisions about their products, and perhaps most importantly, where they can find that data.
And that’s exactly why we’ve created this article. We’re going to walk you through all of the data that we take into consideration when we’re validating a product idea, and show you how you can use it to your advantage.
Let’s dive in, shall we?
How to Validate a Product Idea
Data to an entrepreneur is like spinach to Popeye – it’s invaluable fuel that can give you a supercharge.
It’s simple, really. When you know more about something, you can make smarter decisions about it.
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When it comes to finding products for your business, data can reassure you that you’re right to focus your energy into selling one type of product, or it could raise a red flag and potentially save you time, energy, and money in the long run.
That’s why we always recommend that you validate any product ideas that you have with cold, hard numbers.
But what data do you really need to validate a product? Here’s a quick breakdown:
- The current size of the niche your product falls into
- The growth rate of said niche
- How competitive the dropshipping market for the niche is
- How profitable products within that niche are
Generally speaking, sourcing all of this data is not an easy task.
But, it doesn’t need to be that way.
You can use our insights for your business decisions.
In the next section we’ll show you exactly how you can use the data as fuel to help you validate your own product ideas.
Diving Deep Into The Data
Okay, we’ve already spoken about how important data is when you’re deciding which products you’re going to sell online.
Now it’s time for the good stuff. We’re going to show you our step-by-step guide to validate any dropshipping product.
But to do this, we’re going to need to do a deep dive into one specific product.
Today we’ve selected a product that blends the two lucrative niches of sports and fashion: yoga pants.
Understanding the Size of the Market
First off, we need to try to understand what the current market share for these products is amongst othe users.
So, we’re going to need to analyze the number of orders that have been placed for products within this niche over the past 30 days.
As you can see in the graph above, the highlighted category “Sports & Entertainment,” which yoga pants fall into, is currently sitting in the middle of the pack.
There have been 230,000 orders over the past 30 days, which is a pretty healthy figure.
There is definitely some interest in this type of products, and it doesn’t appear to be too saturated.
But we need to dig deeper.
To get a better idea of the potential of yoga pants, we need to know more about the behavior within the “Sports & Entertainment” category of products.
So let’s take a look at this graph, which shows a breakdown of the subcategories within the “Sports & Entertainment” niche.
As we can see, the highlighted Fitness & Body Building subcategory, which yoga pants fall into, is the second most popular, and has received 49,000 orders over the past 30 days.
This is great to see. If we found that the subcategory which yoga pants belonged to was on the lower end of this graph, and only received a few thousand orders over the past month, it might have been a sign that it wasn’t the best product to sell.
Remember, the point of this analysis is to help us make the best decisions for a business, and if we see that there isn’t clear interest at this point, it’s time to pivot and look into different ideas.
Checking the Growth of a Market
Okay, at this point we know that fitness products like yoga pants make up a decent proportion of the orders that merchants have received over the past 30 days.
Next we need to check the growth rates of the market.
This will help us to understand whether products within this niche are trending upwards, declining, are steady sellers, or are seasonal products.
To get a better understanding, let’s take a look at the fluctuation of daily orders over the past year for these products.
As we can see from the graph above, this niche was receiving a steady number of orders throughout 2018, and there was an interesting spike in orders in October. The cause of the spike that we see on the graph isn’t clear, but it could be from one store running a flash sale, and absolutely nailing it.
But the most interesting part of this graph is that the daily number of orders has grown considerably when compared to the start of 2019.
This was fantastic to see – things are pointing in the right direction so far.
However, it’s always a good idea to validate insights with search data from Google Trends.
trends.embed.renderExploreWidget(“TIMESERIES”, {“comparisonItem”:[{“keyword”:”yoga pants”,”geo”:”US”,”time”:”today 12-m”}],”category”:0,”property”:””}, {“exploreQuery”:”q=yoga%20pants&geo=US&date=today 12-m”,”guestPath”:”https://trends.google.com:443/trends/embed/”});
So, we just searched for “yoga pants” on Google Trends, and as you can see there has been a consistently high number of searches for these products in the United States over the past year.
And when we checked worldwide search traffic for yoga pants…
trends.embed.renderExploreWidget(“TIMESERIES”, {“comparisonItem”:[{“keyword”:”yoga pants”,”geo”:””,”time”:”today 12-m”}],”category”:0,”property”:””}, {“exploreQuery”:”q=yoga%20pants&date=today 12-m”,”guestPath”:”https://trends.google.com:443/trends/embed/”});
… we see that people across the world are also interested in yoga pants.
Another win.
So, at this point we know that buyers across the world are interested in these products, and that dropshipping stores have doubled their sales selling similar products over the past 12 months.
Yoga pants are looking like a great product to sell so far, but we’re not finished yet.
Learning About the Competition
Next up, we need to check how competitive this niche is.
This is an essential piece of the product validation process – consistent growth and orders for a product means a lot less if the niche is already saturated with other businesses trying to sell them.
Here is the number of merchants who are selling products from this niche.
As we can see, there were 1,500 dropshipping stores selling products in the Fitness & Bodybuilding subcategory over the past 30 days.
Sure, this means that plenty of users are trying to sell similar products, but it doesn’t give us the full picture yet.
We really need more data.
This will help us to understand how the total number of sales is split between those 1,500 users.
If we see that the vast majority of the orders go to a few users, it means that the niche could already be monopolized, and therefore difficult for a new business to break into.
However, if we see that there is a healthy spread of orders across the 1,500 shops, it’ll indicate that these products could be fine for a new business to sell.
As you can see from the graph above, there are one or two shops which receive a few hundred orders per day, but otherwise the orders are distributed across the remaining users.
This shows that there is definitely room for a new business to break into this niche selling similar products.
Okay, so at this stage we’ve got a pretty good understanding of the demand for these products, and we know how competitive the niche is.
There’s just one last thing to check.
Understanding the Profitability of a Product
Make no mistake: money is an essential part of running an ecommerce business.
And it’s so important that you know how much money you can expect to make when you’re selling a specific product.
That’s why we’ve added information about the median margins for products to the graph.
Take a quick look at the graph above and you’ll see that the median margin for products within the “Fitness & Bodybuilding” subcategory is 66.1%.
That means that if you source a product for $10, you can expect to sell it for about $30. In other words, one-third of your price is the product itself, and two-thirds is your profit margin. Sure, there are variables to consider, such as marketing costs. But in general, high margin ratios are a good thing.
Margin ratios are the final piece of the puzzle that we needed to make a data-driven decision about selling yoga pants.
Putting the Pieces Together
Let’s take a look at what we now know:
- There is clear interest for fitness products
- There is room for a new business to break into this market
- We can make money on these products.
And that’s the beauty of having access to this data.
We don’t need to rely on guesswork, or act on gut feelings.
We’re dealing with facts now, and they’re invaluable for entrepreneurs.
Do you have any questions about our data analysis? Let us know in the comments section below – we read them all!
