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How Google's Keyword Tool Can Point You Toward Profits A quick and dirty way to validate your niche market

By Allen Moon

Opinions expressed by Entrepreneur contributors are their own.

The biggest mistake you can make when you're starting a small business online is to aim too broadly. Internet business success comes from identifying a tightly focused niche market on which you can concentrate all your efforts and resources.

So how do you know if you've found one?

Here's a quick way to evaluate a potential business idea or niche market and see if it has legs: Look at what people are paying to advertise on its keywords.

Typically, where there are high pay-per-click bids, competition in the natural search engine results is also high. Maybe too high. If you can't afford to compete for a top spot in the sponsored listings for the most desirable keywords, should you even bother with this market?

Well don't give up just yet. Many PPC advertisers make exactly the same mistake aspiring online entrepreneurs do: They aim too broadly. They pay ridiculous amounts of money to get listed in the top spots for keywords that are far too unfocused and simply won't convert.

Knowing that, you can take advantage of pay-per-click data to determine if you've found a viable market or not--before you get mired in an online business with no potential.

Use the free Google AdWords Keyword Tool to see how many searches are being done monthly per keyword, and how much advertisers are spending per keyword for a top position in the sponsored listings.

To do this, enter a few terms associated with the niche you've identified and tick the Use synonyms box.

Sort the columns so you're looking at Keywords, Estimated Ad Position, Estimated Average Cost per Click, and Global Monthly Search Volume. It will look like this:

You'll get a list of keywords similar to the ones you've entered. By default, you'll see the cost per click for the top three positions in the Google Sponsored Listings. (To see the cost per click for lower positions, enter a maximum CPC bid of 25 cents in the box next to the currency choice.)

You probably can't compete in this market if all the keywords in your chosen area are upwards of $1. If all the advertisers are willing to pay a dollar or more per click, at a 1 percent conversion ratio--which is pretty decent--they're paying $100+ per customer. So you're looking at one of two possibilities:

  1. It's a saturated market. Stay away, no matter how attractive the global search volume looks for each keyword. It's going to cost you too much, and you don't have the experience to compete.
  2. It's too broad to be a niche in the first place. In this case, you've got an opportunity to narrow your idea down to a laser-targeted niche. Try looking through the list for "clusters" of keywords that all point to the same problem. Then you can generate further keywords from those and see how the numbers look. This refining process is a big part of finding a golden niche.

You probably can compete in this market if:

  • there are lots of reasonably priced keywords ($0.25 and under) in the top three positions.
  • there are reasonably priced keywords in lower positions but still on the front page.
  • the affordable keywords clearly show the intention of the searchers--you can identify the problem they're trying to solve and come up with a solution; and
  • the combined monthly searches for the affordable keywords add up to a worthwhile number--a few thousand, at least.

These are indications that you've found a genuine niche market, and it's worth looking at the competition to see if you should continue.

For competition research, again, the Google keyword tool is your best pal. Go through the keyword list and Google each one. Look at who's paying to appear in the top ad positions above the natural search results. As you go through the list of keywords, you will likely see a trend--the same sites will start showing up over and over. Those sites give you a pretty solid idea of who your biggest competition would be: These are the ones that are serious enough about their business to spend money to appear in those top results.

When you visit the sites of those top advertisers, you can find out what your potential competitors are selling and how well they're doing it.

It's a good idea to set up a spreadsheet to keep track of all this information. You don't have to record every detail for every site, but jot a few notes down for each one.

Once you have some idea about the businesses you're up against, give these questions some serious thought:

  • How could my business fit in with the competition?
  • Is there room for me in this market?
  • Are there any gaps in this market that I can fill?
  • Are people buying in this market, or do they expect everything for free?
  • What could I do better than the sites I've seen?

This is a quick and dirty method of validating your niche market, but it's based on hard dollars that real businesses are spending to compete. If seeing those numbers won't stop you from making the biggest mistake in online business, what will?

Allen Moon is the founder of On Deck Marketing, an internet marketing agency that specializes in product marketing strategies, e-commerce and online marketing.

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