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29102009

How to Find a Profitable Niche

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Having a profitable niche is key to success, not only are you looking for a keyword with traffic, but you’re looking for a keyword with value. By value, I mean money is being spent in the niche. If money is not being spent by businesses, customers, and advertisers; then there is no money to be made. There are multiple methods to judge the value of the niche and as you get more advanced you start to have a “feeling” about keywords and customer intent. If you’re new to internet marketing, and looking for a niche topic, the wisdom is not there to help you select a niche. In that case, there is a very simple methodology that you can use to find a valuable keyword.

The simplest method is to use advertising data from Google Adwords. They provide you with the CPC an advertiser is willing to spend and the volume of searches. This simple price and demand data gives you a reasonable estimate of a niche’s “worth”. Of course, this is not 100% accurate, since no keyword tool is. This is an estimate, but Google provide solid data.

If you’re using Google’s free Adwords tool, than you are most likely sorting keywords by search volume and using that metric as the niche’s value. If you’re a little more advanced, than you figured out how to show the average CPC and sorting by that.

There are strong methods, but I take it one step further. I export the data into an Excel spreadsheet and create a new field that multiplies the CPC by the Average Volume. I call this value the “keyword worth”, since it is the total traffic times the price advertisers are willing to pay, which can estimate the money spent in the niche. I know this isn’t the true measure of the money spent, since if the full quantity of traffic does not end up clicking an ad. It does act as a relative comparison. You have to take into account both SERPS CTR and the ad CTR, but it can give you a solid comparison of worth and will allow you to predict the income of the niche.

For example, ‘how to make money online” has a higher CPC than “make money online”. Using CPC to sort the results, “how to make money online” may appear to be a more valuable keyword. The keyword “make money online” has a larger volume of traffic though, so it’s a matter of high volume and lower price. The keyword “how to make money online” is Starbucks, but “make money online” is McDonalds coffee.

So let’s do some simple calculations.

Make Money Online
CPC: $2.66
Avg Volume: 450,000
Potential Niche Worth: $1,197,000

Google may only share about 25% of the CPC with you, so the actual potential worth is a forth of that worth.

Actually Potential Niche Worth: $299,250

So we’re sitting at $299,250 being available to the “make money online” niche; to be earned by anyone using Adsense properly.

Next, we have to take into account SERPS CTR. I will be making the following assumptions about SERPS CTR.
Rank 1: 42% of traffic
Rank 2: 12% of traffic
Rank 3: 9% of traffic

The top ranked site has the highest potential of income and it reduces drastically as you move down the page. So here are the new potential values for the sites ranked at 1, 2, and 3. These were found by multipling the Actual Potential Niche Worth by the percent of traffic each of the top three ranked sites received.

Potential Worth By Rank
Rank 1: $125,685
Rank 2: $35,910
Rank 3: $26,932

So these values are not the actual amount of money you’d make for a site ranked in this niche, but an estimate of the possible value of a site in the niche. More factors come into play.
Let’s assume two scenarios. The first is an average CTR of 10% and the other is an average CTR of 20%. These are reasonable values for an Adsense optimized site with targeted traffic (well optimized site that is).

So here are estimates of the income of the sites ranked at 1, 2, and 3 in the search results.
Rank 1: $12,569 or $25,137
Rank 2: $3,591 or $7,182
Rank 3: $2,693 or $5,386

So, what does this tell us? A site ranked around #2 or #3 for the keyword “make money online”, could make around $2,500 to $7,000 a month by advertising with Adsense in this profitable niche.
Is this accurate? Well luckily I know a blog who does rank between #2 and #3 for make money online. He’s name is Griz and he just started a new blog about making money with Adsene. He was kind enough to post his earnings for January. He made $3,999.36 last month, which falls well inside our predications.
This is just a quick and dirty explanation of how to calculate how much you can profit from a niche.

If you’re targeting keywords with a low CPC, you won’t make money without having tons of traffic.. If you find a high CPC with low traffic, you’ll make money, but not much (local niche sites). But if you find a niche with solid traffic stats and a CPC of that is over $1.00, you are on your way to mapping out a profitable niche. You can work through the calculations to estimate the “worth” of a site ranking well for that niche. Then compare the potential income to the competition, and you can make informed decisions.

If you’re targeting keywords with $0.10 CPC and 300 searches a month, you’ll only be making around $3.15 a month, and that’s if you’re doing everything right and not smart priced. That is not profitable and a waste of your time.

I’m not a big Adsense person, but am slowly working my way into it, but the lessons in the post can be applied to all forms of internet marketing. A profitable niche is a profitable niche. If people are spending money, than there is money to be made, and sometimes Adsense isn’t the best method to monetize a site. I use this same type of analysis to review niches for affiliate marketing. It gives me a general understanding of the market spending in that niche. I know money is being exchanged; I just have to find a way to get my hands on it. If the keyword is a “buying keyword”, than is works really well with an eBay affiliate setup.

So if you’re looking to make money with Adsense, it is first important to find a profitable niche. It doesn’t matter if you have solid SEO and link building practices if the keywords you choose are bad. I suggest checking out Griz’s site for some solid advice on making money with Adsense in profitable niches.

Disclaimer: This type of approach is not accurate and makes huge assumptions. It can grossly over and under estimate the potential income of a keyword. This is more about relative comparisons and getting the right mindset when looking at keywords. A $2.00 CPC at 100 searches isn’t worth much per month, but is worth more than a $0.05 CPC at 300 searches. And neither of these could compete with a $1.50 CPC at 5,000 searches. Simply, look at CPC -AND- Traffic

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