I am helping a friend who is considering setting up a new ecommerce business. Even though she has done it before, we are both reminded of all that is involved.

My articles at Practical eCommerce focus on planning and strategies for ecommerce businesses. For this week, I’ll examine the process of selecting a market, products, a supply chain, channels, and infrastructure. Later, I'll examine the needs for organization, financial modeling, and market-implementation strategies.

Markets

The first step in creating a new ecommerce business is to identify the market and customers you wish to pursue. I suggest keeping an open mind by looking at several different markets with very different products. In the case of my friend, our goal is to find niche products that have broad appeal, but are not widely available in mass-market retailers. We want to find several hundred products with a common theme and purpose so we can tightly focus our marketing activities within a specific niche.

An example of a niche market might be tennis players. Products that could be sold include tennis rackets, balls, instruction videos, clothing, accessories, and so forth. You may have an entirely different goal of selling commodities at the lowest price. Either works, just be aware of what your goal is.

One way to start the process is by looking at ecommerce businesses for sale. You will find a lot of successful ideas that you may be able to replicate. Consider acquiring an existing store that may be small, but has a proven business model, and an established customer base, supply chain and web presence. Visit BizBuySell.com, BuySellEbiz.com, local Craigslist.com listings, or other business listings. My friend and I have found some great ideas — and also markets that are over-saturated.

As my friend and I identify product ideas, we research what’s currently available and look at the traffic and web presence for the stores currently selling those products. We are looking for markets that have several — but not dozens — of seemingly viable stores. We size up the competitive sites for user friendliness, depth, and other factors. Conduct many Google searches and follow its recommended keywords. That process will take you on a journey through a market fairly quickly and comprehensively.

My friend and I also use Google’s AdWords Keyword Tool to analyze the number of searches for the products and related topics. Our goal is to find products that people are actually searching for so that we have a way to market through targeted pay-per-click advertising. We’re also looking at how competitive — i.e., expensive — the keywords are so we can begin to assess the marketing costs.

Once we find a suite of products that may have viability, we look more closely at ad spending and organic traffic to those sites using tools like SpyFu.com, a competitive analysis tool. This provides a more detailed view of what you might be up against if you decide to open a new store in that marketplace.

Products

As you identify markets, you also need to evaluate the supply chain. Do you want to purchase and manage inventory, or would you rather use drop shippers? In our case, we are considering both options — researching traditional wholesalers, manufacturers, and drop shippers in our potential target markets.

The number of products you carry is also critical. If you are selling something like tennis rackets, you’ll want to have several distinctive price points and several brands available at each price point. I have found, in my previous online jewelry business, that 3 to 5 products in a particular segment are ideal. This provides choices to consumers, but not so many that they have to think too hard.

It’s fairly straightforward to build an ecommerce store for several hundred products. It’s much more complex to design efficient online, front-end navigation for several thousand. That's not to mention the process and cost involved.

Finally, consider shipping issues. If you are in a market where everyone offers free shipping, or if you will compete with or sell on Amazon.com, you may have to offer free shipping. Consider whether you can make enough revenue to cover both your cost of goods sold and the shipping costs.

As you view competitive sites, try to sort by “best seller” if they offer that as an option. Also ask potential suppliers to provide “best seller lists” so you know what products are actually selling. I am frequently amazed at the things that really sell as they will not necessarily match my own style and taste.