In the bricks and mortar world, opening a retail location is a risky proposition. Will anyone visit? If so, will they buy? What location should you choose? What should your sign look like? Where should you advertise? If you have $50,000 in extra cash to pay a market research firm, you can buy an informed guess in a few months.

On the Internet, the answers to these questions are shockingly easy, quick and inexpensive to obtain—if you know where to look and what to look for. When you’re done with this short article, you will know both.

The Big Question: Is Anyone Making Money in This Market?

You need to know one important thing before seriously exploring a market: is anyone already making money there? If not, you’re taking a giant risk by assuming that you can succeed where nobody else has.

You can assess market potential pretty accurately when you know two things: the number of people searching for something, and the amount of money merchants are willing to pay to show their ad to those searchers. Add to that a third important factor: the stability of the market over time. Armed with this understanding, you have everything you need to decide whether to jump off the diving board into the pool.

Step 1: Market Size—Spying on Searches

If you could find out how many times people searched for keywords related to your business last month, as well as which ones were most popular and which ones are making money for others in the market, would you be willing to invest a few minutes before registering a domain name, building a web site, setting up a shopping cart and buying that private island in the Caribbean where you’ll retire after making your millions?

Here’s how you can determine the number of searches for a given keyword set. Go to http://askhowie.com/freewords and type your main search term into the box and click “Research.” In return, you’ll get a list of the top one hundred keywords that contain the one you entered, along with a number that represents how many searches were performed on each keyword in the previous month.

Note that I said “represents.” This number will be many times smaller than the actual number of searches you can expect if you advertise on Google. How much smaller is hard to say: it varies by market and keyword (and maddeningly, Google itself doesn’t reveal this information). But you can calibrate this number by performing the same search on a bunch of different keywords in related markets that you know are profitable.

Step 2: Market Profitability—Is Anyone Advertising on Google?

Google is like New York City: if you can make it here, you can make it anywhere. And that’s true of your competitors as well. If they are advertising on Google consistently over time, they’re probably making money.

Go to www.google.com and type in a popular keyword in your market (as determined by the keyword tool in Step 1). Pay attention to the right side of the Search Results page—are there “sponsored links”? Those listings are bought by advertisers through the popular AdWords program and they’re competing against each other for optimal positioning.

How many advertisers are there? If you can click “more sponsored listings” at the bottom of the right column, you know you’re in a market where profits are made. For fun, you can keep clicking “Next” and see how many pages of sponsored links (at up to ten links a page) appear. The more advertisers, the more lucrative (and competitive) the market.

Step 3: Average Bid Price—Spyfu

If vendors are advertising on Google, that’s a good sign. But you also want to know how much they’re paying to advertise. If your competitors are paying a penny a click, that means they haven’t figured out how to make much money in this market. Google is a stock market in which supply and demand determine the values of words and phrases. In a mature market, the average bid price tends toward break-even.

Go to www.spyfu.com and enter the main keyword. You’ll get an estimate of the average bid price, as well as a bunch of other useful information that is beyond the scope of this article.

Now multiply the bid price by the number of searches, as determined in Step 1, and you have a number that represents the overall profitability of this market. Remember, this number is meaningless by itself, but it’s invaluable as a comparison barometer. If you’re considering several different markets, you can go through the three steps for each market and identify the most promising ones.

Step 4: Stability over Time—Google Trends

If you want to sell red roses over the Internet and you do your keyword research on February 13th, you’re in for a rude shock when sales plummet in July. Head over to http://trends.google.com and enter one or two keywords (separated by commas). You can see the relative search volume for each term for the past few years. You’ll know if a search term is a temporary fad, a recurring seasonal blip or a steady performer.

You can perform this powerful market due diligence in about five minutes, for absolutely no money. If you would like to see these four steps demonstrated, you can go to www.askhowie.com/ntvideo for a short video tutorial.

HOWIE JACOBSON, Ph.D., is the author of
AdWords for Dummies. Free chapters are available online.
www.networkingtimes.com/link/jacobson