How to Decide if a Business Idea is Worth Your Time

choosing niche website

In yesterday’s post I talked about whether niche websites and blogs are a real business.

While writing that post, I started moving off to a slightly different topic. In an effort to remain concise, I split them up into two separate posts.

Below, you can read about what goes through my mind when I’m looking for niche websites to start.

Hopefully, you find this interesting and can apply it to your own decision-making.

What Makes a Good Business Idea?

I ask myself the following questions before jumping into a new business venture:

  1. Can I learn a new skill by doing this?
  2. Is this an efficient use of my time?

You either want to improve your skills or leverage your current skills to make the most money possible in a given time period.

Ideally, you’ll answer “Yes” to both questions. However, you rarely know the answer to number 2 until you get started.

That’s why I recommend trying any side-hustle that will improve your current skill-set.

The exception is businesses that obviously won’t give you any decent return on investment (time).

When it comes to freelancing, the opportunity cost is easy to calculate.

You’re getting paid an hourly rate and that number is either above, below or equal to the amount you could earn by doing something else.

Knowing whether building a niche site is worth your time, is more difficult.

It’s very hard to know how much traffic you’ll get on a new site.

I won’t discuss that today because you don’t need a lot of traffic to make some extra cash online.

Instead, I’ll show you the formula for making money with affiliate sites.

Hopefully, my basic calculations will show you why you don’t need as much traffic as you might think.

Calculations For Niche Sites

Niche sites are simple…

People read your content. They click on an affiliate link and purchase the products you recommend. You get a commission.

The equation looks something like this:

Profit = (Traffic x conversion rate x (product price x commission in %)) – costs

The only costs I have on my niche sites are the $10 for a domain. Luckily, I already have a hosting account for this site so I don’t need to worry about that.

We’ll forget about the cost aspect for now. Once you start driving paid traffic – which isn’t something I have much experience with (yet) – costs become crucial.

The variables you have direct control over are:

  • Conversion rate (How good is your sales page?)
  • Product you sell (Price of product and % per sale)

A good sales letter or review will convert about 2-4% in my experience.

Doubling your conversion rate is obviously a huge success. After that, there isn’t much more you can hope to do.

You have far more room for improvement (or messing up) when it comes to choosing the right product.

Selling a $10 product through Amazon: $0.4 per sale

Selling a $100 product through Amazon: $4 per sale

Selling a $127 product with a 70% commission: $89 per sale

As you can see from that example, how much you make per sale is crucial for the success of a niche site.

Getting traffic can be a little hit or miss when you’re starting out. Luckily, you don’t need much traffic if you’re selling a high-ticket item with a nice commission.

You’d need to get 100x more traffic and double the conversion rate to make as much from selling $10 products.

That’s very unlikely to say the least. You might get slightly more traffic and a marginally better conversion rate.

But selling a $10 item on your niche site still doesn’t make much sense.

How Much Should You Make Per Sale?

Honest answer?

It depends.

I’m sorry, I hate that answer just as much as you do.

Instead of explaining why every situation is different, I’ll just give you a minimum number to shoot for.

$10 per sale is the lowest commission I’d recommend building a niche site around.

More is obviously better. Anything less and I’d keep searching for a better niche.

Why $10?

My first goal is always to make $100/month. For that I need 500 visitors per month at 2% conversion rate.

So by getting 17 visitors per day I’d sell 10 products per month.

Is that realistic? Absolutely!

In fact, it’s incredibly conservative. Anyone could do that if they are willing to fail a few times at the beginning.

This applies mainly to your core products. Sometimes, I’ll write extra reviews for cheaper products just to fill up the websites.

That’s more about building a bigger site so that my main reviews rank well though. I’m not too worried about how well my Bellroy reviews convert.

Closing Thoughts

I hope you find this discussion helpful.

Nobody will ever give you profitable niche ideas on a plate.

Giving you a framework to decide for yourself is the closest I’ll ever come.

The equation I listed above is just common sense. Unfortunately, many people don’t think their ideas through before getting started.

I’m all for jumping in rather than wasting time “researching”.

But spend 10 minutes looking at your niche idea and this equation.

Profit = (Traffic x conversion rate x (product price x commission in %)) – costs

Then make up your own mind whether it’s worth your time or not.

That’s all for today.

Until next time,

James

P.S. If you’re already getting decent traffic but want to increase your conversion rates, I highly recommend checking out Thrive Themes.