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Gauge the Size of the Market by Stephen Mahaney, 24 November 2006

From: Stephen Mahaney, Planet Ocean Communication

To: Susan Webster, Virginia Veg

Susan,

Your first step should be to determine how large the consumer market for vegetarian dog food might already be. Doing so will give you a general idea of the revenue streams that could become available in the near term.

Clearly, time is of the essence. After all, it appears that Virginia Veg's financial problems are critical. Therefore it isn't likely that you can afford the luxury of the time it would take to educate a vegetarian consumer group about a new niche type of dog food product, let alone profitably develop such a niche market quickly enough to relieve the financial pressures bearing down on Virginia Veg.

Fortunately, the Wordtracker service makes it easy to gauge an existing market simply by looking to see how many keyword searches are being conducted for your target product. Within Wordtracker's Keyword Universe we enter “dog food” and get a list of keywords that are related to dog food. After choosing the keyphrase “dog food,” we get a popularity count for each of the ancillary keywords that consumers are using in relation to the phrase “dog food.” Here's where we find that “vegetarian dog food” accounted for only 17 searches over the past 24-hour period. (At time of writing.)

Obviously, that is a disappointing number. Here's why. Even if your company could immediately begin selling to all 17 searchers per day (impossible, of course) the revenue would not add up sufficiently to rescue your company.

Here’s the math:

17 sales multiplied by an estimated per-sale average of, say, $50 = $850.00 per day multiplied by 365 days = $310,250

In all likelihood, $310,250 annually is hardly a drop in the revenue bucket of a company that is "the largest employer in the community." Besides, it's beyond absurd to even suggest that any one company could convert each and every single search engine inquiry into a $50 sale! Nor does our example take into account expenses for production and distribution or for SE optimization and advertising. Whatever profit, if any, would be far, far, less than our impossibly optimistic best-case scenario.

Now, to shed an even clearer light on what you will see is an abysmally small stand-alone niche market, let's look at what most marketing professionals would agree to be much more realistic numbers – say, between 1% (perhaps achievable) and 10% (still too high) of the existing keyword search basket of inquiries. In other words, annual revenues would come in somewhere between $3,102 and $31,025 a year. Then, expenses would have to be accounted for prior to determining profits on this pitifully small revenue stream. Ouch! ...not good.

In other words, the numbers for vegetarian dog food simply don't work! ...not even in a best-case scenario. There would have to be a better plan than to build a sales concept around the keyword phrase “vegetarian dog food.”

So, let's see what markets might exist based on dog-food-related keywords that are kindred to the term “vegetarian.” When we dig a little deeper into our Wordtracker analysis, we find the following keyphrases being used along with their corresponding frequency...

Keyword (Predict - past 24 hours)

dog food (1106)
wellness dog food (283)
dog food recipes (206)
natural dog food (202)
vegetarian dog food (20)

...and, if we add all of the numbers together for the four “dog food” keyword phrases – “wellness,” “recipes,” “natural,” and “vegetarian” - and then apply our (essentially arbitrary and probably over-optimistic) 1% to 10% sales estimate, we get a total query count of 711 over the past 24 hours. A 10% sales conversion would produce $1,295,750.

Here’s the math:

10% of 711 = 71 multiplied by 50 = 3,550 sales per day multiplied by 365 days = $1,295,750 annual revenue

...a respectable figure but in all likelihood, an EXTREMELY optimistic estimate that would depend on converting 10% of all keyword queries across all search engines. Theoretically, that could happen but we aren't aware of any company that actually experiences such a high level of sales conversions.

Of course, the more realistic estimate – one that could still be considered extraordinarily high – would be 1% of all search engine keyword inquiries. Such a conversion rate would account for approximately 7 sales per day @ $50 would annualize out to only $127,750. And since that's gross revenue, not profit, it's very unlikely that the revenue from any keyword-related type of vegetarian dog food would account for enough cash flow to save Virginia Veg from an impending financial debacle.

The good news is that you have access to accurate keyword counts. Without such access, you could waste a lot of time and money investing in an idea where the numbers just don't exist in sufficient quantity for you to succeed to any great degree. After all, by not doing the deals that won't work, you free up time to discover the ones that will.

Consistently successful people learn to determine the difference between marginal and winning ideas – and quickly!

As to your best plan of action? Frankly, you’d be better off learning who is ALREADY selling this type of product in the marketplace and tapping into their success by becoming a wholesale supplier.

Now that we have used the Wordtracker service to determine what keywords people are using to locate vegetarian dog food-related products, you should go directly to the companies that are already selling it to see if you can cut a deal for Virginia Veg to supply the raw materials. Such an arrangement might allow you to gain infusions of cash into your company quickly instead of having to wait to build up individual sales within what is currently a very marginal sector of the dog food industry.

By entering the top search phrases into the engines, you can easily learn who is, in fact, already conducting online sales of vegetarian-related dog food and negotiate a joint venture. If Virginia Veg can craft such an arrangement, it would minimize the risk which would ordinarily be inherent within such a start-up venture. You would be able to indirectly tap into the efforts of companies who have already embraced the challenge and expense of building a niche dog food market.

This would be one possible way to inject extra cash into Virginia Veg without gambling a lot of time and money on the consumer end of a niche market that has yet to build any relatively significant demand.

This is page six of the HMTL version of Wordtracker's Free Keyword Research Guide.

Keyword Research Guide in PDF

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