Guide: How to Choose a Niche for Dropshipping?

When starting an online store, a crucial question to consider is the choice of niche. Selecting the right niche is one of the most significant decisions on your journey towards a profitable business. It involves finding the perfect balance between meeting customer needs, outperforming the competition, and aligning with your interests. In this article, I’ll share some key points to remember that can guide you in making this decision.

Why do you need a niche for your dropshipping store?

A niche enables an online store to target a specific type of product, customer group, or market interest. Specializing in a niche allows the store to cater to a particular audience, often providing specialized products that aren’t widely available or that meet specific needs or preferences. It’s important to mention that a niche often extends beyond products. It may also define how your marketing, communication, and copywriting resonate with a specific audience, even if the same products are available in larger online stores. Essentially, having a niche means you avoid direct competition with large players like Amazon and other market leaders, while still accessing a market large enough to offer significant upside. We often see that merchants choose to build so-called general stores that aren’t catering to anyone’s needs particularly well, but choosing the right niche allows you to meet the needs of a specific customer group so well that they choose to purchase from you. In e-commerce, especially when you are just beginning with your store, it’s better to be loved by some than liked by lots. You need fans who make repurchases from your store, mention your store to their friends and family, and like & share your social media content.

When we started a shoe store for the Estonian market, Saapavabrik, there was no demand for just another shoe store, so we doubled down very strongly that all our shoes are made in Estonia or Europe. We told our customers that we have no well-known brands, but we offer excellent quality. And if you care about big brand names, we are not for you. So we went after a target group who values locally made, high-quality boots that are not worn by everyone and who even appreciate that they are not from well-known brands.

12 Tips on how to choose a niche for your online store and what to keep in mind?

1. Be creative when thinking of possible niches. Simply having an apparel, bag, or jewelry store isn’t enough to define a niche. As an exercise, consider this structured approach: Start with a Category (e.g., Women’s Fashion), then narrow it down to a Subcategory (like Swimwear), and finally identify your Niche (such as Tan Through Swimwear). For example, if the category you are considering is jewelry, then the thought process could be: Jewellery -> Earrings, with potential niches being ‘handmade earrings,’ ‘recycled earrings,’ ‘non-allergenic earrings,’ or ‘men’s earrings.’ However, the viability of these niches also depends on the market size. In smaller markets like Finland or Lithuania, having a store focused solely on earrings or even just jewelry might be a sufficiently sized niche. In contrast, in larger markets such as the UK or the US, specializing specifically in ‘men’s earrings’ might be the optimal niche. Utilize tools like ChatGPT and similar platforms for ideation to generate innovative and unique niche ideas. And of course, don’t forget to browse the Hertwill catalog for additional ideas.
2. Balancing Niche Size and Competition. The right niche should be small enough for you to be competitive, yet large enough to offer significant upside. Ideally, a niche should have a high search interest but low competition – it shouldn’t fall into extremes like having a very high volume with high competition or low competition coupled with low search volume, which could indicate a lack of buyers. The goal is to avoid competing directly with multicategory giants like Amazon and Zalando. While there are premium tools available, the free Google Keyword Planner is a great resource for checking search volumes and ad competition in your potential niche. As Matt Janaway, CEO of Marketing Labs, emphasizes: ‘While search volume is undeniably important, for me, the level of competition is the most critical factor.’
3. Additionally, when evaluating search volumes, it’s crucial to consider search intent – whether people are looking to make a purchase or just seeking information. You can use Google Trends to effectively compare the popularity of different niches, such as, fox example, ‘Design Swimwear,’ ‘Sustainable Swimwear,’ and ‘Functional Swimwear.’ This tool is also useful for identifying which markets, based on regions or countries, are more interested in these niches. Additionally, conducting a simple Google search with the main keywords related to your store is recommended. This can give you an insight into the competition, especially if you’re planning to focus on traffic from Google. For most small online stores, targeting long-tail keywords is crucial because they are less competitive and more specific to customer searches, which can lead to higher conversion rates. If bringing in organic traffic is an important part of your customer acquisition tactics, I recommend checking whether websites with low domain ratings are ranking high on Google in the niche you’re considering. If the top positions are dominated by very well-known or large websites with high domain ratings, it might be challenging for a newcomer to break into the market. Ideally, you should aim for niches where websites with lower domain rankings are still able to achieve high Google rankings. Tools like Ahrefs Website Authority Checker are useful for assessing the domain rankings of these websites, giving you a clearer understanding of the competitive landscape.
4. Consider your personal interests when selecting a niche for your online store. From our experience at Hertwill, building a successful store is much easier in a niche that genuinely interests you. Often, you might be developing your business alongside your day job, making passion even more crucial. It’s also simpler to create content for your website, social media, and ads if you’re personally invested and knowledgeable in the category. For example, when we started Hertwill, we primarily focused on shoes and bag brands because those were categories we knew well. In the early days, we even purchased shoes and bags from every brand we onboarded. Why? Not only because we love these products, but also because it helped us generate original content. On the flip side, I once bought the domain gardengnomes.eu, attracted by the high search volumes shown in Google Keyword Planner. However, I have no real interest in gardens, gnomes, or garden gnomes. As a result, that domain is still waiting for the day I find enough motivation to launch the store – which might never happen.
5. Fad vs. Trend. Your online store’s niche should focus on a trend, not a fad (a short-term spike followed by a rapid decline). While there are many tools for finding trending products, the free Google Trends might be sufficient for your needs. You can also explore trending products on Hertwill (TOP 100 of Hertwill), Amazon, or Etsy. Generally, we recommend not chasing ephemeral trends but rather concentrating on building a long-term and sustainable business. Many merchants focus on catching the next big TikTok trend. At Hertwill, however, we prefer to support merchants who are ready to invest significant effort initially in getting their store operational, with the understanding that this groundwork can lead to a substantial and sustainable business in the long run, one that doesn’t collapse with the fading of a trend.
6. Can you frame your store? There are numerous online stores out there. What makes yours stand out? A good exercise that has helped some merchants choose their niche is to articulate their online store’s Unique Selling Point – identifying what sets your store apart from the competition. If you are considering opening a men’s jewelry store, try to summarize in 1-2 sentences what makes your store special. For instance, when we launched our Estonian shoe store, Saapavabrik, it exclusively sold boots manufactured by Samelin. These boots adhere to NATO standards and are all produced in Europe. One of our main selling points, which we prominently featured in the store and in our ads, was: ‘Quality boots manufactured in Europe according to NATO standards.’ After launching your store, it’s crucial to test your value propositions – consider using A/B testing tools or creating ad variations on Facebook & Google. Additionally, reach out directly to your customers and ask why they chose your store and products. Importantly, be true to what you claim. If you market your store as a ‘Men’s jewelry store selling handmade jewelry from small European brands,’ then don’t list random Aliexpress products in your store.
7. Prices and Margins. When choosing a niche, it’s important to consider the product prices and the margins you’ll be working with. For example, it might seem easier to sell €30 wallets with a €14 margin than to sell €200 backpacks with a €60 margin. However, you would need to sell many more wallets to achieve the same total margin as you would from selling just one backpack. While margin percentages are important, the total margin in euros often holds more significance. In the examples mentioned, the wallet has a higher margin percentage-wise, but the backpack offers a larger euro margin, providing more flexibility for marketing, discounts, and other expenses. Margins also vary across different categories – for instance, electronics typically have lower margins compared to clothing and shoes. Additionally, the time it takes for customers to make a purchase decision usually increases with the price of the product. A €15 candle, for example, is generally a quicker decision than purchasing a €250 briefcase.
   1. Also, keep in mind repurchases—the margin for underwear or socks might be smaller in total euros, but if customers like them, they are more likely to make repurchases compared to some other product categories, which can increase the lifetime value of the customer.
8. When choosing a niche for your online store, it’s crucial to consider your ability to source products within this niche and also the reliability of the suppliers. While commercial satellites might seem like an attractive niche due to low competition, realistically, sourcing these could be extremely challenging. For instance, we have seen merchants create stores themed around Scandinavian design, only to stock them with products from AliExpress. Your store should cater to the interests of your target audience, and the products you offer must align with your store’s niche. For example, if you run a store specializing in hiking boots and target customers seeking such items, it’s essential to not only stock hiking boots but also ensure they are prominently displayed and immediately visible to customers upon visiting your store. Attracting traffic to your store is futile if the products don’t align with your store’s niche and messaging. Inconsistent product offerings can lead to customer disappointment, low conversion rates, and ineffective spending. Additionally, keep in mind how reliable your suppliers are. Are their products of good quality? Will they fulfill the orders? Will they take care of warranty issues and returns? Can you even get in touch with them when there’s an issue? These are important aspects that often receive undeservedly little attention. We at Hertwill are strong advocates for high-quality products, as this aligns with what we believe in and offer. Our experience, both from our own operations and through working with various stores, has shown that high-quality products that meet customer needs result in lower return rates and overall happier customers. After all, who wants to sell or buy substandard products anyway?
9. Customer support & Returns. Some niches and categories may involve more customer support, higher return rates, and lower margins, so it’s definitely worth researching this aspect. For example, clothing traditionally experiences a lot of returns (sometimes up to 40-50%), but it also sees a high volume of sales and faces stiff competition. On the other hand, bags and jewelry typically have fewer returns, but people might not purchase these items as frequently as apparel. These are just a few examples to consider. Whatever niche you choose, do a bit of research: Google the return rates for products like boots, or better yet, ask for specific numbers directly from the supplier. At Hertwill, for instance, our return rates for shoes are around 10%, for bags below 5%, and for jewelry around 2%.
10. For influencers. If you are an influencer or have a substantial following on social media channels, I would strongly recommend connecting your store and its niche with your influencer persona. This approach can significantly enhance the store’s relevance and appeal. For instance, Liisi Väli, an Estonian home decor micro-influencer, launched a home decor store in collaboration with Hertwill at https://www.byliisi.ee/. The store sells home decor accessories, aligning perfectly with her passion and her social media follower base.
11. Opportunity Score. If you are an overachiever and aware that humans are often biased in their thinking, you might want to set up a Google Sheet to compare different ideas you’re considering for your store. Rate each idea on a scale from 10 (awesome) to 1 (super bad), based on criteria like search volume, competition, product selection, and how personally appealing the niche is to you. Then, opt for the idea that garners the highest overall score. This methodical approach can help you balance personal interest with practical market considerations.
12. Naming your store and domain is also crucial when choosing a niche. Broadly, you have 3 options:
    • Keyword Matching: Name your store and domain exactly after the niche you are building, trying to match the keywords people use for searching (for example, militaryboots.eu or mensdesignerjewelry.eu). While opinions vary on how much and if a domain name contributes to ranking (link & link), we’ve observed that new stores with keyword-matching domains often do well in organic traffic. However, correlation does not necessarily imply causation. A downside to this approach is inflexibility; it’s harder to pivot to new categories. For instance, if you’re running militaryboots.eu and want to start selling kids’ toys, it wouldn’t make sense.
    • Brandable Name & Domain: Come up with a general, new brand name suitable for selling various categories and products, making it easy to pivot the store to new categories. For example, Studio Absurd took this route. Although it allows easy addition of new categories or pivots, the challenges include building SEO and making it clear to users (and sometimes even the merchants) what the store is about. If you choose this path, consider adding a descriptive sentence in a visible place on the homepage and social media, like ‘Studio Absurd – Not another boring design store.’ An upside to this approach is brand recognition: if you can build the brand to the point where people start their search with your brand name, you’ll be in a strong position against competition.
    • Mixed Approach: Combine the first two options by using a category nominator and adding your own touch. Examples from our partners include Ruby Sunglasses and Nordicbags. These names make it clear that Ruby Sunglasses sells sunglasses and Nordicbags sells bags, which is user-friendly, but they also establish their own brand. The domain and name aren’t just keywords from search. A similar upside as in the brandable approach exists here: if you manage to build a strong brand, people may start their searches with your brand name. This has happened with our own small shoe store in Estonia, Saapavabrik. Indeed, the volumes are small, not many people living in Estonia, but this is very high converting traffic, as they already have the intent. Anyways, it’s a valuable addition to our regular acquisition channels.

Conclusion

In conclusion, navigating the vast and competitive landscape of e-commerce requires the right strategy, underpinned by thorough research and genuine passion. Remember, the journey of an online store is as much about the products you sell as it is about the story you tell and the community you build. With careful planning and execution, your online store can thrive in this dynamic environment. If you’re struggling to choose a niche, don’t hesitate to reach out to us for help. We work with hundreds of online stores across Europe and have firsthand insight into what works and what doesn’t. However, always keep in mind that selecting the right niche, while important, isn’t as crucial to your store’s success as the consistent effort you put in day after day.