One of the most crucial aspects of running an online business (or an offline business that markets online) is market research. You need to know whether a market is profitable before you put time, energy, and resources into a project. People who skip this step often find themselves frustrated and it’s easy to see why. Putting hours into something that will never pay is obviously a terrible idea.
People Who Can Benefit From Understanding How Online Markets Work
- Professionals (doctors, lawyers, real estate agents, chiropractors, massage therapists, dentists, orthodontists, funeral specialists, etc) who already have sites or are thinking about setting sites up
- Casual internet marketers
- Professional marketers
- Bloggers
- E-commerce site operators
- People who are just getting started with internet marketing
How To Calculate The Profit Potential Of A Market
By looking at individual keyword phrases (the words and phrases people search for in Google) we can get a lot of insight into how money is flowing through a market. The Google Adwords Keyword Tool is extremely useful for this. Let’s take a look at an example keyword phrase so that we can further illustrate.
Example #1 – Provo Dentist (as a dentist)
For our first example, let’s take a look at the phrase ‘provo dentist’. If we look at the term in the the Adwords tool, we can see that the monthly search volume is 720. This means that 720 people are searching for this term each month in Google (approximately):
If we set the tool to show ‘Estimated Avg. CPC’ (which I did) we can determine that there is a dentist somewhere (or a marketing company) in Provo who is willing to pay $3.80 per click to buy traffic from Google. If we multiply the amount of searches by the CPC (the amount these people are willing to pay to buy a click from Google), we can determine that the top advertiser is willing to spend $2736 per month to buy traffic. They probably don’t spend this much because some people will click on the listings of other advertisers, but the point is that at least this much money is changing hands. This means that we can safely assume that the market size of the online ‘provo dentist’ market is at least $2736 per month, and that’s if the dentists are breaking even. If they are making a profit (likely), the actual market size will be higher than this.
It’s extremely difficult to get 100% of the traffic for any keyword phrase in fact you would need multiple web properties to come close. If your site ranks #1 in Google, you can plan on getting around 40% of the available traffic. That means that in order to get an accurate representation of your true profit potential in a given market, you are going to need to discount, using only 40% of the original number. This would mean that we would end up with a potential of $1094 per month, assuming that we could get our site to #1 in Google. This would of course be free traffic and we could increase our share of the market by also buying some of that traffic but that’s a different story altogether.
Another factor that’s still in play is that there are other keyword phrases that are used to search for dentists in Provo. The above screen-shot shows us that. There are also people who don’t live in Provo who would probably drive to Provo to go to a dentist that they liked. Springville is five minutes away from Provo, Orem is five minutes away from Provo, Mapleton is 10 minutes away from Provo, etc.
To get a true representation of the size of a market, you would need to add up the potential for all keyword phrases that could be used to search for your service. In this case, we would need to calculate and add up the potential for the following keyword phrases: provo dentist, provo dentists, dentist in provo, dentists in provo, springville dentist, springville dentists, dentist in springville, dentists in springville, orem dentist, orem dentists, dentists in orem, dentist in orem, etc. There are probably a lot of other cities that are nearby that would work well – you would have to do the research yourself to find them.
Example #2 – Provo Dentist (as a marketer)
For our first example, we assumed that we were an actual dentist who could take on clients from the traffic. If we look at the same keywords (and the same numbers) from the viewpoint of a marketer, things will come out differently:
We are still seeing the same numbers, but now we know that we aren’t going to make all of the profits – the dentists will also need to make some of the profit or the money will obviously quit flowing.
$2736 will still be available – that calculation doesn’t change. What does change is the percentage of the profit that we can make. We will still only be able to get 40% of the traffic if we end up at #1 in Google so we’re knocked down to $1094, just like before. From there we need to discount further. There are a few ways that we can do things.
If we wanted to establish an actual relationship with a dentist in Provo, we could probably do a 50/50 split of the profits which would mean that we could make about $547 per month if we got ranked #1 for ‘provo dentist’.
In order to make this work, we would of course have to talk to dentists and find one who was willing to partner with us in this way. For those of you who aren’t comfortable with that, you would have to choose another alternative like Google Adsense.
There are certainly dentists in Provo who advertise via Google Adsense, so how can we determine our profit if we decide to put these ads on our pages? We simply discount further based on how we expect our traffic to act. Here’s how the numbers will work out (approximately of course):
- There is still $2736 on the table
- However, we can still only get 40% of the traffic (knocks us down to $1094)
- We won’t get the full CPC because Google will take a cut and we won’t always get clicks on the highest paying ad. We can only expect to get 25% of the CPC number we see in the Adwords tool. This knocks us down to $273.50.
- Also we can’t get every visitor to click on an ad. In fact, we can only plan on getting 5% (in some cases you can get more clicks but we want to be conservative in our estimate) of our visitors to click an ad. This takes us all the way down to $13.68 per month.
We would still need to compensate for the fact that there are a lot of different keyword phrases that we could use as a marketer. The Springville and Orem keyword sets would still be on the table and as a marketer, geographical location really doesn’t matter. We could target keywords for any location because Google Adsense will have advertisers in most cities. We would need to make up for our small piece of the earnings pie by putting a lot of keywords together and getting traffic with all of them.
Uses Of This Skill Set
We of course can use these skills in a number of ways. A dentist could use these numbers to determine the relative value of a marketing company that’s offering their services. Any other service professional could of course do the same. On top of that, if a service professional was willing to pick up a new set of skills they could take care of their own marketing and pocket all of the money that would be available (in this case that’s $1094 per month – not a fortune but this would of course compound as the client came for additional work and referred friends). After a few years it’s likely that income would build nicely. Remember that our numbers are also very conservative here. We are assuming that the advertisers who are willing to buy the traffic are only breaking even. If they make a profit, there’s more profit to be made.
Marketers can of course use this type of market analysis to determine the profit potential of any keyword phrase or market that they want to enter. This saves them the time and hassle of creating web properties that don’t have little potential. Keep in mind that this methodology can be used for any keyword phrase or for any combination of keyword phrases. Marketers could also use this skill to sell ad space to the dentist (or of course any other service provider). By showing them the profit potential of the keywords, it could be easier to sell an ad. By cutting out Google you could get a larger share of profits. A dentist who can see that they have the potential to make over $1000 per month from a ranking would definitely be willing to spend $200 per month to buy ad space.
Questions About The Method?
If you have any questions about this method of market analysis, please let me know in the comments. I want to help each of you to understand this process as much as I possibly can.
Great detailed post here! I’ve used this keyword tool in the past and from researching online, there’s mixed opinions as to how accurate the traffic data is compared to other keyword tools. It’s important to get the right data in the begining because everything else relies on it.
Honestly Jack anyone who says that any other keyword tool is more accurate is outside their mind. It proves to me that they don’t have many sites that are getting traffic.
The tool is subject to a few things that could throw the data off but for the most part it’s very accurate.
One example of messed up data would be webmaster phrases like ‘make money online’. Thousands of people search for the phrase just to see who ranks. They don’t click in to the sites. The keyword is searched for as often as the tool says but there isn’t as much traffic available. Any keyword tool is going to make this mistake though.
Totally agree with you. There’s so many tools out there for marketing firms and individuals to use that will definitely throw the traffic data off. Thanks for the clarification.
Good point. Is there anyway to calculate the number of fraudulent searches? Perhaps count up the number of estimated advertisers in that space * an assumed number of searches per day (2-5) then subtract?
Great post by the way …
I really don’t think so Dimas. There isn’t going to be a correlation between advertisers and searches per day.
There really aren’t that many keywords out there that have this issue. They are mostly webmaster keywords like SEO, make money online, internet marketing, etc.
The safest way to know how many clicks you can get is to set up a PPC campaign and actually buy clicks. Buying clicks for like 2 days would tell you a lot.
There’s something bugging me about your method to determine the actual value of the keyword, specially on niche keywords like the one you mentioned about dentists in a given city.
This comes from experience in one of my sites, so its not just a hypothetical question (niche obscured for monetary reasons..)
say I have a site about making paper, which lets assume has a cpc of $0.60.
Then I have three articles about “making paper from recycled cardboard” [ktool cpc $0.05], “making new paper from recycled school notebooks” [ktool cpc of $0.05], and “advantages of paper from pulp vs recycled paper” [same ktool cpc].
They get traffic from that exact same keywords, about some 100 visits per month per keyword.
After a month of having those articles lets pretend I check my google analytics and see that those keywords have made me $4.30 from 6 clicks [$0.71 avg], $2.13 from 4 clicks [$0.53 avg], and $1.32 from 7 clicks [$0.19 avg], respectively [not actual figures, remember... pretend]
Not all clicks came from the same page they landed on, some did, some clicks came from pages of similar low ktool cpc, yet most pages get about the full cpc [more in some cases] of the general ktool cpc of the overall theme, probably because i’m getting ads from the more general niche of paper, $1.00 ktool cpc.
My question now is, how do you factor these kinds of user interaction with your site? do you factor that at all? do you just discard low cpc keywords even if they can send traffic to your other, higher cpc pages on your site?
I have found some very easy keywords to rank for in the “making paper” [not really in making paper, but you get the idea] niche, that with only one link they catapult to ranking first in google for their target keyword. they don’t get a lot of clicks on them pages, but I use to funnel traffic [or in most cases it funnels itself] to higher paying pages.
What’s your take on that?
Very few of these low CPC searchers are going to actually make it to a higher paying page and THEN click on an ad. Sure, it’s going to happen but the percentage of the time that it happens will be microscopic. There’s no way that it’s going to happen more than 1% of the time.
Think about it, less than 5% of searchers actually click ads in most niches. If you need a person to first click to an extra page and THEN click an ad, it’s not looking good.
I’m not saying that this is a bad strategy at all but I would say that trying to plan for it isn’t a good idea. Once you cross under the 1% mark it becomes somewhat pointless to try to estimate what’s going on. There just isn’t enough there to work with.
Use your method as a way to boost existing earnings but don’t try to plan it all out. I don’t see you being able to estimate that with any reliability.
That said, there are a lot of ways that you can get extra income so that you can make more than this estimation. Using this method is simply that, making an estimation. Don’t take it to mean that it’s going to be exactly right 100% of the time.
Ok I see your point, plan for the worst case and work your way up, if the worst case shows promise, then good results make people happy.
Having one or two of those higher performing pages where people from many other lower performing keywords and getting a few of those higher dollar clicks was for me, and still is, quite motivating, motivation that for beginners and new sites really need to get off to a good start.
So if I get thing correctly, what you’re saying is to make posts on the keywords that have ktool cpc to begin with as foundation, and optimize after you’re making some money with them, which I guess is what I was doing on the site.
It’s true that what I’m doing can boost income, but you can’t boost it if you don’t have it, right?
thanks man, good stuff.
Any idea when those new tutorial videos will be up? In particular the wordpress one. I thought they would be up last week but still can’t find any reference to them on the site.
Hi,
great article. Just to clear things up in my mind can I check the figures.
Lets use an example of 3000 monthly searches.
of that number 1 site can expect 40% of traffic.
Then an allowance is made for google commission/click on other things etc or 25%
and finally only 5% of hits to you site will click on the ad.
3000*40%*25%*5% = 15 clicks on the ad per month.
So 0.005% of all click per month will be converted by the number one rated site on Google?
Does that sound about right?
Regards
Dave…
Almost right Dave. The 25% helps you to estimate how much you could get paid. If you’re just trying to estimate the number of clicks you need to take that part of of the equation. It would be 3000*40%*5%= 60 clicks per month.
There is no way to calculate these numbers and I think you are wasting your time.
Says the guy who won’t leave his site URL…
There are a lot of members of our program who would disagree with you Mitch and they have actually used the process.
Great post, Court. The whole process can be a bit confusing, but you’ve explained it very well. This actually covers what my next blog post is going to talk about in terms of finding a profitable niche. It’s important to do the research first before diving into a market without knowing if there’s any money to be made.
You are making a lot of assumptions in your calculations. The assumption that all of the GAW advertisers are at least breaking even is unrealistic.
You’re right Mitch. It’s probably smarter to not try to estimate how much you can earn with a given keyword. I think you should do some experimenting with picking random keywords and building businesses around them. Let me know how that goes.
You don’t think I know that I’m making assumptions? The whole point is that we’re making an estimate. Do you know what that word means? It means ‘to form an approximate judgment’.
You’re probably right though Mitch, we should probably assume that every business on earth is losing money hand over fist every day just to be safe. That way we can just do nothing but run around trolling in people’s comments anonymously.
The cool thing about my argument is that I’ve already tested it hundreds of times.
What does showing my site have to do with my opinion being expressed here? Is it just that you want to know who anybody is that dares to disagree with you?
Tell me this Mitch, what would recommend as an alternative to this method? When I see your comments here they have a negative tone and aren’t helpful to anyone. If you want to be helpful, provide people with an alternative that works. If you’re just going to try to poke holes in what is said, kindly find a new place to hang out.
Mitch all we care about here is getting results. It would say a lot if you were willing to go on record with an opinion IF people knew who you were. You’re welcome to disagree with me. Tell me who you are, your reasoning behind your position, and the testing that you have personally done. Offer an alternative. I’ll test the alternative and if it works better than what I’m currently doing, I’ll implement it into my work and teaching.
Great post Court. Though I think your criticism of Mitch is a bit harsh. I check out many mmo sites and barely anyone ever discloses their sites for fear of copycats or whatever. Also, many forums dispute the accuracy of the keyword tool. Still, I really do like your site and your advice. And no I don’t have a website.
Hey Steve! I actually don’t care if people disclose their sites or not. I’m going to give Mitch a hard time because he likes to give me a hard time. He’s never left a positive comment here. All of his comments are just like his comments on this thread. I don’t enjoy negative people and I’m done listening to him.
I know that you have good intentions Steve. He doesn’t. The only thing that matters with the accuracy of the tool is whether there is a better alternative. Trust me, right now there isn’t.
The whole point of this article is to get the most accurate estimate possible. I’m not going to listen to people who are trying to poke holes in the method unless they can provide a better alternative. If there was a better one, I’d be interested in testing it.
The problem with forums in general Steve is that people don’t test. They arbitrarily throw out theory – things that ‘could’ be wrong. The things I publish are based on testing and are created to provide the best methods I know, according to lots and lots and lots of tests.
You tell me, according to forums, what are the better alternatives? I have tested most keyword tools against my traffic data and I don’t know of any that are within shooting distance of Google’s tool. I’m not saying their tool is perfect, I’m saying it’s the best one out there.
If we are going to poke holes in every method out there we aren’t going to ever get anything done. I can poke a thousand holes in any method I’ve ever read. That includes link building methodology, keyword research, monetization methods, and a lot of other methods.
This of course doesn’t get us anywhere Steve. We have to make things happen everyday or we don’t achieve anything but running in circles. We do that by finding the best methods available and using them. In my opinion, this is the best method on planet earth for comparing keywords. If you have a better alternative I’d love to test it because honestly I don’t care about being right. I care about finding the best method.
I can vouch for this method of estimating the potential of a keyword. I have used the method as outlined by Court to put together my very first website nine moths ago, which I have a link to right here. Keeping the estimates conservative is a great thing. My site is now making about one and a half times the estimated monthly revenue by Courts method and needless to say I am very happy about that. I can assure this system is one of the best estimators of a keyword you will find.
Why is getting a simple answer so hard?
Are you talking about the new core videos Mike?
Yes Court, that is what I am referring to. I really want to sign up again for the course after I was told there would be new core videos out soon. I cancelled several months back after problems with the wordpress video, but when I heard there were new videos due out soon I would really like to sign up again.
We’re getting close Mike. Right now I’m hesitant to give you a date but we’re getting there. We’ll write a post here on the blog that will let people know when we get them done!
Great! Thank you Court
I can vouch for this method – I have a site that is no.1 in Google and I looked at the yearly earnings and your formula was almost spot on, my earnings were a little below what should have been expected but not by much – certainly the formula is a great way to work out to go for keywords or not – and in fact had I known of this at the time I would not have built the site in the first place. Thanks Court.
I really was never great at figuring out how profitable a niche is before diving right in. This is just the article that I needed, I’m going to bookmark it and come back when I have the time to restart a few campaigns. Thanks so much for the advice!
Guess what? I did use Google Keyword tool before I decided to build my page. Make money online was HUGE to say the least. From your response above, I now know why it is so hard to get anywhere. Why didn’t you post this in January? I think I will stick with it, but I may do something a little different on my next try.
Thanks Court!
I can vouch for this method of estimating the potential of a keyword. I have used the method as outlined by Court to put together my very first website nine moths ago, which I have a link to right here. Keeping the estimates conservative is a great thing. My site is now making about one and a half times the estimated monthly revenue by Courts method and needless to say I am very happy about that. I can assure this system is one of the best estimators of a keyword you will find.
Two thumbs up!!!
Court, I’m trying to create a spreadsheet I can use to simply do a copy and paste from the google keyword tool (after I export to CSV). I have a column with the following formula (example):
=(((B2*D2)*.4)*.25)*.05
basically: = (((CPC*VOL)*40%)*25%)*5%
You mention that a #1 rank in the SERPs will be about 40% of traffic … I’d like to also calculate for #2 through #10. But, I understand that not all results are created equal, even if they are on the first page.
Would you happen to have some insight as to the traffic degradation as you get to the lower results on the page?
… or can you point me in the right direction to try to get some “good fuzzy” numbers to work with?
I’d like to find data similar to, or that can help me get something like this:
(these numbers are made up, pulled out my a**)
PAID = 15%
#01 = 40%
#02 = 23%
#03 = 8%
#04 = 4%
#05 = 3%
#06 = 2%
#07 = 2%
#08 = 1%
#09 = 1%
#10 = 1%
Thanks
I have one question, in relation to Google keyword tool.
As far as I can see the numbers displayed by each keywords is the total times a specific keyword occur, which means both in its exact form but also in long tail form.
Example
Money = money + any phrase containing money
This makes is very difficult to estimate exact number on a specific keyword, especially the shorter ones?
Is my assumption correct?
Morten, Court can definitely answer this better than I can … but ill try anyway, my understanding is:
It’s true that a page may rank for a long tail keyword and the short version of the keyword, but really all you can estimate for are the keywords that the page actually ranks for. It is not guaranteed that a page will rank well for both the short and the long tail keyword.
Your estimate would then be on the low-end not taking into account any long tail keywords that a page may also rank well for (but if you do get that traffic thats good anyway).
@Dimas, I understand everything in relation to the ranking, my point was something else.
If your keyword is a single word, the value shown in Google keywords for this specific word includes all long tail searches or phrases containing this word also, which means it is literally impossible to estimate your potential traffic if your keyword is a single word.
The more specify your keyword phrase get, the more accurate an estimate you can make?
Anyway that is how I assume that the number in Google keyword tool should be understood.
New to the IM world. This was a real eye opener on the value of keywords. One question, how does one actually monetize what is being recommended in example #2 where Court says:
If we wanted to establish an actual relationship with a dentist in Provo, we could probably do a 50/50 split of the profits which would mean that we could make about $547 per month if we got ranked #1 for ‘provo dentist’.
What type of partnership are we establishing with a dentist? Are we building a website for the dentist and they pay us a fixed dollar amount monthly or something else here?
There is something missing from this formula which is whether get #1 rank is doable or not.
If there are some giant websites competing for the keyword, then I think it might not be worth the struggle from the view point of a marketer.
I tried to do these calculations but found them headbreaking. I prefer using the keyword academy tool: niche refinery. It’s a big time saver.
Hey Court, I have an irrelevant question; how do you create content to your niche sites?
I find creating content for niches where I have no experience pretty hard and time-consuming. Do you outsource it or create it yourself?
thanks.
Grab a book, and remember grade school … the good ol’ fashion book report … read a chapter or two and then summarize and repeat!
Thank you, to be honest, in my first reading, is not able to fully understand what you mean. When I read again carefully, I have a surprise discovery. Thank you for sharing.
Quite great lesson to be committed into memory.
Many thanks.
I have picked some keywords, based on your method. I’m building the site. I will let you know how it works. In the meantime, thanks. I at least have a way to start figuring out if some keywords are worth bothering with.
I always find it “amusing” when someone offers their best advice and is then met with criticism. I have been researching ways of making money online for months. I am now going to stop and follow this advice. There is a clear logic to it and it works from what I can see.
It is also honest and I know from my own offline business there are certain basic skills that always work. These are hard work, discipline, market research and knowing your customer, knowing what makes money and then putting them altogether. The important ones are hard work and self-discipline.
I just didn’t understand how to do this online but in truth, apart from the technical aspects it is the same as a traditional business.
Thanks Court for your practical and honest approach so now I am off to find my profitable keywords that I hope I can rank for.
Enda
THNKX
I think this is an excellent post…yes there are some assumptions with the calculations but as long as it’s even close to the actual outcome I am ok with that…it’s much better than going for it without having any idea of the outcome
Excellent post! I’ve learned the hard way about doing market research. When I first started, I thought it was as simple as building a website and watching the traffic roll in.
Obviously not. Research is crucial, and I’ll never forget it again.
Another great post! Market research is very important to ensure the viability of your targeted online market!