Does Niche Matter in Online Business?
Updated on June 6, 2020
So you want to start an online business?
You’ll want to make sure you get things right the first time.
Realizing you’ve made a mistake after you’ve designed a website or placed an order for hundreds of products becomes a problem and a costly one at that.
While you can chalk it up to a learning experience that adds “character,” it makes more sense to learn smarter. There is a lot of misinformation out there regarding building an online business. However, we’re not going to try and sell you insider information.
Instead, we’re going to give away two years of our marketplace data to try and answer the age-old question: does niche matter when creating an online business?
Monetization and niche are often the first major decisions you will have to make when getting into the world of digital assets.
Whether it’s an e-commerce store, content site, or an Amazon FBA store, the monetization you choose will largely depend on your startup capital and the time you’re willing to invest. What we can say for sure is that they all have the potential to be hugely profitable.
The decision of which niche to get into is more unclear.
As a marketplace, it has always been our assumption that niche doesn’t matter. A business from any niche can be successful.
What matters is that the business model is well set-up with standard operating procedures (SOPs) that allow it to generate profit.
But this got us thinking…
What if the niche does matter?
Maybe some niches perform better than others.
We know that we’re not the only ones who’ve had this thought. Niche can be the stumbling block that prevents people from starting an online business. One search using the keywords “online business niche” returns results that promise to reveal the best niches to be working in.
While we’re not saying they’re wrong, the lack of data has us unconvinced.
Even if you’re already a business owner, this study will help you compare your business to others in your niche as well as offer some cross-niche comparison.
Maybe you’re thinking of branching out and creating something new?
Remember, online businesses don’t have to be built. They can be bought too. But that doesn’t mean you don’t have to do your market research.
Luckily for you, we’ve decided to put all of our findings about niche into one article. Let’s take a look at the data available from our marketplace.
What Data Was Gathered From Our Marketplace?
We exported all of the sold listings from the past two years on our marketplace into a spreadsheet. For the purpose of this study, we focused on the following data according to niche:
- The number of businesses
- Average list price
- Average sales price
- Average net profit
- Average list multiple
- Average sales multiple
- Average days on the market
While we were organizing this data, it became clear that some businesses fall under multiple niches and monetizations.
To combat this issue, we categorized each business in their predominant niche and monetization. For example, it’s common to see content sites mix their monetization. Thanks to our vetting process it’s also easy to tell exactly how a business listed on our marketplace makes money.
There are a total of 56 possible niches that a business can be classified as when they decide to sell with us. This shows the range of available potential when creating an online business. To begin, we’re going to look at the data for content sites and see what role niche plays.
What are the Most Popular Niches for Content Sites?
A content site is any website that makes its primary income from advertising, Amazon Associates, and/or other affiliate links. Included in this article is data for 250 sold content sites.
Of these sites, Amazon Associates was the most popular monetization and was being used as the primary monetization for 102 businesses. This is unsurprising considering the ease of which people can sign up for the program. It’s also beneficial to use a brand name as well-established as Amazon.
The most popular niche for a content site, with 38 businesses sold, is the home niche. Popularity is a sign that something works. Creating a content site in this niche means you know there is a precedent for success. This is an important part of any successful content site. You will want to make sure there are people actively searching for keywords in your niche.
However, this is also a sign that there might be a lot of competition. This could make it harder to rank in Google, which is something to bear in mind.
Rounding out the top five most popular niches for content sites are technology, pet care, outdoors, with sports, news and education, and Health and fitness as a joint fifth. These four niches sold 22, 19, 17, and 11 businesses, respectively.
It’s important to remember that the above data is from businesses that have been submitted to our marketplace. For a business to be listed on our marketplace, it has to pass through our vetting process. This includes showing that the site has six months of earnings history and has earned at least $500 in each of those months. There are plenty of businesses that don’t make it, but this gives us a good look at the ones that are more successful.
The above data shows what’s popular in terms of creating content sites, which is also great for showing us what niches are performing well.
However, there is another factor to consider: What niches are being purchased?
The data from our marketplace tells us when the business was listed and when it was sold, which gives us the amount of time on the marketplace. We’ve used the average time on the marketplace to see if niche plays a part in what buyers are interested in.
The top niches all had an average time on the marketplace of fewer than 30 days. A pretty impressive turnaround considering the volume of businesses sold.
A particularly good performer was the outdoors niche with an average of eight days on the market from 17 businesses sold. No site from the outdoors niche took more than 45 days to sell, but was this due to the niche?
The average sales price has to be factored in. Outdoors had one of the lower average sales prices of the most popular niches at $83,953.18.
We know the sales price is a factor in the time it takes a business to sell.
The sales process for businesses under $100,000 tends to be quicker than those of higher amounts. It’s not usually necessary to negotiate an earn-out or have complex deal structuring, which can take some back and forth between buyer and seller. Also, having a lower sale price makes the business accessible to more people.
What are the Most Profitable Niches for Content Sites?
To analyze the most profitable niches we looked at the average sales prices, which gives us a fair look at what niches consistently perform the best.
Of the top five, the niche with the highest average sales price was news and education. As expected, it also made the highest average monthly net profit, making $7,693.18 and receiving an average sales multiple of 27.
This niche had the second-highest individual sale price at $1,322,275 for an Adsense and advertising site.
This two-site package provided daily political news and made use of several Facebook pages to get a following of about 4 million people. These Facebook pages provided the main source of the traffic to the websites and made the business $41,321 in monthly net profit.
The news and education niche used Adsense and advertising as a primary monetization more so than any of the other top five niches. It used it on three of 11 sites, whereas technology and pet care used it twice and once, respectively.
Looking into why this could be, the seven-figure site mentioned above would generate 7 to 10 daily articles. Perhaps there is a lack of evergreen content in the news niche that makes using affiliate marketing more difficult.
This is not necessarily a negative, it clearly works. The two other sites with sole advertising monetization sold for $41,881.84 and $78,000.
Niche was not important in the sale of the million-dollar business. However, what it does do is show why the average sales price was so high. Having a high figure like that in a relatively small pool of 11 businesses sold boosts the average considerably.
The news and education niche was interesting, but it didn’t reveal too much about the power of a niche specifically. To continue our quest, we will examine another well-performing niche.
The second-highest average sales price was pet care at $163,172.03.
It had an average monthly net profit of $5,495.32 and was sold with an average multiple of 30x, which makes the sales multiple slightly higher than the news and education niche.
Interestingly, out of the 10 sites that sold for over $100,000, nine of them were of mixed monetization. Diversifying income across more than one revenue stream is seen as a positive factor in business valuation. This is particularly true if there is an even balance between these sources. It’s a sign that a business doesn’t have all its eggs in one basket and could survive any changes to payouts from affiliate programs or advertisers.
Advertising rates are known to fluctuate to reflect people’s buying patterns. Affiliate programs can also change their payout structure for better or worse. This includes the Amazon Associates program, which is not immune to wholesale changes in pricing.
This doesn’t help to answer our question of whether the niche is responsible. One hypothesis could be that seasonality plays a part. Perhaps buyers prefer a business that is stable throughout the year rather than one that peaks around certain months.
Perhaps the reason the pet care niche receives a higher average sales price is because it’s not as seasonal as other niches, such as outdoors.
Is there any truth to this?
To find out, we analyzed the 17 outdoor content sites to look for any evidence of seasonality. Four showed signs of high seasonality, while only one from pet care did.
Of these four seasonal sites, three had a sale price of less than $100,000, while one sold for $237,811. Plus, all four businesses sold in 13 days or less.
This data proves that seasonality hasn’t made these particular businesses any less desirable. Nor is there enough evidence to suggest that the outdoors niche is anymore seasonal than the pet care niche. With the outdoor niche having more businesses listed in general, there are likely to be more seasonal businesses listed.
To see the role that niche plays, we will have to delve deeper into individual listings.
The listing with the highest sales price from the pet care niche was $630,000. This was significantly higher than any other business from the other five popular niches.
But what was the reason for this high sales price?
The business received a multiple of 40x thanks in part to earning $22,049 net profit a month. It earned this money through advertising, Amazon Associates, and other affiliate programs.
By the time of the sale, the site had four different revenue streams, including affiliate offers from Clickbank and a niche related affiliate program. Although it earned most of its income from a single source, it was also making four figures a month from Amazon Associates and an advertising network.
The seller had owned the site for about three years after purchasing it in a private sale. At six years old it represented a mature asset that had proven it would be around for the long haul. Couple this with a strong social media presence, and it’s no wonder how this business received such a high sales price.
What’s not evident is that niche played any part.
Simply, this became a very profitable business that was well structured and had a good social media presence, which is why it deserved such a high valuation.
There’s definitely something to be said about the volume of sales. Clearly there are niches that are more popular in terms of submissions. Towards the end of this article, we will wrap up our findings and summarize whether niche played a role in popularity and profitability. But first, we’ll take a look at how niche affects other monetizations.
What are the Most Popular Niches for E-commerce Businesses?
E-commerce, generally speaking, is any site that sells physical products. For the purpose of this study, we are also including dropshipping and Amazon FBA businesses.
The apparel and accessories niche, alongside the home niche, were two of the top five most popular e-commerce niches and sold the highest number of e-commerce businesses at 26.
This is a fair amount higher than the other three niches: health and fitness, beauty, and pet care, which sold 14, 13, and 12 businesses, respectively,.
Out of all 26 apparel and accessory businesses, Amazon FBA was the most used primary monetization method and was used by 12. For the home niche, this number was slightly higher with 17 businesses using Amazon as their primary monetization.
Apparel and accessories was the niche from the top five with the longest average time on the market of 91 days, which is not a particularly long time but longer than the home niche average of 75 days.
What’s the reason for this longer sale time? Is a business in the home niche more attractive to a buyer?
Looking at the individual businesses sold, the home niche sold nine businesses over $100,000, whereas the apparel and accessories niche only sold 11. We know the sale price is a factor in how long it takes a deal to be completed. However, it can’t be said conclusively that niche played a part in the length of time it took for these businesses to sell.
The best performer in the top five was the pet care niche, taking an average of just 48 days to sell.
What’s interesting about this niche is that it also had nine businesses sell for over $100,000, including two million-dollar businesses. One of these seven-figure deals for an Amazon FBA business took 69 days to sell, while the other, for an Amazon FBA and e-commerce business, took 17 days.
What this does show is how businesses within the same niche can often have a fairly large difference in sales time. Having two monetizations may be seen as a positive, although the e-commerce side only accounted for a small part of the revenue. The seller did include a plan for how to grow the e-commerce aspect, which would have been attractive to a buyer.
The pet care niche has less than half the data of the two leading niches with only 12 businesses sold, which doesn’t allow for the data to be as evenly distributed as one would like. This is why we’re hesitant to make bold claims about a niche having an impact on the popularity of a business unless there is clear evidence to support it.
It’s likely that niche plays a part in a buyer’s decision, but that is not reflected in our valuation. It remains to be seen whether niche is having an effect on the marketplace as a whole.
What are the Most Profitable Niches for E-commerce Businesses?
The niche with the highest average sales price from the top five was health and fitness at $542,773.54.
This is a sizable amount and is quite a bit more than the nearest competitor, pet care, at $372,945.41.
All 14 of the health and fitness businesses included Amazon FBA monetization with 10 of them using it as their sole method of earning revenue.
This is typical of the e-commerce businesses that we’ve sold in other high performing niches. The only niche where Amazon FBA wasn’t the singular monetization for at least half of the businesses sold was the apparel and accessories niche.
Was there a reason this niche used Amazon less than the others?
Looking through the individual businesses, there were three dropshipping stores, two e-commerce stores, and nine with mixed monetization.
Three out of the top five highest sale prices did not include Amazon FBA. The apparel and accessory business that had the highest sale price was an e-commerce store that sold for $493,610.
This business sold accessories from its website and built up a strong brand name. It had an Instagram account with 30k followers, and social media was its main source of traffic. Perhaps staying away from Amazon allows these brands to build up a name for themselves rather than relying on Amazon’s.
It would be hard to find data that backs this up but it is something to consider should you choose to create a business in this niche.
The second-highest seller in the apparel and accessories niche was an e-commerce and dropshipping store that offered customization of a popular accessory. Having their own site gave them total control over how they took their orders. This is an important part of the process when customizing products, and it clearly hasn’t affected these businesses negatively.
What it does show is that there are subtle nuances in business models and some are better suited to one niche than another. However, it doesn’t necessarily mean that niche itself is a factor in making a business more profitable.
To investigate this further we’ll have a look at the most profitable business from the most popular niche: health and fitness.
The health and fitness niche had two seven-figure sales with the highest being an Amazon FBA business that sold for $2,304,752. This business featured 24 SKUs that helped individuals with medical problems and was averaging $75,033 a month in net profit.
The products are sold across multiple marketplaces, and thanks to a team of virtual assistants, minimal work was required from the seller. There were even six new products released at the time of sale that the new owner would benefit from. Along with this, it had a good following on social media with around 35k Instagram followers.
These factors occur time and time again as we look through the different niches. In terms of valuation, the niche is not a factor that contributes to the sales price. Where it may come in to play is in the ability of these businesses to generate revenue and profit, which is a factor in the valuation.
With this thought in mind, we’ll begin to wrap up our findings to see what effect niche had across both monetizations.
Does Niche Matter in Online Business?
The simple answer here is that we could not find conclusive evidence that niche plays an important role in the success of a business.
However, there were still some interesting findings.
The home niche was popular across all forms of monetizations, having the most businesses sold. In addition to this, it had a relatively short average time on the marketplace. This means it’s popular for not only people creating online businesses but also for buyers that purchase them.
Pet care had a high average sales price across both monetizations. We tried to delve into individual listings where possible to investigate what role the niche played in this success. The main stumbling block was that there were successful listings throughout almost all the niches where there was enough data.
What was more telling is that the same pattern kept occurring when examining the successful listings.
They had all done the detailed market research, provided good content/products, set up a successful business model that allowed them to generate profit, and ran the business with minimal work.
It’s a lot easier said than done, but this was the evident pattern. Perhaps creating a successful and profitable business is easier to do in certain niches, but there isn’t any data from our marketplace to back this claim up. Performing thorough market research is the first place to start.
This also brings us to our other point: The niches that are available on our marketplace are deliberately broad. After studying the individual listings, there is a large variety of businesses within one niche.
Unfortunately, there is no one niche that is going to guarantee you success.
The positive theme here is that pretty much any niche can be successful.
What’s Next?
Hopefully this data study has given you the confidence to go out and start your own online business.
When you’ve got it up and running, feel free to come back and use our free valuation tool to see how much it’s worth.
Remember, you don’t have to build a business. You can also buy a business on our marketplace if you want to get results faster.
Maybe you can buy something, fix it up, and sell it for double its original value like our friend Felipe did.
Whether you want to buy or sell, our business analysts are available to call. They can help guide you through the whole process.
It’s a call well worth making.
