How To Predict The Revenue Of Any Product
For the past few weeks I've been evaluating niches by predicting the revenue and profit margins of different keyword searches. This gives me an insight into how scalable my product idea would be without needing to invest lots of capital into first creating the product.
Note: This is not product validation. This is simply market and niche research to help you find growing and scalable markets to build products in.
1) How many people are searching for this?
I start by finding the volume of people searching for a specific term. In this example, I'll be using "intermittent fasting":
I'm currently using Ahref's Free Keyword Generator to do this:
You want to look for people searching for products. They will normally follow a format like so:
- "Best safety razors"
- "Best double edge razor blades"
- "Intermittent fasting app"
From the keyword results I can see that 8.8k people have searched for an intermittent fasting app. This is a good because:
It has a healthy monthly search size. Generally you'll want at least 3k searches but this depends on the industry and product price you're going after.
The search term is specific and based on something that people are willing to buy.
2) Calculate Ad CPC
Now that we have our volume we'll want to find out the Cost Per Click (CPC). In order to do that we'll need to use the Google Keyword Planner.
When searching for a given phrase I like to wrap it in quotes to force Google to show CPC for that exact search.
Once you've got the results take the median between the lowest bid and highest bid. In this case it'll be £0.98.
3) Find the cost of similar products
Most likely you'll want to have a product that's around the same price as your competitors. Finding out this price will also help with providing a more accurate estimate when it comes time to doing the calculations.
To do this, I simply google the term "intermittent fasting app", find an existing app, and look for their monthly subscription price. If you're researching an e-commerce niche than this will simply be the price of the product.
4) Estimating Revenue
Now that we have volume, advertising costs, and average product price, let's find out how much I could make with my fasting app just from purely running ads:
Monthly search volume = 8,8k Cost Per Click = £0.98 Avg Ad Click Rate = 3% Avg Web Conversion Rate = 4% Avg App Subscription price = £7.30 Ad Clicks = 8.8k * 3% = 264 Ad Spend = 264 * 0.98 = £258 App Installs = 264 * 4% ~= 11 App Monthly Revenue = 11 * 7.30 = £80.3 Lifetime till breakeven = 258 / 80.3 = 3.2 months
From the above information I've learnt that it will take 3.2 months for me to start making a profit once I've acquired a customer. How reasonable is 3.2 months? The average subscription length is 125 days or 4.16 months. This will give me exactly one month to make a profit of £80.30 per customer on average.
This doesn't have to just apply to SaaS businesses either. E-commerce businesses benefit hugely from this type of analysis and often end up with a positive Ad ROI out of the gate.
Based on keyword research:
- “best double edge razor blades” 1,800 searches per month (CPC of £0.35)
- “single edge razor blades” 2,000 searches per month (CPC of £0.10)
- “best safety razor blades” 2,700 searches per month (CPC of £0.20)
In total if we advertised for all the keywords together that brings the total volume to:
- 6,500 searches per month
- Average CPC of £0.21.
Monthly Search Volume = 6,500 Avg CPC = 0.21 Avg CTR = 3% Avg CR = 4% Avg Product Price = £15 Ad Clicks = 6,500 * 3% = 195 Ad Spend = 195 * 0.21 = £40.95 Website Conversions = 195 * 4% ~= 8 Cost Per Acquisition = £40.95 / 8 = £5.11 Website Revenue = 8 x £15 = £120 Ad ROI = £79.05 (193%)
It would cost us £5.11 to acquire a customer who is willing to spend £15 on a stainless steel double edged razor blade. That's the makings of a profitable business right there.