1st Filter : Competitors

We have now all the data we need and we can start the elimination process and remove the bad niches from our list.

What we need to do next is take our list and weed out the key phrases that are targeted by too many competitors. This will ensure that the key phrases left are niches that meet the second requirement of a HOT niche market:

Low Supply The less websites targeting the same topic as you, the better your chances of ranking high for your main keyword.

I have found that phrases with less than 900,000 results in Google, less than 250,000 in MSN and less than 400,000 in Yahoo are the often the best to go with but you can use any —limit number“ you want. Remember, the less results the search engines show for a keyword, the easier for you to rank on the first page of results.

Ok so now remove from your big list all the keywords that have too many results based on the limit we previously set. While you're at it, remove all the phrases that are not related to the —coffee“ topic (such as —coffee break arcade“). This should leave you with a much smaller list to work with.

After removing niches that have too many competitors, we are left with 68 key phrases as shown in the following image:

Niche Inspector

2nd Filter : Advertisers

As we discussed in a previous chapter, the number of Adwords™ ads should be used to gauge the profit potential of any niche. Remember requirement number 3 of a hot niche:

Profitability Potential There must be money in the chosen market. If Adsense™ profits are your goal, you must ensure that advertisers are willing to pay for the traffic that you will bring them. If you are selling a product, you must know if people that search for your niche markets are willing to pay for the information or product you are promoting

So the next logical step is to remove keywords that have a low ad count. I usually get rid of keywords that have less than 10 ads. Again, this number is the one I use for most of my niche sites, but you can diminish the count even more by keeping only keywords with 20, 25 or more advertisers.

Remember, even though I gave you some numeric figures to work with, they are, by no means, supposed to be carved in stone. Use due diligence and your own gut feeling.

For example, if you are aiming for a sub-niche in a highly popular market such as diet or travel, you should choose an even higher limit as most of the sub-niches you will find will have a lot of competitors oe and you only want the best of the lot.

This is how my spreadsheet now looks like:

Niche Inspector

I now only have 47 key phrases left. They are all very good niches to exploit: they meet the 3 essential elements of a hot niche market: High Demand, Low Supply and Profitability Potential.

We could go out and start building a website for any of these terms knowing they have the potential to rank well and make us some decent income.

But wait as we are not done yet!

In the next chapters, I will show you two more filters I use to ensure that the niche sites I will build have the potential to rank better and make me more money.

3rd Filter : Keyword Effectiveness

Index You have probably already heard of the Keyword Effectiveness Index (KEI) invented by Sumantra Roy of 1stSearchRankings.

The KEI formula is:

KEI = P^2/S = P / S * P
S = Search Results
P = Popularity (search count)

Without going into too much detail about how the KEI measures the effectiveness of a keyword, it can be summarized like this:

The Keyword Effectiveness Index (KEI) compares the number of times a keyword has appeared (its popularity) with the number of web pages which are competing for it (the search results) and returns a number based on that comparison.

For a more detailed explanation, you can read the article published by Wordtracker by clicking here.

You can study the formula if you want, or you can just remember one thing about KEI: the higher the KEI, the more popular your keywords are, and the less competition they have oe therefore, the better the chance you have of ranking on it.

So even though our list of coffee-related topics consists of 47 very good niches to enter, we will pick the ones where the KEI is good and drop the rest.

Any keyword with a KEI of 100 is pretty is good (over 200 is considered excellent) but since we already removed a lot of key phrases with too much competition in the previous chapters you will find that the ones left will usually have very high KEI.

As a rule of thumb, I usually keep only key phrases that have a KEI of 300 or more in all 3 engines. Using the —coffee“ example, we would now have a list of only 17 key phrases that are ideal niches to work on: they are popular, have a low number of competing sites, have a bunch of advertisers bidding on them and a more than excellent KEI.

Niche Inspector

4th Filter : Adsense™ Payout

This fourth filter is an optional step but since we are aiming for Adsense™ profits, I thought I should at least write a short chapter on this.

When I build sites with the purpose of earning money from Google Adsense™, I usually want to see if the niche will be a good or bad payer.

Although Google won‘t publish how much it pays Adsense™ publishers (you) for each ad that is clicked, you can have a rough estimate of what keywords pay better by signing up as an Adwords™ advertiser and see how much they pay are paying Google.

To learn more and sign up for the Adwords™ program, click here: http://adwords.google.com/

Once you‘ve signed up, log into your Adwords™ account, create a test keyword-targeted campaign, copy/paste your list of potential niche phrases and look at what the Traffic Estimator tells you:

Niche Inspector

If you look at the screenshot above, you can see that to be in the top 3 ads that appear for our key phrases, advertisers would pay between $1.06 and $9.16 per click.

Please note that I never rely on —Top Paying Adsense“ lists to choose my niches. As good a $30 a click sounds, you will probably never make that much for one click. Advertisers who pay dozens of dollars to get —one“ visitor (one click) usually opt-out of the Adsense™ content network. This means their ads only appear on the search results pages of Google, where the traffic is much more targeted.

5th Filter : The Human Touch

After eliminating keywords from our initial list of 100 using the filters I just told you about, you are now left with only a handful of niche topics.

These niches are what you worked so hard to find, and they are GOLD to niche marketers as:

  • They have a high demand (Overture search count)
  • They have low supply (low number of competing sites in all three major search engines) They have advertisers competing for the #1 ad spot (Adwords™ ads count)
  • They have a high KEI
  • The Adwords™ Cost-Per-Click is high

There is one last filter and this one cannot be automated by any tool: The Human Touch, i.e., YOU.

Remember when I said there were no magic formulas to find hot niches? Well after our elimination marathon, we are still left with 17 niches that all have high potential.

Which one will you pick? Of course, you could just choose any you like, as they are all

very good niches to exploit. But if you‘re like me, you‘d probably want to cherry pick the best one(s).

To have a bigger picture of the potential of the keywords left, it is a good idea to add the Estimated Avg. CPC to another column of your spreadsheet, like this:

Niche Inspector

Now‘s the time for you to pick your brains and analyze what‘s left. You can decide to go with the niche with the highest Adwords™ Cost-Per-Click, the highest search count, the highest KEI, or maybe the one with the least competitors. It‘s up to you now oe I cannot make that final decision for you.

One thing you might want to check is the quality of the sites that appear on the first page of results in each engine. For smaller niches, you will often find that the first few results are spammy looking pages created by directory programs. If you are willing to work a little bit more than the owner of these sites (do some basic SEO for example), it will not be hard for you to outrank these sites.

After you have chosen your niche, what you do next is up to you; you might decide to build some Adsense™ sites and provide useful and informative content which people are looking for, and/or you might start seeking out affiliate programs which supply the products or services this niche craves, or perhaps you will decide that there isn‘t enough products out there to satisfy the requirements of your niche and so you go ahead and create a product and market it to your niche.

Or… you can just sit there and daydream about how much money you could be making if you actually took action J.