So you’ve decided that you want to build a passive income. You’ve looked at a few different passive income strategies, or ways of earning a passive income, and you’ve seen a few ideas that look promising. But how do you choose what to do — how do you choose your niche?

Choice is a good thing. Except when there’s too much of it.

First of all, let’s look at what we mean by a niche, and why it’s important.

What is a niche and why do I need one?

A niche market is a very specific part of a broader market. It doesn’t exist on its own as such, it’s created simply by targeting a very well-defined segment of a wider market.

The appeal of a niche market is that you can be a big fish in a small pond, rather than trying to be all things to all men and consequently struggling to get yourself heard. It’s a way of getting a competitive advantage by specialising in a very particular market, and potentially serving it better than anybody else.

Imagine that you wanted to start a blog about cars. How many web pages or blogs about cars do you think there are? About 694 million as it happens…

Your chances of getting noticed, and making yourself heard amongst that much competition are practically zero. And what are all those people looking for anyway — they could be looking to buy cars, or to rent cars, insure cars, look at pictures of model cars, or they could even manufacture cars. It’s so broad and undefined, there’s no way of knowing.

What about if you get more specific – how about ‘restoring cars’? Well, that’s a lot better because it does identify a specific interest, but it’s still pretty huge.

Try getting even more specific — nicheing down as it’s called — ‘restoring British cars’ for example. Again, better, but still very big.

Now let’s go ultra niche — ‘Restoring a Mini Cooper S’, how many blogs are there on that subject? Precisely none as it happens (so there’s a niche idea for you!).

This not only identifies a very particular segment of the ‘cars’ market where there is little or no competition, but it also targets an interest very well. You could easily work out what those people want and need. They will need spare parts, workshop manuals, books, tools, materials, maybe even training courses and how-to manuals.

By specialising in this niche area, you firstly have no competition and secondly, you know exactly what your audience is looking for. So it’s pretty easy to give them what they want.

That is the power of a niche. Choosing a good niche increases your chances of success dramatically.

But it’s not enough to just choose a very narrow field because if you go too narrow, then the market isn’t big enough to sustain a viable business. It’s all about balancing specificity with size. More on that later.

How to choose the right niche for you

The advice most commonly given about choosing a niche is to “follow your passion”. You’ll see this everywhere.

But what if you don’t have one?

It’s certainly good if you do have a passion for something because you’re going to be spending a lot of time on this stuff and it’s much better if it’s something you enjoy (trust me, I speak from experience as someone who once promoted funeral plans).

If you have a passion for baking gluten-free cupcakes for example, then there’s a niche just tailor made for you.

But what if you don’t, what if you’re just an ordinary person, with a few interests sure, but nothing that leaps out at you — what then?

Well first of all relax. Despite the impression you might get from all the inspirational articles, you’re in the majority — most people don’t have such a convenient passion.

Here are a few ideas that might help you find some things you are interested in:

If you were in a bookstore. which section would you go to — which shelf would you read every book on? Astrology, cooking, beekeeping, contemporary fiction, psychology, applied mathematics…

If you don’t read books, then imagine you had a couple of hours to kill in a shopping mall or a city centre. What would you look at?

If you were browsing on Amazon or eBay, what would you look at?

If you could go anywhere in the world, right now, where would you go and what would you do when you got there?

If you can’t find anything you are particularly interested in, then what do you know about, and what are you good at? Write down your answers to the following, try to find 5 things for each one:

What are you good at?

What do you know a lot about (you don’t have to be an expert, but what do you know more about than most people)?

What can you do that some other people can’t?

What are you interested in learning about?

What problems do you have?

It sounds simple, but this exercise can actually be quite challenging. Make sure you actually do it, take 20 minutes or so and write down your answers. Don’t just scan the list and answer in your mind, the act of writing the words down on paper will force you to focus and clarify your thoughts.

Once you have your answers, you may find the germ of a niche idea there. For example you might be dealing with caring for an elderly relative with Alzheimers, and as a result, you know a lot about that subject that would help other people in the same situation. Or you might have just climbed out of a sea of credit card debt, refurbished your home on a tight budget, trained for a triathlon, or you might just be really good at playing a particular video game. There are all sorts of things that can be turned into successful niche ideas.

If you’re still stuck, ask your friends, work colleagues, neighbours, and family what they think you’re good at. Send them an email or message asking them for their help with a project you are working on (so they take it seriously), and ask them what they think you’re good at. Ask a few of them, say 10 people. You will get probably get some answers that surprise you here, as people often see us quite differently from how we see ourselves. You might find you have an unexpected gift for encouraging people, or solving problems, or something else you’re unaware of yourself.

Evergreen niches

There are three markets that are always popular, and always will be:

Health

Wealth

Happiness

These serve basic human needs and are therefore timeless. They will be as popular in 100 years time as they are now, and for that reason they are often referred to as the evergreen niches. They are not niches though, they are very broad markets. They do contain some niches that are evergreen though, such as:

Health: Fitness, weight-loss, nutrition

Wealth: How to make money, how to save money, forex trading etc.

Happiness: Dating, relationship advice, spirituality

But again, these are far too broad to be profitable and are still not really niche markets as there is huge competition in all of them. To find a true niche market, you have to dive deeper.

For example in the health > weight loss category, you could look at something like ‘low-carb diets’. There is still a lot of competition at that level, especially for something really popular like paleo diets. If you wanted to go into paleo, you would have to niche it down further still, maybe something like ‘paleo recipes for sailors’, or ‘paleo for expectant mothers’ (I don’t know if that last one is medically advisable so please don’t run with that on my say so!).

Dating advice is again hugely competitive and congested. You would have to really specialise in something different such as ‘dating advice for single-parent fathers’ to stand any chance.

So, if all else fails, you can turn to the evergreen niches for inspiration, but be sure to narrow them right down into something very specific or you’ll just get lost amongst all the competition.

Validating your niche

We’ve looked at some ideas for finding possible niches for your business, and we’ve seen how they need to be very specific and focused. Not just to be able to stand out from competition, but also to be able to identify and serve the needs of your audience. If your audience is too broad, their needs will all be different, and you won’t be able to target any of them precisely.

But how do we make sure that our super-targeted niche is big enough to be viable?

For example, ‘paleo recipes for one-armed golfers’, might be very targeted and specific, but it’s unlikely to be a very big market. We need to ensure that our chosen niche is not only big enough, but also that people are willing to spend money in it. What we’re really looking for is a starving crowd that we can feed.

Your first port of call for this, as with most things these days, is Google.

Do a few searches around your niche, eg paleo recipes for cyclists, and see what comes up.

If nothing at all comes up that is directly related to your niche, then either you’ve thought of something big that nobody else has (unlikely), or there is simply no market there — it’s too small.

No competition at all is a bad sign. What you’re looking for is some competition, to show that there is a market there, but not so much that you’ll never get a foothold. What you’re ideally looking for is competition that you can do better than. What could you do differently that would serve your market better? How can you improve upon what they are doing?

Play around with different related searches to your topic. Get a feel for the market, and what’s out there. If it doesn’t look promising, maybe you can find something better by adjusting it slightly. For example, if paleo for cyclists looks too competitive, how about paleo for swimmers or triathletes.

Once you have got a feel for a niche that looks promising, it’s time to do some quantitative research. We need to get an idea of how many people are searching for things in your niche.

Keyword research

Helpfully, Google will tell us how many people are searching for any given search term or keyword. The free Google AdWords Keyword Planner tool will allow us to enter a search term (such as paleo recipes for cyclists), and it will show approximately how many people search for that term each month, both locally and globally. Not only that, it will also suggest other related keywords, and show search volumes for those too.

Other tools, such as Long Tail Pro (which is a paid tool but has a $1 trial), take this a stage further by giving you a keyword difficulty score which gives an estimation of how easy or difficult it will be to rank for this term in Google. It also tells you how many Google results there are for that search, and shows you the top ten results. A massive time saver.

You can find more about these tools, and keyword research in general, in this article How to find keywords nobody else is using.

The more searches there are, the bigger the market is. But also, the more difficult it will be to rank for organically in the search engines. That may not matter if you plan to rely on a different traffic source such as Facebook, Twitter, posting in forums etc, or paid advertising. But free traffic from search engines is always welcome, so it pays to pick something that’s not too difficult to rank for.

The tools mentioned above will help with this, but as a rough guide you’re probably looking for search volumes of around 800 – 3,000 per month. Any higher than this will probably be too difficult to rank for. Any lower, and the market is probably too small. Unless you can find lots of smaller keywords that add up to a significant volume.

It’s not really possible to give hard and fast rules that apply to all niches, just take the principles explained here and season them with a healthy dose of your own judgement.