Right now “market niche” is a buzz phrase that’s thrown around all over the Internet. Everyone tells you “you got to have a market niche.”

I agree. You need to have a market niche. But I would add just one more word to the phrase: “You need to have a profitable market niche.” That can make all the difference in the world to your business.

A “market” is any group of possible buyers for a product or service. A “market niche” is a smaller group of people within that market. For example: “Teenagers” are a market. “Teenage boys who skateboard” is a market niche.

Many people will tell you once you have narrowed down you market to a niche, your work is done. Many people are wrong.

In order for a market niche to be profitable it needs three characteristics:

First, your market niche must have sufficient demand.

In all the effort to get people to narrow their marketing focus, many have forgotten that a niche can be too small.

Let’s say you have an avid interest in exotic coffee mugs. Because they are your passion and joy, you decide to offer these little gems through a website. You find a supplier who can sell you coffee cups wholesale for $1.00 a piece and you plan to sell them for $12.95. It sounds like a great deal—even after packaging and shipping you still make $9.00 per mug gross profit. Just think: Sell 200 of these per month and you can make a tidy profit of $1,800. You set up a website using the term “exotic coffee mugs” and wait for the money to pour in (pun intentional).

But you won’t sell 200 a month. In fact, you probably won’t sell two. While thousands of people look for coffee mugs, no one is searching on the web for “exotic coffee mugs.” I know, I checked. The closest I could come was “unique coffee mug” with a few hundred searches per month. Not enough to generate a solid volume of sales.

But this also brings us to the second characteristic:

Your market niche must also have low competition.

Going back to our “great” coffee mug idea: There ARE a whole bunch of searches for coffee mugs. In fact, there are around 1,000 searches a day. If you were the only person offering coffee mugs on the web, you would probably make a nice living just from that. Of course, you won’t be the only one. Right now on Google there are 766,000 sites targeting the specific term “coffee mug”. That’s a bunch of competition for just 1,000 or so searches per day.

But having high demand and low competition is just a part of identifying a profitable market niche. The third—and most important characteristic—is often overlooked in searching for a niche:

Your market niche must be reachable at a profit.

Pets.com had a great idea: Selling pet supplies on the internet. After all, pet supplies are purchased every day all over the western world—we like our doggies and kitties. The problem wasn’t demand—there was plenty. The problem wasn’t supply either—almost no one was offering pet products online. What was the problem? They couldn’t let people know they could buy pet products online and still make a profit.

After television, radio and print ads, Pets.com lost money. They ended up bankrupt.

Before you settle on a market niche, you need to make sure you have a way you can profitably reach that market. Without a way to economically reach the market niche, you will never make money.

How can you determine whether or not you can economically reach a market? Simply evaluate these questions:

1. Is there already a group of affiliates or ezine publishers who reach this market?

2. Does my product/store have sufficient interest to generate free publicity through press releases and other inexpensive public relations initiatives?

3. Do I have limited enough competition to provide me with good search engine position on my best keyword phrases?

4. Can I advertise using pay-per-click ads at a profit?

5. Are there other avenues of advertising I can use at a profit per sale?

These will give you a good idea whether or not you can make a profit with your market niche.