Do the math. How many of them, plus visitors to the town, are you reasonably likely to get involved with the site? (Hint: It depends entirely on the content and nature of the site. You might get 70%, or 1%, depending up how widely appealing and useful the site is.)

Once you have your target projections, figure out roughly how much you can make per visit, or visitor per year, or whatever makes sense in light of what the site offers.

Multiply. Decide. ;-)

P.S. If it's not that much, but it could be replicated again for the town next door, and so on, and so on, and so on ... then you've got something.

how bout the opposite problem... when is a web site topic too competitive already? sometimes i find that the things i know the most about (for example: java coding), are highly documented already on the web? Is there a way to make a niche out of something like that?

IMHO, it's about your instincts. If you look around and see things you'd do differently and better, and you don't think any site is doing it right, or all that well, then go for it.

If you see resources that look so good you don't see how you'd improve upon them, you probably won't ... and in that case I might look elsewhere.

That's my gut test anyway. Then again, I've never seen a category that couldn't be improved upon. ;-)

It's also about your point of view.

You can look at a market and see barriers, like the O'Reilly sites and Sun (sorry if that's inaccurate, I know nothing about Java, but just as an example!).

Or you can look at the market and see opportunities and specific aspects that you may be interested in, like the use of Java in mapping technology, accessibility problems, connections to other technologies, etc. etc.

A town of ten thousand? How many would have computers?
How many that have computers are on the net? How many that
are on the net would want to check your site?

You have to work back wards to see if their is any potential
for any reasonable amount of monetization.

My guess would be no. Probably take a town of 50 to 100 thousand
to make a go of it.(maybe more)

That being said you never for sure. I've been wrong before.
I think the last time was August of 1989.

I've been there...a small niche on a town (150,000 residents, hightly touristy spot) and made it to the top-10 for all the main keywords that I desired. Traffic: about 400 visitors a day, during the main season maybe 600.

Because of the domain name, it makes no sense to extend the focus of the site.

Lesson learnt: Choose a domain name and theme that allows the content to be constrained to a niche, but keep in mind that one day you might want to widen your content.

thanks for the responses. I would hate to go through a ton of work on a small niche like a town of 10,000 people and then find out that this town isn't into the internet too much.

seems like it might be a better idea to start with something that could potentillay interest a a huge amount of people on the web (like HTML)... and then focus on a small chunk of that such as just the <TD> tag. that is a pretty bad example but you get the point.

I wouldn't recommend that at all - the big topics are widely covered by a thorougly consolidated market. Go for your niche and grow big in your little corner, but keep in mind that you want your stite expandable.

For example, do NOT use the small town's name in the url and propose a project that is not limited to a small geographic area - do start small, but keep in mind that you want to grow over time. Avoid barriers for the future.

Why dont you take it other way , if the niche is small and there are less less website in the niche you main rank very good easily , you can be number one for this on Google , you must be having some idea how to monetize this very niche

If you are too concerned about very few people in the town or niche , start a adwords campaign and ask the people to reproduce at faster rate and niche would have lots of users