I'm considering it as well, trying to decide what I'd make and sell. I figure it needs to be something that sells well that I'm practiced at and enjoy doing. Think about your skills and interests, look up similar items, look at the seller's feedback and see what items actually sold well for him or her. Find what no or very few sellers offer that people would want to buy. Do something that actually takes practice and skill that not everyone is doing already (and/or special equipment, but that's a large investment you might not recoup). I noticed posting new items all the time keeps you toward the top of the search lists. Also I'm told it helps to put up ads other places sending traffic to your etsy store.
I agree, the things that sell the best on my site are the things that no one else sells. For a good price on supplies etsy might actually be a good source.
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