I often get questions from small business owners that have decided to market to a niche, but don’t know what niche to market to. This is an important decision that must be researched carefully. There’s nothing worse than spending your dollars on creating custom products and services only to find that your niche doesn’t want to buy them.
The following are several questions that you should ask yourself when choosing a niche in which to specialize:
Question # 1 – Can you easily and affordably contact the niche?
Imagine how hard it would be to find people who are going to have car accidents within the next week. Yes, you read that correctly. That’s exactly what auto accident paint and body shops deal with on a daily basis.
Their niche, people with bashed up cars, is impossible to contact in advance. They have to market to everybody. These types of companies are forced to spend a lot of money on yellow page ads (where people go in times of emergencies) and “spraying and praying”
ads.
Let me give you some further examples of varying levels of difficulty in finding people in niches.
A. Policemen – Simple to contact. There’s probably an association list that you can rent or buy.
B. Bird owners – Semi-simple to contact. There’s probably a trade publication or catalog for bird owners that rent their customer list.
C. Parents whose children are doing poorly in school – Harder to contact. You might find a list of parents who have purchased products or services to help their children do better in school.
D. Acne sufferers – Harder to contact. You might find a list of people who have purchased anti-acne products or services.
E. People who hate war – Difficult to contact. You won’t find many anti-war lists. You would probably have to create a list through your own lead generation efforts.
F. Print Shop Owners – Simple to contact – The names and addresses for print shop owners can be found in your local yellow pages or an association list.
When a niche is hard to contact, it is usually expensive to contact. If a list doesn’t already exist you’ll have to pay to develop the list, which can be very expensive.
IMPORTANT TIP # 1 - Personally, I would think hard before choosing a niche that doesn’t have an association, a trade publication(s), or hold conferences. These are the primary tools for contacting your prospects and fueling your word-of-mouth efforts.
IMPORTANT TIP # 2 - If the product or service you are offering has a high price tag and a large margin, you’ll be able to spend more money to generate the lead. For instance, if you were looking for people with breast implants for a class action lawsuit settlement, you would probably be able to spend a lot of money advertising to find these people.
In general, the cost to acquire a customer must be lower than the lifetime value of a customer. However, in some instances it can be higher than your product or service cost
(i.e. lose money to obtain a customer) if you have a lot of backend products or your product is a consumable that requires reorders.
Question # 2 – Can the niche afford your products and services?
Is the niche that you’re marketing to affluent enough to buy your product or service without having to worry too much about overspending? I once tried to sell a product to college students for over a year in vain. A lot of money was wasted, with nothing to show for it.
My mistake was marketing to the wrong people. Students don’t have a lot of
discretionary money to spend so they are careful to spend it only on things that they deem absolutely necessary, such as dating, school books and tuition, and partying
(unfortunately).
Question # 3 – Is there a successful track record of selling these types of products or services to the niche?
A big mistake that inventors make is to create products that require that people change their normal habits and routines. There is a genius inventor here in Houston that has created a unique keypad that makes typing much easier (it requires only one hand rather than two).
It really in an ingenious product, but he is floundering. Why? Because people are used to regular old keyboards and don’t want to go through the pain of learning something new, no matter how easy it is. To be successful, you should pick a niche that is already buying products and services similar to yours and that are paying the prices that you want to charge.
To be honest, this advice goes against traditional thinking. Most marketing experts will tell you to find a niche and fill it, meaning to find a niche market with a problem that isn’t being solved. I agree with that thinking; however, there’s an old saying in marketing that
“Scouts come back with arrows in their backs.”
By that I mean, if you’re trying to sell a new product to a niche that doesn’t have a track record of buying those products or services, you might find that they are just not ready to buy it. Take the fax machine. It’s used in almost every office in America and many homes as well. But when it was introduced, it floundered for many years because people just weren’t ready to buy it.
The safest way to penetrate a market is to find one that already understands the need for what you sell. Then all you have to do is build a better mousetrap and sell it to them (or license it to a competitor).
Question # 4 – How much competition is there in the niche?
It’s better to jump up and down in a pond than an ocean. The more competitors you have to deal with, the more aggressive your marketing efforts must become to be the winner.
Now this might sound contradictory to the answer in “Question # 3,” in that I told you that you should sell to a niche that already buys your type of product or service and now I’m telling you to go where there is little competition.
However, hopefully your product or service is different or unique enough that you don’t have any direct competition. Even if you’re marketing in a niche that already sells the same type of product or service you do.
Question # 5 – Are you familiar with the niche or do you have experience in the niche?
People like to buy from people that have “been there and done that” and have walked in their shoes. They like to buy from “one of us.” If you have experience as a practitioner in the niche you’ll have an advantage selling to the niche.
For instance, if you were selling doughnut machinery to doughnut shops people will automatically have an affinity towards you because they know that you’ve faced the same problems as they are facing.
In addition, the more you know about your niche customer and what keeps them up at night, the easier it will be for you to provide tailored solutions to solve their problems and to communicate with them about your solution.
Question # 6 – Is the niche big enough to sustain your business?
Why enter a niche that simply doesn’t have the economics to sustain your business over the long term. One of the first calculations you should do when deciding on a niche is a breakeven “reasonableness” assessment. This assessment tells you how much of the market you have to penetrate just to breakeven in the first year.
If you have to penetrate a high percentage of the market just to breakeven you might want to reconsider entering into this niche. However, if you can enter the market with only a sliver of penetration then it may be a good market to consider.
For instance, compare the two following scenarios for reasonableness:
Scenario 1 – Selling CD business cards to the real estate agent market Approximate number of eligible realtors in the U.S. = 840,000
Number of units needed to sell to breakeven in the first year = 150 Required market penetration percentage = .01% (150 / 840,000) Number of Competitors = 9
Scenario 2 – Selling accounting and bookkeeping services to small businesses in Friendswood, Texas
Approximate number of eligible buying units in Friendswood = 350 Number of units needed to sell to breakeven in the first year = 42 Required market penetration percentage = 12% (42 / 350) Number of competitors = 15
Which scenario is more attractive? In Scenario 1 you would only have to penetrate .01%
of the market to breakeven and you only have nine competitors. In Scenario 2 you would have to penetrate 12% of the market in your first year while competing against 15 other CPA’s. Clearly Scenario 1 is the better choice (assuming you have a great product that people want).
However, there are many other factors that go into choosing a niche. This is just one factor (albeit an important one) to consider.