Finding a market niche.

A niche is simply a narrow market that serves a well-defined type of customer. The key to growing your business is to serve a few of these defined target markets to the exclusion of everything else. This allows you to focus your marketing message.

Don’t confuse well-defined with “small.” It's certainly possible to have a niche market that is quite large. The value of a niche is not its size, but the fact that it is focused on a set of customers with very similar needs and wants.

The easiest way to begin finding a market niche is to look at your past clients. Create a spreadsheet of past customers by creating column headings. You can start with customer name, business name, industry type, services and/or products purchased, and total amount spent over a particular time period.

If you're a business that mainly sells to other businesses, then your spreadsheet can also contain columns related to industry, number of employees, business type and possibly geographic location.

You should start to see some patterns that will allow you to start defining specific customer types. You might find patterns in the way clients purchase your product or service. Is it an impulse buy or does the purchase need to go through an approval committee?

New Businesses - Finding a Market Niche

If your just starting a business and don't have any clients yet, finding a market niche can be a little more challenging. Start by going to your competitor's websites to research who your ideal customer or prospect might be. This will help you define the niche areas that you feel will most benefit from your product or service. You can then work to develop clients in those areas. But be careful. Just because a competitor seems to have defined a certain type of customer doesn’t mean you should automatically put the blinders on and do the same.

Ask yourself the following questions to really determine if you have a potential niche market.

1. Does this group of customers have a problem that my product or service solves?

2. Am I able to differentiate my products and services in order to provide value to this group?

3. Will this group be willing to pay full price for my products and/or services?

If you answer "no" to any of these questions, move on. In the long run, it won't be a profitable niche.

When you are working to create these customer groups, think about the specific problem each customer wanted you to solve. In many cases, this will lead you to define that customer in a specific category. As you work to define your niche markets, be sure to give each one a name. This will help to further define each category as you continue your research.

As an example, AZ Toy Company manufactures and distributes all types of educational toys. The total education market is quite large but by researching their past customers, they were able to define several niche markets within their overall market. Here's what they found to be their most profitable niche areas.

Remember, a niche market is a just narrowly defined group of customers. Don't overcomplicate the process. It's simply a way to partition your overall market.

Once you have your list defined, see if you have any losers. If you can determine that a particular niche has low profit potential, then you're better off dropping it. It's better to focus on two or three niches that have a good profit potential than several with poor or mediocre potential.

As your business grows and you add products and services to your portfolio, you will most likely define additional niche markets. As long as they are focused around a similar set of customers with similar needs, add them to your overall list.

Finding a market niche in a few key areas is the only way to truly understand how your business can deliver the greatest value to all your customers and prospects.