014: 4 Non-Obvious Considerations To A Better Niche
In this edition, I'm going to explain 4 non-obvious considerations when niching down.
We've all heard that "the riches are in the niches."
In theory, niching down should result in:
• Better clients
• Higher paying clients
• Increased operational efficiency
• More profit and fulfillment for you as the firm owner
Unfortunately, most people never realize those benefits because they have an incomplete understanding of what niching means.
Niching down means more than defining which industry you serve.
At some point, some marketing guru probably told you that you need to niche down by picking an industry:
- Law firms
- Marketing agencies
- Vegan snack manufacturers
Vegan snack manufacturers it is.
Congrats. You officially have a niche!
...But you're still not seeing any real benefits from it.
That's because picking an industry is only 1 dimension of a 4 dimensional process.
Once I realized that I had to go much deeper on picking a niche, my business exploded. Prices increased, margins doubled, sales became easier, and we started getting amazing clients.
Here are the 4 dimensions I consider when picking a niche:
Dimension 1: Industry
Picking a specific industry can be a great first step in niching.
Some of the most successful firms I've seen are hyper specific on industry. Med spas, dentists, children's clothing retailers, or personal injury lawyers. There's an endless list of possibilities.
This is a logical first step - if you have deep industry experience.
But what if you're just getting started or if you don't have deep industry experience?
I suggest professional services.
• Simple model
• Little or no inventory
• Cash flows are generally easier to predict
No, professional services isn't hyper specific.
But that's completely ok.
You can get more specific later.
If you want.
Dimension 2: Revenues and Margins
One of the top benefits of offering advisory services is that you can charge a premium price for them.
"You can't squeeze water out of a rock." - Michael King
Here's an example:
• Your niche is small law firms.
• You set your prices at $5,000/month ($60,000 a year)
• And maybe those small law firms are doing $500k/year with a 10% net margin ($50,000).
👉 Selling a $60k service when there's only $50k margin doesn't work.
Where should your prices land?
Here's my overly simplified rule of thumb:
Your prices should fall between 2% and 5% of revenue.
When picking your niche, you've got to consider your target price point and how that fits into their financials.
Dimension 3: Systems
I can't stress the importance of system niching enough 👏👏👏
If you have clients that are using various combinations of:
...then how can you ever hope to get the processes, procedures, and systems in place that will allow you to handle more than 3-4 clients?
You'll hit a glass ceiling and your growth will stall out early.
Identify the systems that work best for you and include those in your niche.
Dimension 4: Values
This is the most important dimension on the list.
And frankly it was the one that took me the longest to realize that I was missing.
When your niching process doesn't include values, you end up with:
• Clients that frustrate you
• A lack of passion for those you serve
• Clients that don't align with your why
• A general lack of fulfillment from your business
Here's an example from my firm.
Serving with the heart of a teacher is one of our values.
In 2020, I was on a sales call with a SUPER ideal prospect. They were in light manufacturing. They did work for Tesla (I'm a fan boy). They were pushing 8 figures in revenue. They used all of our ideal systems.
This was going to be a $7500/month client (our most expensive package).
At the end of the sales call, the prospect says:
"Oh, and just so you know, I don't want any of the teaching or coaching stuff you guys do. I just want the reports and the facts. I've made it this far in business without any of that stuff and I'm not interested in starting now."
My stomach sank because I had to walk away from the opportunity.
Teaching is part of our DNA. And I knew that if he didn't value that part of what we do then the relationship wouldn't end well.
👉 He'd get annoyed because we were constantly trying to teach.
👉 We'd get annoyed because he would constantly try to push back.
👉 One or both of us would inevitably walk away frustrated.
4 years ago, I would have taken the business and ran with it.
Right into a brick wall.
Know your values.
Add those values to your niching process.
I really do believe that the riches are in the niches.
👉 But I want to encourage you to go deeper on your niche. Consider industry, revenues and margins, systems, and values to get the most out of a niche and out of your business.
That's all for this Friday. 4 non-obvious considerations to a better niche.
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