Published on April 22, 2014

What you are about to read is probably not news to you. You’ve heard it from others, and we’ve talked about it in this blog before – small businesses become more competitive when they market to a narrow niche. In a previous post, I gave you 3 Powerful Reasons to Get Over Your Niche Phobia.

Now that you are convinced that niche marketing is the way to go and you are gung-ho to narrow your focus, you might be asking yourself, how the heck do I pick my niche? Here are 3 effective methods to choose the best niche for your business.

1. Do a systematic assessment of your clients.

Your top clients are a great place to start for picking a niche. But first you really need to know who they are, and what they have in common. Make a list of your clients in order of how much money they spend with you. Then rate them on factors such as how much you like/dislike working with them, whether they give you repeat business, and whether they refer business to you. Calculate how profitable each client is by looking at the type of product or service that they buy from you and how much of your time they demand. You can download a free Client Assessment tool at www.MikeMichalowicz.com/resources. I highly recommend that you resist the urge to just go over your clients in your head. There is a huge benefit to writing it all down and sorting it out visually.

Andrea Walker, founder of Smartly Organized, LLC loved working with a variety of clients in her organizing business, and didn’t think she could choose a specific niche. However, after doing the Client Assessment and reviewing her list of clients, including the type and scope of work she did for each, she realized that her best clients were also the ones where she was able to do the work she loves the most. She now focuses on helping individuals and families turn what could be an overwhelming task – preparing their homes and themselves for moving, downsizing or changing their living situation – into a smooth and successful process.

2. Look to your own background, skills and expertise.

When choosing a niche, a great place to start is always your own background and experience. Perhaps you spent years working in a particular industry, and now you can target your product or service to that industry. Not only will you have insider knowledge and expertise in that area or industry, but you might also have valuable connections and a reputation that can propel your company to success.

Kelly Newsome did just that when, after 14 years working in the financial services industry, she founded ConnectRoot.com, an outsourcing firm that focuses on connecting service providers with financial services companies. ConnectRoot gives financial firms the ability to find help with outsourced projects ranging from copy writing to compliance services to event planning, providing the assurance that these providers have knowledge and experience in the financial industry.

3. Look for an under-served market

You might have a product or service that anyone or any business could use, but is there a particular group out there that is being ignored by your competitors? Directing your attention to a market that feels under-served, or to a market that doesn’t believe that the solutions that already exist fit their needs exactly, is a powerful way to build brand loyalty fast.

One great example of this is Biscuits By Lambchop.

Annette Frey thought she was out of luck when her beloved dog, Lambchop, developed a myriad of health issues and food allergies, and couldn’t find any food or dog treats on the market that were safe for him to eat. So she decided to create her own dog treats, which are free of common allergens, gluten, and artificial ingredients, and safe for dogs with many types of special dietary needs. Biscuits by Lambchop now serves a clientele who are passionate about their dogs and keeping their dogs healthy by giving them all natural, healthy treats.

Whichever method you decide to use, start moving towards a more specific niche, and your business will enjoy the benefits!