How to Focus on a Niche to the Highest Profit Ever

Many companies try to sell to everyone. However, focusing on a niche market lets you charge higher prices because you can solve more specific problems that these customers highly value over normal solutions. Your marketing costs drop too, since you can target them easily without spending time explaining your value.

When you sell to everyone, customers can’t tell the differences between companies. This often leads to price wars, where customers buy just because a product seems decent and is the cheapest. When profit margins get too thin, many businesses struggle to survive or go bankrupt.

Here’s how you can transform your general business into a highly profitable niche-focused operation:

1. Learn Everything About Your Core Customers

Use the 80/20 principle: 20% of your customers bring 80% of your sales. First identify these core customers. Learn everything about them – their characteristics (age, occupation, hobbies, gender) and understand their problems deeply.

Interview them, get questionnaires from them, read books about them, watch videos about them, understand what they’re thinking and what their life is like. Gather all possible information about them.

The key is to ignore the other 80% of customers. When these customers say your product or service is too expensive, of course it is – to them. They can’t get full value from your products, which is why they don’t pay as much as your core customers. Their feedback is just noise. If you listen to them, it makes your business a commodity. Only listen to your core customers and serve them exclusively.

2. Give What They Want

Now that you have a deep understanding of their problems and what they want from your research, create products that solve your core customers’ specific problems. You can charge much more for providing these solutions.

3. Think About Cutting the Other 80% of Customers

You might think cutting 80% of customers is crazy. But is this segment that provides only 20% of sales actually profitable? Maybe you’re using 80% of your operational resources to serve customers who contribute only 20% of sales. If costs occur in proportion to customer size, you’re using 80% of costs for just 20% of sales – and these sales have much lower prices than your core customer segment. This segment might actually be generating losses.

In this case, you need to calculate how profitable these lower-tier customers are by analyzing both core segment and remaining customer segment separately.

If the segment isn’t profitable, consider whether to cut these 80% of customers. This will free up operating cash flow and reduce your workload to one-fifth.

In some cases, these 80% of lower-tier customers become high-paying core customers – this is called funnel marketing. You grow these customers into high-paying core customers. In this case, keeping these customers makes sense.

If the characteristics between your core customers and the rest are very different, there’s little chance they’ll become core customers. This gives you one more reason to cut them.

If you still want to keep the lower tier, you can set two prices:

1. A highly focused niche solution at a high price
2. A low-price normal product for ordinary customers

Getting detailed financial data and simulating what happens if you cut those customers is very important to make this decision. It helps you understand the real impact on your business before making such a significant change.