Target Audience: Niche Down.
Your product and your numbers will thank you for it
Photo by Dina Makhmutova on Unsplash
Saying ‘no’ to potential customers feels counter-intuitive. But focus will always pay you dividends. The main question to ask yourself is “which customers care the most about the problem our product solves?'“.
To begin with, you might not know, or be able to tell. But as time goes on it will become increasingly obvious. At this point you have a decision to make. Understanding why your product is less appealing to some groups, do you:
1. Expand the product to appeal to the currently lukewarm prospects or;
2. Do you focus on the customers for whom you think you’ve found Product Market Fit?
What would you do?
What I’ve seen is that the most effective way is to double down on the audience that cares the most about what you’re doing. Down the line, by all means, look at ways to expand your Addressable Market if you’ve nailed your first niche, but trying to do everything at once will just slow you down.
I’ll say that again for extra emphasis: trying to do everything at once will just slow you down.
Customers who care the most? What are the signals?
If you’ve been going for a while it may be obvious which customers care the most: if customers either tell you, or are happily renewing or expanding their accounts. But are there any clues earlier on that can give you an insight?
Some things to look out for include:
Outreach response. You stick the message out there to a broad audience and get more responses from a particular type of customer. This could mean that these are the customers that care the most about you… but it could also mean that your messaging is wrong and customers who would really care about you don’t understand that this product is for them. So whilst it’s a good signal, don’t rely on it completely.
Sales velocity. This is the amount of money the company generates per customer in a given period. Sales Velocity=(O×V×W)/T, where:
O is Number of opportunities
V is Average deal value
W is Win rate (expressed as a decimal)
T is Length of the sales cycle
As an example,
you have 100 opportunities in the pipeline (O=100).
your average deal value is $1,000 (V=1,000).
your win rate is 20% (W=0.20).
your average sales cycle is 30 days (T=30).
Sales Velocity = 100×1,000×0.20/30 = 667
This means your company generates $667 in revenue per day from the current sales pipeline.
If you can break this down by customer type you may see a pattern. And if the numbers are too small, you’ll just know that some companies are quicker and easier to close than others!
Referral. Do some of your customers tell others how good your product is? Do the ones that tend to refer you share a consistent profile?
Net Promoter Score (NPS) or Customer Satisfaction surveys. It’s worth running these from the off. You might not like what you hear, but at least you know what to improve. But the key thing here is that you may also see trends where there is a subset of customers who consistently score you highly. A great signal.
Reviews on Capterra/G2. If you think the product is mature enough, then absolutely worth encouraging your customers to write nice things about you on the software review sites. One reason is that it gets your brand in front of people who are “in market”, but another is to see exactly who likes you since they are encouraged to say which company they are from. Are the companies that rate you highly generally smaller or larger? Do they tend to be from a specific vertical or geographical region?
New feature requests. Although it’s potentially a PIA if people ask for different things that aren’t on your roadmap, it’s worth listening to as a) you might discover something your product could do better and b) it shows a high degree of engagement. If people can be bothered enough to tell you what they would like to see in the product, chances are they are getting a lot of value from it, or at least can see that they would get a lot of value from it.
Proactive support and resolution solving. Similarly, if you see customers really trying to work with you to solve an issue (rather than just moaning or submitting a ticket and not bothering to chase or thank you etc), that’s a signal that they really care about using your tool to solve their problem.
Why niche down?
One company I worked with this year, started 2024 with a product that could have been used by a whole variety of users. And their website was deliberately vague. They didn’t want to say exactly what they did and for whom because they didn’t want to put anyone off. So their messaging, their imagery, their value proposition was very broad. The strategy was not to put anyone off by being too specific about a use case. Which was an understandable strategy because at that stage they weren’t clear which customers would really care the most about their offering.
But the problem with this is if a customer came to the site, unless they dug around for a while, they might be left thinking it wasn’t for their type of business. So the likelihood is they lost potential customers who just thought they’d ended up in the wrong place.
Over time, they agreed that they needed to focus on one vertical and changed their outbound activity to be more targeted as well as their messaging and imagery. This was based on an assessment of their sales velocity. And probably more of the ‘gut feel’ variety than any (OxVxW)/T analysis because their leads were in the tens, not the hundreds.
Once they did that they started to gather more specific data from within that vertical and discovered that they did even better with a mid-market customer as opposed to the SME/SMB type. And so they niched down again, to a particular ICP within a particular vertical.
The result has almost been like having a car that was slowly rolling down a gradual incline and then discovering that there was an accelerator pedal.
What focusing on a very specific ICP does is:
Targeted Marketing: Especially in the start-up phase, you don’t have a lot of marketing budget. If your ICP is seeing you appear all over the place because you have so effectively targeted them, it means you’re more likely to win the customers you most want to.
Team Alignment: Focusing on a specific ICP helps sales, marketing, and product teams converge around a common understanding of the customer. If everyone starts to obsess about one ICP, everything just works better together. Everyone starts speaking the same language and there is a shared sense of what the business is looking to achieve.
Better Customer Understanding: By deeply understanding a specific ICP, you get better at walking in their shoes. The more you speak to them, the better you understand the nuances of the challenges they are dealing with every day.
Move Quicker. Reducing the scope of your ICP helps you make decisions more efficiently, as you’re not trying to cater to a broad, diverse customer base.
Higher ROI: The customers who care the most about the problem you’re trying to solve are probably (not always) the ones who will be prepared to pay the most. Niche down to focus on high-value customers who are more likely to pay premium prices and are less likely to churn.
Increased Sales Velocity: I mentioned before that increased sales velocity among one group is a good signal, but it’s also a virtuous circle. You get look-a-like customers and guess what? They tend to behave just like the customers you identified as being your ICP.
Reduced Competition: Why am I focused on the journey that agency owners are taking with regards to spinning out a SaaS and not SaaS scale-ups more broadly? After all, much of the stuff I write about is relevant to any SaaS start-up. It’s because there are billions of self-proclaimed early-stage SaaS experts. I have specific experience that differentiates me from the rest.
Adaptability: As your ICP evolves, you can adapt your product and marketing strategies more easily, rather than trying to accommodate a broad range of customers with diverse needs.
Scalability: Finally, a well-defined ICP provides a foundation for scalable growth. Once you’ve nailed this niche, you have an effective playbook that you can adapt and roll out into adjacent segments or markets. If you spent your time trying to be everything to everyone, it will take you much longer to discover what really works.
Experiment to begin with, but focus as quickly as possible.
This is becoming a recurring theme of mine. If you are an agency with several side project ideas, of if you have a fledgling SaaS business, this holds true. Yes, experiment to start with, but only in order to get data that will help you work out what to focus on. Because it’s only when you get to focus, will you really start to see results.
I know this isn’t easy, especially when you are already getting revenue from more than one ICP. But ultimately this is where you need to get to.
