10 Ways a Professional Service Firm Can Determine the Correct Industry Segments for Them
Boutique professional services firms are resource-constrained, with only so many dollars, hours, and employees available to pursue growth. This makes it mission-critical to point these resources at an industry segment that gives the boutique the greatest opportunity to scale.
When a founder pursues a broad, poorly segmented market, they spread their resources thin and never become the leader of their niche. And a founder who segments a market narrowly limits their opportunity and, therefore, evolves into an insignificant lifestyle firm. Yet, proper segmentation is difficult to achieve, especially since many boutique founders have not been trained on how to do it properly.
In this article, I present 10 ways to segment a boutique professional service market. By using these 10 items as a guide, you will put your boat in the most opportunistic waters. Also, listen here to learn more about selecting your target market.
How to Build Your Industry Segment for Firm Growth
The best way to segment a pro serv market is to group clients together based on their common wants, needs, and desires, which are as follows:
Should you serve large, medium, or small clients? Large clients, such as the S&P 500 large-cap companies, have very specific requirements that service providers must meet. For example, MSAs, NDAs, information security standards, exclusivity, etc. Medium clients, such as the S&P 400 mid-cap companies, have different needs than large clients. For example, they often compete with the S&P 500 and want similar capabilities but cannot afford them. They often hire challenger brands and buy on price. And small clients, such as the S&P 600 small caps, are less mature and need easier-to-implement solutions.
2. Price level.
Price levels can be categorized generally into three categories: luxury, premium, and value. A luxury provider has a very small number of clients but each client has a high spend. For example, Rolls Royce delivered only 6,021 cars in 2022, but the average price was $497,670. A premium provider has a modest number of clients, and each client pays a modest premium for differentiation (~20%). For example, Lexus delivered roughly 800,000 cars in 2022 with an average price of about $80,000. A value provider has loads of clients, and each client spends little. For example, Toyota delivered 10.5 million cars in 2022 at an average price of $25,000. And as you can imagine, the wants, needs, and desires of these different customers are very different.
Different clients want different features of a service. For example, Emirates Airlines offers seven different types of seats to its customers. Economy class offers a regular seat, a preferred seat, a twin seat, and a seat with extra legroom. And they offer a seat in first class, business class, and a seat called premium economy. Each seat has different features. And by tailoring their features to different types of customers, they can meet the customers’ needs.
Our economy is in the midst of a digital transformation. Software and cloud services are altering the competitive landscape in every sector. Segmenting a market based on what tech clients use is a consideration. For example, a content marketing agency would be wise to segment its market by HubSpot users, Salesforce users, etc. The tech in place can drive client requirements.
5. Raw materials.
The raw material in professional services is talent. Firms hire talent, train them on how to deliver the service, and deliver them to the client as a finished product. This is the talent supply chain. A boutique service firm can segment its market based on access to raw materials, or talent pools. For example, if an IT service provider can afford top-dollar salaries, they will have access to the finest software engineers in the world. And they should target the S&P 500 large-cap space because those are the firms that require this type of raw material.
Why does someone pay $5,000 for a Louis Vuitton bag when they can pay $500 for a Kate Spade bag? Packaging. Some clients make purchase decisions based on emotion, on how the purchase makes them feel. This is why some lawyers get $10,000/hr. When facing jail time, a well-heeled client will pay what it takes to remain free.
There is a segment in every industry of clients who will only pay for performance. For example, hurt in an auto accident? Hire a personal injury attorney which will cost you nothing unless they win your case. If/when they win, they will take 40% of the settlement. If you are the best at what you do and make your clients a ton of money because of it, only pursue the industry segment containing clients who want to bet on the outcome.
8. New vs. replacement buyers.
Some clients have never bought the type of service that you provide. These clients are under-informed and will need lots of education on what should be in and out of scope, budget, timeline, milestones, etc. Yet, some clients will have a supplier on retainer and be looking to replace them. This type of client knows exactly what they are looking for. Apples and oranges. Decide if the industry segment you want to work with contains new buyers or replacement buyers and tailor your approach to their needs.
9. Whole solution vs. point solution.
Certain prospects want to deal with a provider who can handle the service end to end. They require a whole solution. In contrast, a different set of prospects wants to buy point solutions and piece together the end-to-end solution using a best-of-breed approach. As you can imagine, the wants, needs, and desires are very different for each. You can offer a whole solution and a point solution, but if you do, you need to master both separately to meet the needs of both types of clients.
10. Bundle vs. unbundle.
There are prospects who want to bite off big projects all at once. They want the entire bundle day one. Other clients are more risk-averse and prefer to buy in bite-sized pieces. They want to see the entire project but will only commit to one sprint at a time. Both bundle and piecemeal clients will require very different sales techniques to meet their needs and enable a sale.
As you’re considering these 10 different viewpoints, remember that the industry segments available to you are not just based on your current clients. If you’re looking to grow your firm into a new market, your industry segment should fit and address the needs of the realistic client that you will be targeting in this new market.
If you want to read more about the types of markets before you branch out, read our blogs about emerging, mature, and declining markets.
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