How To Define Your Target Market

September 16, 2020September 16, 2020 Mashum Mollah

How do you define your company’s target market?

Knowing and being able to clearly define your target market is critical for all businesses. This may shift for mature large corporations over time as big changes come along. Just like for Kodak. If that’s your organization you may need to redefine your target market.

This is even more important for startup businesses. Landing customers, raising money, profitability, and everything else relies on it. So, how do you do it?

The Why Behind Defining Your Target Market

There are multiple reasons for defining your target market, and multiple purposes for this exercise and data. Many of those reasons you will typically find when you engage in receiving m&a advisory.

The first use is often to validate your business idea. You need to know how big your total market is, and the percentage of that you can expect to acquire. Is it big enough to be a business? Do you need to go broader? Or can you afford to hone in even more?

Then you’ll find that your target market and market size are some of the most important metrics when it comes to creating pitch decks and raising money. It is one of the top things potential investors want to know and see.

Throughout the lifecycle of your business, you will also need to convey this information to all of your team members. Without a clear picture of your target market, your sales, marketing, and product teams and others are essentially flying blind.

Your target market definitions help guide everything you do. They make everything else more effective and efficient and make your decisions easy. This is true for your product roadmap and features, your go-to-market plan, overall strategy, branding, and marketing campaigns, etc. Things like picking colors and pricing and promotions are made simple.

Defining Your Target Market

Your Industry

Start by stating your industry.

What business are you in? For example, healthcare, insurance, real estate, or payments.

How big is this industry per year?

Your Niche

What is your niche or segment of this big industry?

In the examples above it could break down to being in gene therapy, property insurance, commercial real estate, or crypto. The more specific you get the better.

How big is this percentage of this industry?

Types Of Customers

What types of customers are you targeting with your business?

Will you be focused on enterprise customers, B2B customers that fall into the SME bucket, or direct B2C customers?

It may also be worth including what type of business model and product you are running here as this can further segment your customers. Are you a SaaS startup, a marketplace, a platform, or delivering hardware?

Customer Profiles

Who are your actual customers?

If you are a B2B business, you can begin by defining your target businesses. Which ones are ideal?

You can state your niche, geographic location, revenue size, etc. for example, “commercial real estate contractors in Colorado, with at least $10M in revenues.”

As a part of this, you may want to expand on these profiles to include your target business customers’ buying process, pain points, and aspirations. How do they make the decision to buy new things like you are offering? What are the steps? What pain are they experiencing or wanting to avoid? What pleasure are they seeking?

Customer Personas

No matter who you think your customers are, it all comes down to people. This is true whether you are going directly to consumers or B2B. Business buying decisions are made by real human people too.

Most startups step out thinking they are targeting the CEO. Yet, in the vast majority of cases, you may find that they are not directly making this decision, or if they are, they are doing it on the recommendation of someone else they trust on their team.

For example, if you are marketing to chains of education institutions, it is highly unlikely that you’ll be selling directly to the founder. It could be to the head of the marketing department, HR, or administration. Or, at a fintech company it may be selling to the CIO, CFO, CMO, or another department lead further down the food chain.

You need to know who this decision maker is, and have profiles on them. The good news is that they will typically be much easier to reach than the CEO.

This is where you get really granular in defining your target market and customers. The more detail the better.

It’s worth noting that you may not be able to target advertising according to every filter anymore. Major platforms like Google and Facebook have been restricting targeting filters to avoid accidental discrimination.

Still, the more you and your teams know about your customers, the better you can serve them, and the more effective and profitable your business will be.

Your customer profile may include details like:

Job titles
Income levels
Housing status
Geographic area
Preferred social media
Brand affinities
Where and how they shop
Their pain points and aspirations
Where they hang out

This information will be used throughout your product design, branding, selling, and marketing.

Summary

Defining your target market is extremely important. It is worth every minute you put into it. It will speed along everything else you do. Having a clear picture of this and being able to display the data simply in your pitch deck can and will make all the difference in getting funded. This data will also aid you in creating accurate financial models and financial planning.