Web Development

How to identify and target a profitable IT consulting niche

Charge more than burger-flipping rates for your IT consulting work by specializing. Read tips on how finding and evaluating a niche market.

You need to specialize as an IT consultant because specialization = less competition + higher rates. More specifically, by being in a niche, you'll be able to:

  • have less competition,
  • charge a higher bill rate for your more specialized knowledge,
  • stand out from competitors more easily, and
  • be found more easily by potential clients.

How to find your niche

One of the most common causes of struggling to make money as a consultant is failing to target a solid niche. Newbie consultants often focus on their product or service, when they should think about their market first. For instance, you might think, "My PHP skills are pretty niche-y. I'll just hang out a PHP shingle, and the clients will start rolling in!" Tech skills (and products) don't make a niche; a niche is a finely focused market.

A good niche will have:

  • profitable customers/prospects, which typically means that customers/prospects charge a high bill rate and/or have a high profit margin,
  • a clear demand for specialized skills and knowledge,
  • low competition, and
  • barriers to entry that you can realistically overcome.

This is pretty general because these criteria can apply to a variety of skills, experience, and expertise. To get from the general to the specific, follow these steps and start brainstorming consulting niches.

  1. List your skills: I know I just told you to focus on a market, but you'll be using your skills to fill a market need, so you'll need to inventory your skills. This should be easy -- snag your skills from your resume. Your skills might include SQL, PHP, Java, project management, product development, writing, yeti hunting, and so forth.
  2. List your industry-specific experience: Maybe you've worked for companies involved with health insurance, commercial real estate, financial services, NASCAR racing,  etc.
  3. List your product-specific experience: Although you can probably get paid to teach senior citizens how to use Word to write an angry letter to the editor, that's not where the big money is; instead, list the software, hardware, and systems that are more niche and have a more limited customer base. Think of things like Salesforce, CAD applications, and flight simulator systems.
  4. Combine your skills, experience, and expertise with specific markets: Here's where you'll brainstorm mashups of your skills and experience with potential markets. For example, local upscale restaurants without an online marketing presence, business intelligence reporting for commercial real estate firms, and so on.

How to ensure it's a profitable niche

Before you run out and buy the necessary software and hardware (if appropriate) for your niche, you need to do your homework to determine whether your niche is big enough, profitable enough, and not too competitive. Here are three of the best ways to evaluate a niche.

  • Google Keyword Tool: You can use Google's free Keyword Tool to research search keywords, which will help you evaluate the size, competition, and profitability of niches by researching search keywords. For each keyword, you get data on the number of searches, the degree of competition (i.e., how many other sites are trying to rank for the keyword), and the average Google AdWords cost per click for each keyword. Comparing the cost per click gives you a way to measure market profitability, since advertisers will likely be able to spend more for advertising in profitable markets.
  • Paid tools: Google's Keyword Tool is great, but it can be a bit cumbersome and time-consuming to use. There are paid tools such as Market Samurai that automate much of the research, allowing you to research niches in probably a tenth of the time it'd take you to do the same research manually. What's even cooler is that the paid tools let you dig down to see how your competitors stack up, and where their backlinks come from so you can re-engineer those same backlinks for your own site in an attempt to outrank your competition in search results.
  • Customer interviews: Customer interviews and customer development is the flip side of product development, and this concept comes from the lean startup framework for business development. The basic idea is that instead of starting with a product or service, you target a market and research the market to identify its most pressing problems, so you can then create and sell solutions for those issues. Customer interviews are one way to go about this approach; you talk to potential customers to find out about their current problems, how they're addressing those problems, and how they'd like to improve their situation. If you already know your market fairly well, you might have some ideas for solving your potential customers' biggest problems; in that case, you can ask potential customers about those ideas (don't try to sell just yet) to see whether you can validate the need for your product or service. There's a lot more to doing customer interviews well so you can get actionable information, but that's a conversation for another time. For now, just know that talking to prospective customers is one of the best ways to research a niche.

Summary

Unless you can identify and target a profitable niche market and solve that market's problems, you're leaving your IT consulting business to chance and increasing your odds of failure. If you're in a profitable niche, you'll be able to work less and earn more.

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About

Greg Miliates started his consulting business in 2007 and quadrupled his former day-job salary. His blog (www.StartMyConsultingBusiness.com) gives specific tips, tricks, techniques, and tools for starting and running a successful consulting business ...

1 comments
robinfgoldsmith
robinfgoldsmith

Identifying a niche indeed is valuable for commanding higher rates. Niches also can be created by identifying special more value-adding aspects of even not-so-unique capabilities. It may be something that many consultants probably wouldn’t recognize as a niche. For example, my rates (though not my salary) literally doubled over night when the small consulting firm I worked for merged into a major consulting firm whose status served as a niche. Regardless, though, offering niche services won’t matter unless you get the word out in resonating ways to the niche’s prospective market. Generally, those who get the work are more highly rewarded than those who do it. Oh, and don’t forget that the downside to a niche can be the related overspecialization, which narrows your market and can make your niche especially subject to market and technology shifts.