Thursday, May 16, 2019

Targeting the Middle Market

One budding entrepreneur wrote up a business plan in which the health services are such that most people should utilize them. Almost everyone should or could use the new treatment plans to improve their health, and thus a lot of other outcomes. The proposed price for the service was $200+/wk for the 12-week plan. This person picked that price because it was less than current providers, and seemed reasonable.

My question to this person: how many people in the neighborhood can afford the services? We’ve all heard that half or more of households don’t have the savings to pay an extra $400 bill (for car repair, house repair, education fees, etc.). So how many people can afford $800 each month for 3 months. If they haven’t hit the limit on credit cards, they would just go further in debt.
What the Bureau of Labor Statistics tracks for discretionary income does not include expenditures for telephone, education, dining out (they count only expenditures on groceries) and what others might include as necessity.

The table shows yearly discretionary income. Half of the households have  $800/mo discretionary income, or less. Now you’ve limited your potential market by 50%.

The other aspect is brought out by a conversation with another business owner. He was revisiting his strategy and contemplating a shift to higher-end projects, and getting away from the lower-end repair work. At the higher-end installations, there are fewer clients period. And there may be more competitors wanting to do the larger projects as well. Therefore, on the high-priced proposals, you need a strategy to win every one of them. 

At the lower-end, it takes a lot more clients to make up the revenue. Capacity may be an issue. Price may be the only competitive dimension as well; it’s hard to sell your competitive advantage of service, lead-time, delivery, etc when the margins are slim. Why not target the middle market: those clients wanting/affording the middle of the scale size project? Instead of competing on 10 projects of $100,000 each, work to get the 100 at $10,000 or 1,000 jobs at $1,000 each. Figuring out how to get the 100-1000 is easier than the 10,000 (or even the 10 very specialized, very competitive because they’ll look for several quotes). 

No comments:

Post a Comment