Market Segmentation for Small Business

Small business is important to the US economy, and many firms benefit from understanding the market segmentation for small business. This segment makes up an estimated 47% of  the US employment base, and numbers thirty million businesses, according to the SBA. However, some 80% are non-employer firms. There are around five million small businesses “employers” with between one to 20 employees.  There are also around 600,000 larger small businesses with 21 to 500 employees.

Depending on the industry segment, the small business proportion of employment can be as high as 86% of total employment. In fact, small businesses are particularly highly developed in agriculture, construction and real estate.

Market Segmentation for Small Business

We were asked to develop a growth strategy from a market segmentation for small businesses with revenues between $500,000 to $10 million.  

Creating the Market Segmentation for Small Business

Three firmographic parameters were consistently linked to product usage and were most actionable for the banking organization:

  • Urban or small town/rural. For purposes of the segmentation for small business, any business in an A or B county was considered urban. Any business in a C or D county was considered small town or rural
  • Industry segment:
    • Urban businesses were further divided into three industry sub segments:
      • Retail, wholesale and business services
      • Transportation, communication, utility, real estate, personal services, manufacturing, construction
      • Health, social services, non profits, professional services
    • Small town or rural businesses were also divided into two industry sub segments:
      • Agriculture, mining and forestry
      • All others
  • Revenues:
    • Under $500,000
    • $1 million to $2.49 million
    • $2.5 million to $10 million
Market Segmentation for Small Business

4 Target Market Segments Selected for Growth

The three market segmentation dimensions ultimately resulted in a total of nine segments: one segment in the under $500,000 market, four segments in the $1 million to $2.49 million space, and four segments in the $2.5 million to $10 million space.  The client’s goal was to focus on a one or two target segments in each revenue tier.   This resulted in four target segments:

  1. Credit Managers- These are financial managers looking for ways to save time and get competitive pricing. They prefer convenience in the banking relationship
  2. Mature Service Professionals – These businesses tend to have professional financial managers, including CFOs.  They tend to be mature businesses in the service industries
  3. Balancing Security Seekers – These businesses are balancing/juggling the financial needs of their business, including credit with their need for personal security
  4. Micro Entrepreneurs – These are small businesses where the business finances are interlinked with personal, and the owner controls the banking relationship

Mature Service Professionals Example

A complete profile of the Mature Service Professional was developed. Some highlights included:

  • Professional, finance-focused manager who includes more aspects of service when choosing a financial institution
  • Professional, finance-focused managers who values and has time to consult with financial institution advisors
  • Businesses are cash rich and have money for long-term investments rather than investing back into the company
  • Managing employee benefits is an important financial concern because the employees are important assets
  • The professional finance manager is very involved in decision-making because this is their job, not their company (i.e,, they are a professional, not the owner)

For the Mature Service Professionals segment, the value proposition included:

  • Proven Long-Term Investment Success Plus Short-Term Money Management that Responds to Your Needs
  • Adding Real Value to Your Business With The Tailored Services We Provide
  • Going Out of Our Way to Make Banking More Convenient for You
  • Helping You Compete for Talent Through Top-Notch Compensations and Benefits Programs

Each benefit in the value proposition growth strategy had actions that delivered against it.

Specific Growth Strategy for Each Segment with Aligned Common Areas

A specific growth strategy that had a clearly defined value proposition with benefits was created for each of the four target market segments.  As appropriate, we then aligned these with one another under the major categories of product solutions, service, advice, value and tools and information.  The goal was not to make them the same for all, rather to ensure that the tailoring was meaningful and required for each segment.

Market segmentation for small business covers a wide range of business sizes, management structures and industries. Understanding each segment is critical for success in your growth strategy.

Looking to understand small business segmentation better? Contact us to start a conversation about your goals.

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