To Niche or Not to Niche? The Benefits and Drawbacks of Niching Your Digital Marketing Agency

Agencies Oct 10, 2022 14 minutes read

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    Peter Caputa

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    To specialize or not to specialize? This is the eternal question of many businesses, but marketing agencies in particular.

    Both generalist and specialist approaches have their merits, but there’s an increasing trend in agencies branding themselves as “niche.” This is unsurprising as digital marketing is a very competitive field, and specialization or “niching” is a good way to stand out from the crowd.

    Of course, different businesses define niching differently and there are always unspoken assumptions born of previous experience.

    When it comes to marketing, there is no one size fits all answer. What works for one company might not work for another. That’s why it’s important to tailor your marketing approach to fit your specific niche. But does this tailored approach lead to better results? We talked to 87 agencies and companies (51 and 36 respectively), trying to determine what’s the most viable approach in the current market.

    A significant percentage (almost 80%) of agencies identify themselves as niche, and they’re in fairly high demand. 

    We discussed what services agencies offer, which agencies think they’re niche, what kind of specialization clients prefer, and what kinds of services they need from agencies. They also shared some tips on their business approaches.

    This article will cover:

    Let’s get to it.


    What Are Niche Agencies?

    As opposed to generalist agencies that offer a large (or even full) suite of services to a large variety of clients in various industries, niche agencies tend to be more focused. They either specialize in a particular industry or specialize in providing a select suite of services.

    Because of this narrower focus, they tend to have a better understanding of their field and target market than generalist agencies do. Additionally, because they’re typically smaller and more specialized, niche agencies typically have lower overhead costs than larger firms. This allows them to offer their clients more competitive rates while still maintaining a high level of quality service. Narrowing your focus allows them to develop better project management workflows and specialization helps them acquire more clients since the success stories they share will all be highly relatable within the industry.

    Finally, by working with a niche agency, businesses can often access industry-specific knowledge and expertise that would be difficult to find elsewhere.

    Related: How 31 Marketing Agencies Created an Unbeatable Value Proposition by Choosing a Niche

    What Agencies Think About Niching

    Out of 51 agencies we interviewed, 77.27% consider themselves niche in some way. That’s a significant majority and the picture becomes even more lopsided when we realize that all agencies specialize in some way, even if they don’t call themselves niche.

    which of the following best described your agency

    A large number of agencies focus on providing a specific service or a limited suite of services. Around 43% of agencies stated that they focus on providing one specific service, but when we look at the data, most provide around three services; it’s just that they tend to lump them together. SEO, content marketing, and social media marketing are the most common services provided. Since SEO and content marketing are so closely related, it makes sense that they’re considered one big service.

    When it comes to client-field niching, around 30% of agencies said that they’re specializing in one specific industry, while 25% specialize in a broad industry or business type and 20% are focused on two to three related client industries.

    Niche agencies

    Agencies that consider themselves niche form the largest subsection of our respondents. Around 38% of them said they focus on providing one specific service (SEO, social media, and similar) and 32% stated that they’re specialized in one client industry. Well over half of niche companies offer SEO and content marketing services — 69.9% and 63.4% respectively. 

    Niche agencies

    One rule that we’ve managed to identify is that agencies offering more services tend to specialize in an industry (or several), while service-specialized agencies typically offer one or two services. There are, of course, exceptions, but this holds true for a large majority of agencies.

    Specializing, whether it’s in an industry or a service, can help agencies grow a more select clientele and aid in developing more lasting relationships with clients.

    Kim McCumber of Floodlight Training & Consulting agrees with that sentiment. “When you focus on a niche, you learn nuances about their business, workflows within their business, and their specific needs in a way that’s difficult to accomplish if you serve a variety of businesses. Your in-depth knowledge and experience in running similar programs simplify the sales process and your expertise enables you to keep clients longer since you can drive better results that are impactful.”

    Related: 9 Ways Agency Reporting Can Help Create Transparency with Clients and Boost Client Retention

    Non-niche agencies

    It’s not surprising that agencies that don’t consider themselves niche offer more services than those that do. On average, they offer around 8 services, with SEO and content marketing dominating at 80%. They’re closely followed by social media marketing (70%), SEM (60%), email marketing (60%) and web design (60%).

    Non-niche agencies

    Despite the breadth of offered services, a majority stated that they focus on one specific service and around half say that they don’t specialize in specific client industries.

    Lee Wilson of Vertical Leap draws a distinction between niching and specialization. “Often people mix up being niche with being specialized. Companies can be specialized in SEO and PPC, for example, without being restrictive on the industries they work in, or the type of customer they support.” While there are benefits in niching, such as easier onboarding and simplified processes, there are also drawbacks. For example, an agency’s expertise in a particular field will never be strong enough to match the client’s.

    “The knowledge shared can also be restrictive when the online market specifically is so expansive in its opportunities to explore. I’d rather work collaboratively with a customer; leveraging their industry expertise, and combining that with your marketing expertise. Working in this way has always proven most beneficial in my experience,” Wilson concludes.

    Related: Most Profitable Business Models for Agencies: According to 20 Agencies

    Is niching necessary?

    To some extent, probably. As we mentioned, all agencies specialize in some way. Even those offering a broad suite of services don’t truly offer everything.

    What’s more, being a jack of all trades can be useful in drawing a diverse client base (and it’s decent future-proofing as the market changes), but the lack of specialization makes it hard to stand out from the crowd. While being good at everything can definitely be a good selling point, few agencies truly have the bench deep enough to achieve it.

    One downside of niching is definitely a narrower pool of potential clients. But that’s not necessarily a bad thing. As Peter Lee of Famlee Digital says, “By reducing your pool of potential clients, you do become known in one industry and are to target your own marketing to the said niche. This is incredibly beneficial for building a reputation, but does limit you eventually.” Despite this, Lee believes that specializing in a marketing strategy allows agencies to utilize the experience they have from other industries to test with others and see their effectiveness. This means they can become a more well-rounded agency within that marketing niche.

    Conversely, Jess Percival of Exposure Ninja mentions one simple disadvantage to niching. “If your niche ceases to exist, you will no longer have clients. Working with different niches means you can innovate more easily by taking inspiration from one client and doing something totally new with another client in a different niche, potentially giving your client an advantage over competitors.”

    The Clients’ Perspective on Niches

    The companies we surveyed were divided 50-50 into B2C and B2B businesses. 

    It appears that companies, on average, prefer working with agencies specialized in specific services; 57.58% opted for this option, while 42.42% said they prefer agencies specialized in their specific industry. 

    what agencies do clients prefer?

    The numbers aren’t that apart and the market seems fairly evenly split, but there are some differences in how both types of agencies approach marketing and in the number of agencies they tend to work with. For example, in the first group, most companies collaborate with two or more agencies, while companies in the latter group typically collaborate with one agency. 

    Service-specialized agencies

    Over half of companies that prefer working with agencies that specialize in a specific service hire them to take care of SEO, Web development, and SEM.

    In addition to working with more agencies in order to cover all the bases, these types of businesses also cover a greater number of marketing activities on their own.

    Email marketing, for example, is done in-house for around 80% of pooled companies that prefer working with service-specialized agencies.

    Service-specialized agencies

    Denise Hemke of Checkr believes that doing marketing in-house is a lot more effective and efficient than hiring an agency. “We have so much more data, experience, and channels to find out what works best for us and our customers.”

    However, some specialized tasks like web design, web development and event planning aren’t done frequently but still heavily impact the business and marketing strategies. “In these cases, we prefer to hire a specialized agency with the experience to develop a product/service just for us and tailor it to our preference given their experience. There is no one size fits all and that’s why hiring a specific niche agency is ideal in these situations to help us get the results we seek,” Hemke concludes.

    Fernando Lopez of Circuit believes that service specialized agencies see stronger results. “For the most part, the same rules apply across industries – keyword research and content marketing principles and strategies to optimize how attractive you are to Google are the same whether you sell shoes or software. If these agencies haven’t already researched your industry in depth, they have the budget and labor power to do so before they get started.”

    Related: Must-Ask Questions for Your Marketing Agency’s Prospective Client Questionnaire

    Industry-specialized agencies

    When it comes to companies that prefer hiring agencies that focus on their specific industry, they mostly pick them for web development, web design, and SEO. They also tend to work with fewer agencies with broader portfolios of services. In addition, these types of businesses don’t work as much on marketing activities on their own or even at all. Over 50% don’t bother with Media Buying or Planning and Public relations.

    Industry-specialized agencies

    Nater Martin of Puzzle Break believes that it helps different marketing channels to work together in synergy rather than competing against each other. “We have chosen a full-scale that did not have direct experience with our niche. They were motivated to research our market rather than relate to their previous knowledge (which tends to become outdated). This type of engagement required significant effort from our side during the first few months to guide the agency in the right direction.” 

    Similarly, Mark Sider of Greater Than says that an agency that understands a specific niche is better equipped to understand that niche’s target audience. “This also translates to more fully understanding what your customers are looking for in a product. And the more involved an agency is in your everyday operations, then the more likely they’ll be in successfully making judgment calls and offering professional advice.”

    Related: 26 Agencies on the Winning Approach for Managing Client Expectations

    Opportunities for agencies

    There is clearly enough interest among clients for both kinds of specialization — be it industry or service. Agencies focusing on either of the two should have ample business opportunities. 

    Still, agencies specializing in an industry should definitely strive to provide more services in order to cover the clients’ needs. Conversely, agencies focusing on specific services should keep in mind that their clients will often work with other agencies with complementary skillsets and have in-house departments to cover the full suite of their needs.

    In addition, companies that prefer industry-focused agencies tend to neglect a significant percentage of their marketing channels. This can be an opportunity for many agencies to attempt to cater to this underserved market.


    To Niche or not to Niche?

    While niching and specializing seems to be the way most agencies are going, there’s still room for generalists. Offering a broad suite of services is still appealing and can definitely draw in a solid customer base that can serve a business well. Additionally, this broad set of skills and services can serve as a form of safety net against market changes — even if the demand for one type of service or in one industry diminishes, there are others to fall back on.

    Making a deliberate and intentional decision to niche down, in turn, allows an agency to be more efficient, competent, and confident in the chosen niche(s). Constantly switching mindset and focus from one business to another can be taxing and prevent an agency from developing deep institutional expertise that would really allow it to stand out from the competition.

    There’s still plenty of demand for all kinds of agencies, you just need to determine what works best for your business.

    Of course, sometimes it’s hard to determine how well you’re doing and what you could do to improve. How is your competition really doing? What’s their churn rate? How much ROI can you expect for this specific project? 

    You need all this information if you want to develop truly outstanding strategies that align with your business goals. Thanks to Databox, you can do that with our Benchmark Groups feature. Compare your performance against other similar agencies using 2000 different metrics from 50+ tools sales, marketing and financial tools.

    Then, use the benchmarks to develop a better strategy, justify investing in new initiatives, set goals for different clients, or just have peace of mind that you’re doing ok.

    To get started, sign up for a free Databox account or contact our customer success team via chat to set you up.

    Article by
    Davor Štefanović

    Davor is an English literature graduate and an avid reader with a passion for languages. Working as a translator, editor, and writer has allowed him to learn about a wide range of topics — making him something of a jack-of-all-trades when it comes to content. In his spare time, he reads, plays video games and boardgames, and runs/plays tabletop RPGs.

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