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- Market Segmentation for Non-Profits in 7 Steps
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## Market Segmentation for Non-Profits in 7 Steps

Nonprofits can and should use best practices borrowed from the for-profit sector if it helps them run a more efficient and productive organization. In fact, nonprofits should take seriously any business or operational practice that can reduce costs and further stretch the operating budget. One such practice is market segmentation.

Market segmentation is the discipline of dividing a potential target audience or market into segments – or groups – with the goal of designing hyper-targeted marketing efforts for each segment.

The result of well-designed and executed market segmentation can result in a much higher return on investment (ROI) for an organization’s marketing dollars, as campaigns targeted to reach the segments most likely to convert generate, on average, a much higher conversion rate for each dollar spent.

Leaders of nonprofits and organizations may wonder if their market segmentation efforts should differ in any way from those of for-profit companies. Here’s how to segment your market for nonprofits in seven steps.

**1. Identify your trading area:**

Depending on whether your organization is focused locally, regionally, nationally, or globally, your trade area will vary in size, scope, and location. It is important to begin segmentation with a realistic measurement of your trade area. You can mark your trade area in a number of ways, including using city or major metropolitan area names, zip code lists, states/provinces, or even custom polygon shapes around each common location.

**2. Determine if there are any disqualifiers in your target market:**

Next, it’s time to calculate the total market size in your trading area. This is usually best done at the household level. Start by calculating the total number of households, then subtract the total number of households that meet any obvious disqualification criteria. For example, if your organization manufactures eco-friendly insulation kits for older homes, you might want to subtract all homes built in the past 10 years from your target market size.

**3. Find out what descriptive information you can get about your existing stakeholders/customers and categorize it.**

Now it’s time to create a model of all your current or recent stakeholders (i.e. customers). The best way to do this is to add relevant information to each one. You can use many methods to do this, including adding demographic information (such as marital status or income) or existing market segmentation systems that take psychographic and other factors into account.

**4. Segment your stakeholders based on the following categories.**

It is important here that you segment your stakeholders based on different combinations of the categories you created in step 3. For example, one segment might include all households with a median household age of 45 to 50 and a median household income of $50,000 to $75,000. You might call this segment A. Another segment might be the median age of 45 to 50 years with a median income of $75,000 to $90,000. Let’s say you call it segment B, etc. (Note that if you had chosen to use an already existing segmentation system, your stakeholders will already be conveniently segmented.)

**5. Determine which segments index the highest relative to the general population in your trade area:**

Now compare the percentage of households in each of your stakeholder segments to that of all households in the trade area. For example, if 15% of your stakeholders are in segment A, but only 5% of the population in your trade area is in that segment, you might say that segment A has an index of 300 (15% / 5% x 100 = 300). . Another way to say this is that households in segment A are three times more likely to become your customers than randomly selected households from your trade area. This is valuable information! Now it’s time to apply what you’ve learned to your marketing and advertising campaigns.

**6. Develop a campaign to target your best segments.**

Separate the segments that have a high index score compared to the households in your trade area. These are your best segments. There are likely thousands or millions of potential stakeholders who are in your best segments but who you are not currently doing business with. You need to find these households and reach them with targeted marketing. You can buy targeted mailing lists or create TV, radio, newspaper or online campaigns designed to reach areas with high concentrations of your best segments.

**7. Create messaging and brand campaigns that speak the language of your best segments.**

Finally, make sure the ads and other marketing materials you create reflect the motivations, interests, and habits of your best segments. Tailor the positioning statements, benefit statements, visuals and language used in your campaigns to specifically “speak” to households in your best segments.

Smartly executed market segmentation is sure to give your nonprofit a much higher return on marketing investment by helping you target your marketing dollars to those households that respond 3-5 times or more to your campaigns.

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