How to Write a Business Plan: Market Analysis (Section 3)
The Business Plan and the Importance of Defining Your Target Market
The first step is to define your target market. Even if you intend on selling a service only in your own town, you're not selling that service to everyone who lives there. You need to know exactly what the people who might be interested in buying your product or service are like, and how many of them there are.
Then you need to make some projections about your target market, in terms of how much of your products or service they might buy, and how they might be affected by trends and policies.
How to Write a Business Plan: The Market Analysis
As always when you're writing a business plan, research is the key. Before writing the Market Analysis section of the business plan, use these general terms to start your research:
|Age||What age range am I catering my products/services to? Kids? Adults? Seniors? Gen X? Millennials?|
|Gender||Am I targeting men, women, or both sexes?|
|Marital Status||Are my target customers married or single?|
|Family||What is their family structure (number of children, extended family, etc.)?|
|Location||Where do they live? Am I looking to sell locally? Regionally, Nationally?|
|Education||How well are they educated?|
|Income||What is their income?|
|Occupation||What do they do for a living?|
|Religion||Are they members of a particular religious group?|
|Language||Are they members of a particular language group?|
|Lifestyle||What is their lifestyle like?|
|Motivation||What motivates them?|
|Size||What is the size of the the target market?|
But don't stop here. To define your target market, you need to ask the specific questions that are directly related to your products or services. For instance, if you plan to sell computer-related services, you need to know things such as how many computing devices your prospective customer owns. If you plan on selling garden furniture and accessories, you need to know what kinds of garden furniture or accessories your potential customers have bought in the past, and how often.
Projections About the Target Market
- What proportion of your target market has used a product similar to yours before?
- How much of your product or service might your target market buy? (Estimate this in gross sales and/or in units of product/service sold.)
- What proportion of your target market might be repeat customers?
- How might your target market be affected by demographic shifts?
- How might your target market be affected by economic events (e.g. a local mill closing or a big-box retailer opening locally)?
- How might your target market be affected by larger socioeconomic trends?
- How might your target market be affected by government policies (e.g. new bylaws or changes in taxes)?
Writing the Market Analysis Section of the Business Plan
Once you have all this information, you'll write the Market Analysis in the form of several short paragraphs. Use appropriate headings for each paragraph. If you have several target markets, you may want to number each.
Remember to properly cite your sources of information within the body of your Market Analysis as you write it. You and other readers of your business plan will need to know the sources of the statistics or opinions that you've gathered from others.
Online Tools for Market Research
- Keyword searches can give you an overall sense of potential demand for your product or service based on the number of searches.
- Google Trends analysis can tell you how the number of searches has changed over time.
- Social media campaigns can give you an indication of the potential customer interest in your business idea.
Online Market Research Sources in the U.S.
- The U.S. Small Business Administration (SBA) Business Data and Statistics and small business research from the SBA Office of Advocacy.
- The U.S. Census Bureau (www.census.gov) maintains a huge database of demographic information which is searchable by state, county, city, town, or zip code using the American FactFinder tool. Community, housing, economic, and population surveys are available.
- The U.S. Department of Commerce Bureau of Economic Analysis (BEA) has extensive statistics on the economy including consumer income/spending/consumption, business activity, GDP, etc., all of which is searchable by location.
Online Market Research Sources in Canada
- The Government of Canada's Canada Business Network website is an excellent place to start your research on your target market.
- Statistics Canada is an excellent resource for demographic and economic data.
- The Business Development Bank of Canada (BDC) provides market research and consulting with industry experts.
- The Government of Canada's Canada Business Network provides business information to entrepreneurs by province/territory, including market research.
Some provinces and territories maintain up-to-date websites with official statistics and publications:
- Alberta Community Profiles - Profiles of Alberta communities including demographics and other statistics.
Economic Development Winnipeg Inc. - Industry profiles and market research for Winnipeg.
- Yukon Business and Economic Research Branch - Research and reports.
- Northwest Territories Bureau of Statistics - Research and statistics on the Northwest Territories.
- Saskatchewan Bureau of Statistics - Economic news, labour force reports, monthly statistical reviews and historical data.
- Institut de la statistique du Québec - Statistics and publications on the economy, culture, etc.
- Databank of official statistics on Quebec - Statistics compiled by Quebec departments and agencies.
- British Columbia Small Business Profile - Information and resources for BC's small business market.
- British Columbia's Key Indicators - Statistics for BC's economy, including labour, housing stats, price indexes, retail/wholesale sales, tourism, etc.
- Statistical Information for Newfoundland & Labrador - Provincial demographic and statistical information on population, income, and industry.
- Economic Research and Analysis Division - Research and economic forecast statistics.
Local Sources of Market Research
There are also a great many local resources for information about your target market that you'll want to explore, including:
- Local library
- Local Chamber of Commerce
- Board of Trade
- City Hall
- Economic Development Centre
- Local government agent's office
- Provincial business ministry
- Local phone book, yellow pages (printed or online)
All of these will have information that will help you define your target market and provide insights into trends.
Doing Your Own Market Research
These are all secondary sources of information. (Others have conducted the research and compiled the information.) You may also want to conduct your own market research (use primary data). For instance, you might want to design a questionnaire and survey your target market to learn more about their habits and preferences relating to your product or service. My article, Do-It-Yourself Market Research, explains the basics of market research and gives tips for sampling and accessing your target market.
Market research is time consuming but needs to be done if your business plan is going to have any validity. You can have the most fantastic product or service in the world, but if no one's interested in buying it, it will just gather dust. If you don't have the time or the research skills to thoroughly define your target market yourself, hiring a person or firm to do the market research for you can be a wise investment.