Even if you intend on selling a product or service only in your community, you won't be selling that service to everyone who lives there. Knowing exactly what type(s) of people might be interested in buying your product or service and how many of them reside in your projected area or region is fundamental in creating your market analysis.
Once target market data has been established, you'll also work on sales projections within specific time frames, as well as how prospective sales might be affected by trends and policies.
Conducting a Market Analysis
Research is key and cornerstone of any solid business plan.
Don't Skip This Step!
Don't skip market research; otherwise, you could end up starting a business that doesn't have a paying market.
Use these general terms as linchpins in research data for the market analysis section of your business plan, and to identify your target market:
|Age||What age range are you catering products/services to? Kids? Adults? Seniors? Gen X? Millennials?|
|Gender||Are you targeting men, women, or both sexes?|
|Marital Status||Are your target customers married or single, or divorced?|
|Family||What is their family structure (number of children, extended family, etc.)?|
|Location||Where do they live? Are you selling locally? Regionally, nationally, or internationally?|
|Education||How much education do they have?|
|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 target market?|
But don't stop here. To succinctly define your target market, poll or survey members of your prospective clients or customers to ask specific questions directly related to your products or services. For instance, if you plan to sell computer-related services, ask questions relating to the number of computing devices your prospective customers own and how often they require servicing. If you plan on selling garden furniture and accessories, ask what kinds of garden furniture or accessories your potential customers have bought in the past, how often, and what they expect to buy within the next one, three, and five years.
Answers to these and other questions related to your market are to help you understand your market potential.
Polling Your Target Market
The goal of the information you collect is to help you project how much of your product or service you'll be able to sell. Review these important questions you need to try to answer using the data you collect:
- 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 socio-economic trends?
- How might your target market be affected by government policies (e.g. new bylaws or changes in taxes)?
Writing the Market Analysis
One purpose of the market analysis is to ensure you have a viable business idea.
Find Your Buying Market
Use your market research to make sure people don't just like your business idea, but they're also willing to pay for it.
If you have information suggesting that you have a large enough market to sustain your business goals, write the market analysis in the form of several short paragraphs using appropriate headings for each. If you have several target markets, you may want to number each.
Sections of your market analysis should include:
- Industry Description and Outlook
- Target Market
- Market Research Results
- Competitive Analysis
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, such as potential investors, will need to know the sources of the statistics or opinions that you've gathered.
Online Tools for Market Research
There are several online resources to learn if your business idea is something worth pursing, including:
- 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.
U.S. Online Market Research Sources
The U.S. Small Business Administration (SBA) has information on doing your market research and analysis, as well as a list of free small business data and trends resources you can use to conduct your research. Consider these sources for data collection:
- SBA Business Data and Statistics
- The U.S. Census Bureau maintains a huge database of demographic information that is searchable by state, county, city/town, or zip code using its census data tool. Community, housing, economic, and population surveys are also 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, and more, all of which are searchable by location.
Canadian Online Market Research
The Government of Canada offers a guide on doing market research and tips for understanding the data you collect. Canadian data resources include:
- Statistics Canada offers demographic and economic data.
- The Business Development Bank of Canada (BDC) offers market research and consulting with industry experts.
- The Canada Business Network provides business information to entrepreneurs by province/territory, including market research data.
Local Sources of Market Research
There are also a great many local resources for building target market information 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
All of these will have information helpful in defining your target market and providing insights into trends.
Doing Your Own Market Research
The above resources are secondary sources of information, in which others have collected and compiled the data. To get specific information about your business, consider conducting your own market research. 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.
Market research is time-consuming but is an important step in affording your business plan validity. 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 research for you can be a wise investment.