Business Plan Section 5: Market Analysis
Find out the 9 components to include in the market analysis portion of your business plan, plus 6 sources for market analysis information.
This is the part of your business plan where you really get to shine and show off that awesome idea you have. Of course, your product or service is the best! Now, let’s talk about how you know it’s a hit. Be prepared to show you know your market AND that it’s big enough for you to build a sustainable, successful business .
In writing up your market analysis, you’ll get to demonstrate the knowledge you’ve gained about the industry, the target market you’re planning to sell to, your competition, and how you plan to make yourself stand out.
A market analysis is just that: a look at what the relevant business environment is and where you fit in. It should give a potential lender, investor, or employee no doubt that there is a solid niche for what you’re offering, and you are definitely the person to fill it. It’s both quantitative, spelling out sales projections and other pertinent figures, and qualitative, giving a thoughtful overview of how you fit in with the competition. It needs to look into the potential size of the market, the possible customers you’ll target, and what kind of difficulties you might face as you try to become successful. Let’s break down how to do that.
What Goes Into A Business Plan Market Analysis?
Industry description and outlook.
Describe the industry with enough background so that someone who isn’t familiar with it can understand what it’s like, what the challenges are, and what the outlook is. Talk about its size, how it’s growing, and what the outlook is for the future.
Who have you identified as your ideal client or customer ? Include demographic information on the group you’re targeting, including age, gender and income level. This is the place to talk about the size of your potential market, how much it might spend, and how you’ll reach potential customers. For example, if women aged 18 to 54 are your target market, you need to know how many of them there are in your market. Are there 500 or 500,000? It’s imperative to know. Similarly, if your product or service is geared toward a high-end clientele, you need to make sure you’re located in an area that can support it.
What factors influence the need for your product or service? Did the need exist before or are you trying to create it? Why will customers want to do business with you, possibly choosing you over someone else? This is where you can briefly introduce the competitive edge you have, although you’ll get into that in more depth in following sections. Focus on how the product or service you’re offering satisfies what’s needed in the market.
While no one can predict the future, it’s important to get a possible idea of what business may be like down the road and make sales projections. Have the number of people in your target market been increasing or decreasing over the last several years? By how much per year? To make an intelligent forecast, you have to start with current conditions, then project changes over the next three to five years.
You need to take a look at trends the same way you look at population and demographics. Is there a shift to more natural or organic ingredients that might impact your business? How might energy prices figure in? The easy availability of the internet and smartphone technology? The questions will be different for every type of business, but it’s important to think about the types of changes that could affect your specific market. In this section, you can cite experts from the research you’ve done-a market expert, market research firm, trade association, or credible journalist.
Market Research Testing
Talk about what kind of testing and information gathering you’ve done to figure out where you stand in the market. Who have you spoken to about the viability of your product? Why are you confident of its success? Again, if you can, cite experts to back up your information.
There’s no way to succeed unless you’ve examined your competition. It might be helpful to try analyzing your position in the market by performing a SWOT analysis. You need to figure out their strengths and the weaknesses you can exploit as you work to build your own business. You do need to be brutally honest here, and also look at what the potential roadblocks are-anything that might potentially stand in your way as you try to meet your goals and grow your business.
Barriers to Entry
Lenders and investors need to have a reasonable assurance they’ll be paid back, so they’ll want to know what would stop someone else from swooping in, doing what you do, and grabbing half the available business. Do you have technical knowledge that’s difficult to get? A specialized product no one else can manufacture? A service that takes years to perfect? It’s possible your industry has strict regulations and licensing requirements. All of these help protect you from new competition, and they’re all selling points for you.
As we touched on above, you should cover regulations as a barrier to entry. If your field is covered by regulations, you do need to talk about how they apply to your business and how you’ll comply with them.
Six Sources for Market Analysis Information
The Market Analysis section of your business plan is far more than a theoretical exercise. Doing an analysis of the market really gives YOU the information you need to figure out whether your plans are viable, and tweak them in the early stages before you go wrong.
So, where do you start? Research is the key here, and there are several sources available.
1. The Internet
Some of the first information you need is about population and demographics: who your potential customers are, how many there are, and where they live or work. The U.S. Census Bureau has an impressive amount of these statistics available. USA.gov’s small business site is another good source for links to the U.S. Departments of Labor and Commerce, among others.
2. Local Chamber of Commerce
A lot of local information can be gotten from the chamber of commerce in the area where you plan to operate. Often, they can provide details into what the general business climate is like, and get even more specific about how many and what type of businesses are operating in their jurisdiction.
3. Other Resources
When actual statistical information isn’t available, you’ll often be able to put together a good picture of the market from a variety of other sources. Real estate agents can be a source of information on demographics and population trends in an area. Catalogs and marketing materials from your competition are useful. Many industry associations have a great amount of relevant information to use in putting your analysis together. Trade publications and annual reports from public corporations in your industry also contain a wealth of relevant information.
4. Customer Mindset
Take yourself out of the equation as the owner and stand in your customer’s shoes when you look at the business. As a customer, what problems do you have that need to be solved? What would you like to be able to do better, faster, or cheaper that you can’t do now? How does the competition work to solve those issues? How could this business solve them better?
5. the Competition
If you have a clothing store, visit others in your area. If you’d like to open a pizzeria, try pies from surrounding restaurants. If you’re a salon owner, park across the street and see what the store traffic is like and how customers look when they come out. Check out websites for pricing and other marketing information. Follow their Facebook pages. If you can’t be a customer of the competition, ask your customers and suppliers about them. Always be aware of what’s going on in the market.
6. Traditional Market Research
While you can gather a lot of data online, your best information will come from potential customers themselves. Send out surveys, ask for input and feedback, and conduct focus groups. You can do this yourself or hire a market research firm to do it for you.
What to Do With All That Data
Now that you’ve gathered the statistics and information and you’ve done the math to know there’s a need and customer base for your product or service, you have to show it off to your best advantage. You can start the market analysis section with a simple summary that describes your target customers and explains why you have chosen this as your market. You can also summarize how you see the market growing, and highlight one or two projections for the future.
If your information is dense with numbers and statistics, someone who reads your business plan will probably find it easier to understand if you present it as a chart or graph. You can generate them fairly easily with tools built into Google docs and free infographic apps and software .
Don’t assume that your readers have an understanding of your market, but don’t belabor simple points, either. You want to include pertinent, important information, but you don’t want to drown the reader in facts. Be concise and compelling with the market analysis, and remember that a good graphic can cover a lot of text, and help you make your point. It’s great to say you project sales to increase by 250% over the next five years, but it makes an even bigger wow when you show it in a graphic.
Always relate the data back to your business. Statistics about the market don’t mean much unless you describe how and where you fit in. As you talk about the needs of your target market, remember to focus on how you are uniquely positioned to fill them.
Don’t hesitate to break down your target market into smaller segments, especially if each is likely to respond to a different message about your product or service. You may have one market that consists of homes and another of small businesses. Perhaps you sell to both wholesale and retail customers. Talk about this in the market analysis, and describe briefly how you’ll approach each. (You will have more of an opportunity to do this in detail later in the plan.) Segmentation can help you target specific messages to specific areas, focusing in on the existing needs and how you fill them.
Remember to tailor your information to the purpose at hand. If your business plan is for internal use, you may not have to go into as much detail about the market since you and your team may already know it well. Remember, however, that the very act of doing the research may help you learn things you didn’t know, so don’t skimp on doing the work. This is a great opportunity to get information from outside that might affect your business.
It’s not about your ability to do professional-level market research; a plan intended for a bank or other lender needs to show your understanding of where your business fits into the grand scheme of things. Yes, you need to detail the information, but your main goal is to show how you’ve incorporated that knowledge into making solid decisions about the direction of your company. Use this section of your business plan to explain your understanding of your industry, your market and your individual business so that lenders and investors feel comfortable with your possibility for success.
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How to do a market analysis for a business plan
A key part of any business plan is market analysis. This section needs to demonstrate both your expertise in your particular market and the attractiveness of the market from a financial standpoint.
This article first looks at what we mean exactly by market analysis before looking at how to make a good one for your business plan.
What is a market analysis?
A market analysis is a quantitative and qualitative assessment of a market. It looks into the size of the market both in volume and in value, the various customer segments and buying patterns, the competition, and the economic environment in terms of barriers to entry and regulation.
How to do a market analysis?
The objectives of the market analysis section of a business plan are to show to investors that:
- you know your market
- the market is large enough to build a sustainable business
In order to do that I recommend the following plan:
Demographics and Segmentation
Target market, market need, competition, barriers to entry.
The first step of the analysis consists in assessing the size of the market.
When assessing the size of the market, your approach will depend on the type of business you are selling to investors. If your business plan is for a small shop or a restaurant then you need to take a local approach and try to assess the market around your shop. If you are writing a business plan for a restaurant chain then you need to assess the market a national level.
Depending on your market you might also want to slice it into different segments. This is especially relevant if you or your competitors focus only on certain segments.
Volume & Value
There are two factors you need to look at when assessing the size of a market: the number of potential customers and the value of the market. It is very important to look at both numbers separately, let's take an example to understand why.
Imagine that you have the opportunity to open a shop either in Town A or in Town B:
Although Town B looks more competitive (10 competitors vs. 2 in Town A) and a smaller opportunity (market size of £100m vs. £200 in Town A), with 1,000 potential customers it is actually a more accessible market than Town A where you have only 2 potential customers.
The definition of a potential customer will depend on your type of business. For example, if you are opening a small shop selling office furniture then your market will be all the companies within your delivery range. As in the example above it is likely that most companies would have only one person in charge of purchasing furniture hence you wouldn't take the size of these businesses in consideration when assessing the number of potential customers. You would however factor it when assessing the value of the market.
Estimating the market value is often more difficult than assessing the number of potential customers. The first thing to do is to see if the figure is publicly available as either published by a consultancy firm or by a state body. It is very likely that you will find at least a number on a national level.
If not then you can either buy some market research or try to estimate it yourself.
Methods for building an estimate
There are 2 methods that can be used to build estimates: the bottom-up approach or the top-down approach.
The bottom-up approach consists in building a global number starting with unitary values. In our case the number of potential clients multiplied by an average transaction value.
Let's keep our office furniture example and try to estimate the value of the 'desk' segment. We would first factor in the size of the businesses in our delivery range in order to come up with the size of the desks park. Then we would try to estimate the renewal rate of the park to get the volume of annual transactions. Finally, we would apply an average price to the annual volume of transactions to get to the estimated market value.
Here is a summary of the steps including where to find the information:
- Size of desks park = number of businesses in delivery area x number of employees (you might want to refine this number based on the sector as not all employees have desks)
- Renewal rate = 1 / useful life of a desk
- The volume of transactions = size of desks park x renewal rate
- Value of 1 transaction = average price of a desk
- Market value = volume of transactions x value of 1 transaction
You should be able to find most of the information for free in this example. You can get the number and size of businesses in your delivery area from the national statistics. Your accountant should be able to give you the useful life of a desk (but you should know it since it is your market!). You can compare the desk prices of other furniture stores in your area. As a side note here: it is always a good idea to ask your competitors for market data (just don't say you are going to compete with them).
That was the bottom-up approach, now let's look into the top-down approach.
The top-down approach consists of starting with a global number and reducing it pro-rata. In our case, we would start with the value of the UK office furniture market which AMA Research estimates to be around £650m and then do a pro-rata on this number using the number of businesses in our delivery area x their number of employees / total number of people employed in the UK. Once again the number of employees would only be a rough proxy given all business don't have the same furniture requirements.
When coming up with an estimate yourself it is always a good practice to test both the bottom up and top-down approaches and to compare the results. If the numbers are too far away then you probably missed something or used the wrong proxy.
Once you have estimated the market size you need to explain to your reader which segment(s) of the market you view as your target market.
The target market is the type of customers you target within the market. For example, if you are selling jewellery you can either be a generalist or decide to focus on the high end or the lower end of the market. This section is relevant when your market has clear segments with different drivers of demand. In my example of jewels, value for money would be one of the drivers of the lower end market whereas exclusivity and prestige would drive the high end.
Now it is time to focus on the more qualitative side of the market analysis by looking at what drives the demand.
This section is very important as it is where you show your potential investor that you have an intimate knowledge of your market. You know why they buy!
Here you need to get into the details of the drivers of demand for your product or services. One way to look at what a driver is to look at takeaway coffee. One of the drivers for coffee is consistency. The coffee one buys in a chain is not necessarily better than the one from the independent coffee shop next door. But if you are not from the area then you don't know what the independent coffee shop's coffee is worth it. Whereas you know that the coffee from the chain will taste just like in every other shop of this chain. Hence most people on the move buy coffee from chains rather than independent coffee shops.
From a tactical point of view, this section is also where you need to place your competitive edge without mentioning it explicitly. In the following sections of your business plan, you are going to talk about your competition and their strengths, weaknesses and market positioning before reaching the Strategy section in which you'll explain your own market positioning. What you want to do is prepare the reader to embrace your positioning and invest in your company.
To do so you need to highlight in this section some of the drivers that your competition has not been focussing on. A quick example for an independent coffee shop surrounded by coffee chains would be to say that on top of consistency, which is relevant for people on the move, another driver for coffee shop demand is the place itself as what coffee shops sell before most is a place for people to meet. You would then present your competition. And in the Strategy section explain that you will focus on locals looking for a place to meet rather than takeaway coffee and that your differentiating factor will be the authenticity and atmosphere of your local shop.
The aim of this section is to give a fair view of who you are competing against. You need to explain your competitors' positioning and describe their strengths and weaknesses. You should write this part in parallel with the Competitive Edge part of the Strategy section.
The idea here is to analyse your competitor's angle to the market in order to find a weakness that your company will be able to use in its own market positioning.
One way to carry the analysis is to benchmark your competitor against each of the key drivers of demand for your market (price, quality, add-on services, etc.) and present the results in a table.
Below is an example of a furniture shop in France. As you can see from the table all the actors on the market are currently focused on the low medium range of the market leaving the space free for a high end focused new player.
This section is all about answering two questions from your investors:
- what prevents someone from opening a shop in front of yours and take 50% of your business?
- having answered the previous question what makes you think you will be successful in trying to enter this market? (start-up only)
As you would have guess barriers to entry are great. Investors love them and there is one reason for this: it protects your business from new competition!
Here are a few examples of barriers to entry:
- Investment (a project that requires a substantial investment)
- Technology (sophisticated technology a website is not one, knowing how to process uranium is)
- Brand (the huge marketing costs required to get to a certain level of recognition)
- Regulation (licences and concessions in particular)
- Access to resources (exclusivity with suppliers, proprietary resources)
- Access to distribution channels (exclusivity with distributors, proprietary network)
- Location (a shop on Regent's Street)
The answer to the questions above will be highly dependent on your type of business, your management team and any relations it might have. Therefore it is hard for me to give any general tips about it.
If regulation is a barrier at entry in your sector then I would advise you to merge this section with the previous one. Otherwise, this section should be just a tick the box exercise where you explain the main regulations applicable to your business and which steps you are going to take to remain compliant.
Now you know how to do a market analysis for a business plan! I hope you found this article useful. If so please share it, and if not let us know what we need to improve.
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How to Write a Market Analysis for a Business Plan
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A lot of preparation goes into starting a business before you can open your doors to the public or launch your online store. One of your first steps should be to write a business plan . A business plan will serve as your roadmap when building your business.
Within your business plan, there’s an important section you should pay careful attention to: your market analysis. Your market analysis helps you understand your target market and how you can thrive within it.
Simply put, your market analysis shows that you’ve done your research. It also contributes to your marketing strategy by defining your target customer and researching their buying habits. Overall, a market analysis will yield invaluable data if you have limited knowledge about your market, the market has fierce competition, and if you require a business loan. In this guide, we'll explore how to conduct your own market analysis.
How to conduct a market analysis: A step-by-step guide
In your market analysis, you can expect to cover the following:
Barriers to entry
Let’s dive into an in-depth look into each section:
Step 1: Define your objective
Before you begin your market analysis, it’s important to define your objective for writing a market analysis. Are you writing it for internal purposes or for external purposes?
If you were doing a market analysis for internal purposes, you might be brainstorming new products to launch or adjusting your marketing tactics. An example of an external purpose might be that you need a market analysis to get approved for a business loan .
The comprehensiveness of your market analysis will depend on your objective. If you’re preparing for a new product launch, you might focus more heavily on researching the competition. A market analysis for a loan approval would require heavy data and research into market size and growth, share potential, and pricing.
Step 2: Provide an industry outlook
An industry outlook is a general direction of where your industry is heading. Lenders want to know whether you’re targeting a growing industry or declining industry. For example, if you’re looking to sell VCRs in 2020, it’s unlikely that your business will succeed.
Starting your market analysis with an industry outlook offers a preliminary view of the market and what to expect in your market analysis. When writing this section, you'll want to include:
Are you chasing big markets or are you targeting very niche markets? If you’re targeting a niche market, are there enough customers to support your business and buy your product?
Product life cycle
If you develop a product, what will its life cycle look like? Lenders want an overview of how your product will come into fruition after it’s developed and launched. In this section, you can discuss your product’s:
Research and development
How do you see your company performing over time? Calculating your year-over-year growth will help you and lenders see how your business has grown thus far. Calculating your projected growth shows how your business will fare in future projected market conditions.
Step 3: Determine your target market
This section of your market analysis is dedicated to your potential customer. Who is your ideal target customer? How can you cater your product to serve them specifically?
Don’t make the mistake of wanting to sell your product to everybody. Your target customer should be specific. For example, if you’re selling mittens, you wouldn’t want to market to warmer climates like Hawaii. You should target customers who live in colder regions. The more nuanced your target market is, the more information you’ll have to inform your business and marketing strategy.
With that in mind, your target market section should include the following points:
This is where you leave nothing to mystery about your ideal customer. You want to know every aspect of your customer so you can best serve them. Dedicate time to researching the following demographics:
Create a customer persona
Creating a customer persona can help you better understand your customer. It can be easier to market to a person than data on paper. You can give this persona a name, background, and job. Mold this persona into your target customer.
What are your customer’s pain points? How do these pain points influence how they buy products? What matters most to them? Why do they choose one brand over another?
Research and supporting material
Information without data are just claims. To add credibility to your market analysis, you need to include data. Some methods for collecting data include:
Target group surveys
You can also consult resources online. For example, the U.S. Census Bureau can help you find demographics in calculating your market share. The U.S. Department of Commerce and the U.S. Small Business Administration also offer general data that can help you research your target industry.
Step 4: Calculate market value
You can use either top-down analysis or bottom-up analysis to calculate an estimate of your market value.
A top-down analysis tends to be the easier option of the two. It requires for you to calculate the entire market and then estimate how much of a share you expect your business to get. For example, let’s assume your target market consists of 100,000 people. If you’re optimistic and manage to get 1% of that market, you can expect to make 1,000 sales.
A bottom-up analysis is more data-driven and requires more research. You calculate the individual factors of your business and then estimate how high you can scale them to arrive at a projected market share. Some factors to consider when doing a bottom-up analysis include:
Where products are sold
Who your competition is
The price per unit
How many consumers you expect to reach
The average amount a customer would buy over time
While a bottom-up analysis requires more data than a top-down analysis, you can usually arrive at a more accurate calculation.
Step 5: Get to know your competition
Before you start a business, you need to research the level of competition within your market. Are there certain companies getting the lion’s share of the market? How can you position yourself to stand out from the competition?
There are two types of competitors that you should be aware of: direct competitors and indirect competitors.
Direct competitors are other businesses who sell the same product as you. If you and the company across town both sell apples, you are direct competitors.
An indirect competitor sells a different but similar product to yours. If that company across town sells oranges instead, they are an indirect competitor. Apples and oranges are different but they still target a similar market: people who eat fruits.
Also, here are some questions you want to answer when writing this section of your market analysis:
What are your competitor’s strengths?
What are your competitor’s weaknesses?
How can you cover your competitor’s weaknesses in your own business?
How can you solve the same problems better or differently than your competitors?
How can you leverage technology to better serve your customers?
How big of a threat are your competitors if you open your business?
Step 6: Identify your barriers
Writing a market analysis can help you identify some glaring barriers to starting your business. Researching these barriers will help you avoid any costly legal or business mistakes down the line. Some entry barriers to address in your marketing analysis include:
Technology: How rapid is technology advancing and can it render your product obsolete within the next five years?
Branding: You need to establish your brand identity to stand out in a saturated market.
Cost of entry: Startup costs, like renting a space and hiring employees, are expensive. Also, specialty equipment often comes with hefty price tags. (Consider researching equipment financing to help finance these purchases.)
Location: You need to secure a prime location if you’re opening a physical store.
Competition: A market with fierce competition can be a steep uphill battle (like attempting to go toe-to-toe with Apple or Amazon).
Step 7: Know the regulations
When starting a business, it’s your responsibility to research governmental and state business regulations within your market. Some regulations to keep in mind include (but aren’t limited to):
Employment and labor laws
If you’re a newer entrepreneur and this is your first business, this part can be daunting so you might want to consult with a business attorney. A legal professional will help you identify the legal requirements specific to your business. You can also check online legal help sites like LegalZoom or Rocket Lawyer.
Tips when writing your market analysis
We wouldn’t be surprised if you feel overwhelmed by the sheer volume of information needed in a market analysis. Keep in mind, though, this research is key to launching a successful business. You don’t want to cut corners, but here are a few tips to help you out when writing your market analysis:
Use visual aids
Nobody likes 30 pages of nothing but text. Using visual aids can break up those text blocks, making your market analysis more visually appealing. When discussing statistics and metrics, charts and graphs will help you better communicate your data.
Include a summary
If you’ve ever read an article from an academic journal, you’ll notice that writers include an abstract that offers the reader a preview.
Use this same tactic when writing your market analysis. It will prime the reader of your market highlights before they dive into the hard data.
Get to the point
It’s better to keep your market analysis concise than to stuff it with fluff and repetition. You’ll want to present your data, analyze it, and then tie it back into how your business can thrive within your target market.
Revisit your market analysis regularly
Markets are always changing and it's important that your business changes with your target market. Revisiting your market analysis ensures that your business operations align with changing market conditions. The best businesses are the ones that can adapt.
Why should you write a market analysis?
Your market analysis helps you look at factors within your market to determine if it’s a good fit for your business model. A market analysis will help you:
1. Learn how to analyze the market need
Markets are always shifting and it’s a good idea to identify current and projected market conditions. These trends will help you understand the size of your market and whether there are paying customers waiting for you. Doing a market analysis helps you confirm that your target market is a lucrative market.
2. Learn about your customers
The best way to serve your customer is to understand them. A market analysis will examine your customer’s buying habits, pain points, and desires. This information will aid you in developing a business that addresses those points.
3. Get approved for a business loan
Starting a business, especially if it’s your first one, requires startup funding. A good first step is to apply for a business loan with your bank or other financial institution.
A thorough market analysis shows that you’re professional, prepared, and worth the investment from lenders. This preparation inspires confidence within the lender that you can build a business and repay the loan.
4. Beat the competition
Your research will offer valuable insight and certain advantages that the competition might not have. For example, thoroughly understanding your customer’s pain points and desires will help you develop a superior product or service than your competitors. If your business is already up and running, an updated market analysis can upgrade your marketing strategy or help you launch a new product.
There is a saying that the first step to cutting down a tree is to sharpen an axe. In other words, preparation is the key to success. In business, preparation increases the chances that your business will succeed, even in a competitive market.
The market analysis section of your business plan separates the entrepreneurs who have done their homework from those who haven’t. Now that you’ve learned how to write a market analysis, it’s time for you to sharpen your axe and grow a successful business. And keep in mind, if you need help crafting your business plan, you can always turn to business plan software or a free template to help you stay organized.
This article originally appeared on JustBusiness, a subsidiary of NerdWallet.
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How to Write the Market Analysis Section of a Business Plan
Alyssa Gregory is an entrepreneur, writer, and marketer with 20 years of experience in the business world. She is the founder of the Small Business Bonfire, a community for entrepreneurs, and has authored more than 2,500 articles for The Balance and other popular small business websites.
The market analysis section of your business plan comes after the products or services section and should provide a detailed overview of the industry you intend to sell your product or service in, including statistics to support your claims.
In general, the market analysis section should include information about the industry, your target market, your competition, and how you intend to make a place for your own product and service. Extensive data for this section should be added to the end of the business plan as appendices, with only the most important statistics included in the market analysis section itself.
What Should a Market Analysis Include?
The market analysis section of your small business plan should include the following:
- Industry Description and Outlook : Describe your industry both qualitatively and quantitatively by laying out the factors that make your industry an attractive place to start and grow a business. Be sure to include detailed statistics that define the industry including size, growth rate , trends, and outlook.
- Target Market : Who is your ideal client/customer? This data should include demographics on the group you are targeting including age, gender, income level, and lifestyle preferences. This section should also include data on the size of the target market, the purchase potential and motivations of the audience, and how you intend to reach the market.
- Market Test Results : This is where you include the results of the market research you conducted as part of your initial investigation into the market. Details about your testing process and supporting statistics should be included in the appendix.
- Lead Time : Lead time is the amount of time it takes for an order to be fulfilled once a customer makes a purchase. This is where you provide information on the research you've completed on how long it will take to handle individual orders and large volume purchases, if applicable.
- Competitive Analysis : Who is your competition? What are the strengths and weaknesses of the competition? What are the potential roadblocks preventing you from entering the market?
7 Tips for Writing a Market Analysis
Here is a collection of tips to help you write an effective and well-rounded market analysis for your small business plan.
- Use the Internet : Since much of the market analysis section relies on raw data, the Internet is a great place to start. Demographic data can be gathered from the U.S. Census Bureau. A series of searches can uncover information on your competition, and you can conduct a portion of your market research online.
- Be the Customer : One of the most effective ways to gauge opportunity among your target market is to look at your products and services through the eyes of a purchaser. What is the problem that needs to be solved? How does the competition solve that problem? How will you solve the problem better or differently?
- Cut to the Chase : It can be helpful to your business plan audience if you include a summary of the market analysis section before diving into the details. This gives the reader an idea about what's to come and helps them zero in on the most important details quickly.
- Conduct Thorough Market Research : Put in the necessary time during the initial exploration phase to research the market and gather as much information as you can. Send out surveys, conduct focus groups, and ask for feedback when you have an opportunity. Then use the data gathered as supporting materials for your market analysis.
- Use Visual Aids : Information that is highly number-driven, such as statistics and metrics included in the market analysis, is typically easier to grasp when it's presented visually. Use charts and graphs to illustrate the most important numbers.
- Be Concise : In most cases, those reading your business plan already have some understanding of the market. Include the most important data and results in the market analysis section and move the support documentation and statistics to the appendix.
- Relate Back to Your Business : All of the statistics and data you incorporate in your market analysis should be related back to your company and your products and services. When you outline the target market's needs, put the focus on how you are uniquely positioned to fulfill those needs.
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Web Applications, Inc.
Market analysis summary how to do a market analysis for your business plan.">.
We expect to compete as a thriving company in the computer applications software industry. Applications software are computer programs designed to accomplish user tasks, such as word processing, graphic design, desktop publishing, inventory control, and more. The software industry consists of three general market segments: application solutions, application tools, and systems software. The software market has long been one of the computer industry’s fastest growing segments. Revenues for the worldwide software market reached $122 billion in 1997, up about 15% from 1996 according to estimates by IDC. Revenues continued to show robust growth in 1998. IDC projects that revenues will grow at a compound annual rate of approximately 12% for the next several years, surpassing $220 billion by 2002.
- System-level software comprises operating systems, operating systems enhancements, and data center management. The worldwide market for system-level software increased 13% in 1997, to $35.1 billion. This figure should exceed $53 billion by 2001, based on an 11% compound annual growth rate (CAGR).
Applications software can be either developed by outside vendors and sold in packaged form, or custom-made by users themselves. Many computer users don’t have the time or desire to write their own computer programs or to hire a software developer; they can choose from thousands of quality packaged programs ready for use with little or no modification. The proliferation of computers has increased the number of people who use computers relative to those who can program them, increasing the packaged software’s importance. Custom software is tailored to the needs of a specific individual or organization.
4.1 A Brief Look at the Internet
In just five years, the Internet has undergone a major metamorphosis. From an obscure network used by a limited number of academics and researchers, the Internet has been transformed into a global Web of more than 100 million interconnected computers encompassing users from all walks of life. Described below are the various segments of the Internet:
- Hardware : networking equipment. This sector provides the primary infrastructure on which the Internet is built. Two prominent types of network equipment are routers and remote access concentrators. Cisco Systems Inc. with sales of approximately $9.9 billion and a market share of 67%, dominated the routers market in 1998. Ascend Communications, Inc. (1998 sales of $1.48 billion) and Cisco share leadership of the remote access concentrator market, with shares of approximately 28% and 27%, respectively.
- Software . Two of the main types of Internet software are browsers and security programs. Microsoft Corporation and Netscape Communications Corporation dominate the key software component of the World Wide Web. The security segments are needed to ensure the safety of networks and transactions. Security Dynamics Technology Inc. (1998 sales of $41 million) has taken the lead in providing authentication and encryption products.
- Services . Internet service providers (ISPs) offer a way for people to enter the Internet. According to IDC, America Online has approximately 43% share of the total subscribers in the ISP segment, followed by Microsoft’s MSN, and AT&T’s WorldNet.
- Destinations . Destinations are websites that people can go to for information, entertainment, or commerce.
4.2 Brief Look at the Computer Industry
In the first six months of 1997, a total of 37 million personal computers (PC) were shipped worldwide. That figure rose to 40 million during the same time period in 1998 and, according to IDC, this figure is expected to rise by 16% in 1999. PC growth in 1997 and 1998 was boosted by the introduction of the sub-$1,000 PC. This price point is due in large part to the sharp drop in prices of the major components that go into the PC. Another way PC makers have addressed lower price points is through cost-reduction efforts made possible by new manufacturing and distribution strategies. Two important initiatives are underway:
- Build to order (BTO). Under BTO, PC’s are assembled by the manufacturer.
- Channel assembly. Under channel assembly, distributors or resellers build and configure the machines.
In both cases, the building or configuring occurs when an order is received. By using these methods, indirect PC vendors hope to keep inventories lower and, through the cost savings achieved, offer more competitive prices to customers. Compaq, Dell, IBM, and Hewlett Packard dominate the computer industry.
4.3 Market Segmentation
A review of all of our markets is given below:
- Telecommuters . Telecommuting seems to be on a steady growth curve, with approximately 11 million telecommuters in the U.S. today, according to the latest survey from FIND/SVP, a research and consulting firm. Telecommuting will continue to grow because there are frequent references to productivity gains in the range of 15-25% for telecommuters.
Customer Buying Criteria Customers are expected to use our services based on traditional factors:
- Service . Customers not only expect the best service but value for money, which is what we give them in our product.
4.4 The Y2K Issue
One of the more pressing issues facing the computer industry is the Year 2000 problem, also referred to as “Y2K” and “the millennium bug.” Unless addressed properly, this problem will cause many computers worldwide to stop functioning properly. Y2K arises from the fact that until the mid-1980s or so, programmers used two-digit numbers to represent years. For example, “97” was used to represent the year 1997. While this design saved computer storage space, which was expensive and in limited supply, it also produced the situation in which all dates input in these computers refer to the twentieth century. The Gartner Group, a Connecticut-based information technology (IT) consulting firm, estimates the worldwide repair bills in the $300 billion – $600 billion range, but this includes only the cost of fixing programs written in Cobol. Software Productivity Research, a Massachusetts based software-consulting firm, has made a broader estimate that includes repairs, damages, and litigation. This group estimates that the total cost from 1994 to 2005 will top $3.6 trillion.
Our products will not be affected by the Y2K problem.
4.5 Service Business Analysis
Competition There is one major company with whom we will be competing and that is HotOffice Technology. Its product, HotOffice, is a low-end business planner that focuses on the basic business structure. Other companies compete in the industry, but they only specialize on one of the many features we offer.
HotOffice Technology HotOffice Technologies, Inc. is a Web-based Intranet Service provider for small business, especially those with collaboration needs, multiple offices, mobile workers, telecommuters, and virtual offices. HotOffice offers small businesses an affordable, secure Intranet solution at a fraction of the cost of purchasing and maintaining a traditional Intranet or Extranet. This subscription service provides a large, powerful suite of collaboration and communication tools in one simple, easy-to-use interface accessible anytime, anywhere. From any PC with Internet access, HotOffice provides instant connection via the Web to email, calendar, documents, bulletin boards, online conference rooms, business centers, and more.
Strengths Large penetration to the main channels. At the time of this writing, they have the first entry to market. We plan on taking a significant part of that market share within a few months by providing additional features that will be more attractive for users.
- These companies form a large group of firms that offer one form of the many applications that we offer. They either specialize in selling hard drive space or email functions.
Barriers to Entry Web Applications will benefit from several significant barriers to entry which include:
- Market penetration. Once we are in the market and established, it will be difficult for someone to break into a market where someone is already operating successfully.
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How to Write a Market Analysis
Doing a market analysis might sound overly daunting and formal, but don’t be dissuaded. It’s actually really important, and it’s not all that complex.
A market analysis is the process of learning the following:
- Who are my potential customers?
- What are their buying and shopping habits?
- How many of them are there?
- How much will they pay?
- Who is my competition?
- What have their challenges and successes been?
The market analysis is one of the most important parts of any startup strategy. It can actually help reduce risk because if you really understand your potential customers and market conditions, you’ll have a better chance of developing a viable product or service.
It should also help you get clear on what exactly makes you different from your competition, which can make or break your chances of standing out in a crowded landscape.
However, don’t fall into the trap of simply saying that your solution is for everyone. Ultimately, setting some parameters around your target market will help you focus your resources.
Ultimately, your market analysis should enable you to:
- Avoid putting a lot of resources and time into creating a product or service before you’ve determined that your solution is needed.
- Determine that the need for your product or service is big enough that people will pay for it.
Do you even need to do a market analysis?
Bear in mind that all new businesses are different, and strategies for structuring a business plan can be different depending on the goal of the plan or the intended audience. If your business is quite small and you know your customers inside and out , a deep, formal market analysis might not be the best use of your time.
For instance, if you are writing an internal business plan, meaning that you’re not going to use it to try to secure a loan or other funding, you may not have a specific reason to spend time reviewing industry data to corroborate your financial forecast. Be sure to assess the value of this information for your business; determine why you’re doing an analysis in the first place so that you don’t waste time and energy on an unnecessary aspect of your plan.
On the other hand, if you’re not absolutely clear on what makes your business different from the competition, or if you have made (but not tested) some assumptions about who will be interested in your product or service, you might want to consider at least an abbreviated market analysis. You’ll want to make sure that the business you’re building is solving a real problem, and that consumers both desire your solution and are willing to pay for it. A market analysis is a good way to get clarity.
Finally, if you are seeking funding, a market analysis is going to be key data to convince your audience that your business idea has the facts and hard numbers to back it up.
Market analysis and your business plan
It’s smart to write a business plan , especially if you are beginning a new business venture. Even if you’re a sole proprietor or don’t intend to borrow any money to get your business off the ground, it’s important to have a clear plan in place. The market analysis isn’t just one part of a successful business plan—it’s one of the best reasons to write one.
If you do need banks to lend you money or investors to jump on board, a market analysis section is required, as savvy lenders or investors will need to know that the business you’re pitching has viable market appeal.
Either way, a solid formal business plan or Lean Plan complete with market analysis will be invaluable. You’ll need to identify your potential customers and attract investors, and it will help you to be clear about what you want to do with your business, both now and in the future.
The time you spend doing the research and putting it all together will come back to you many times over in dollars earned and heartbreaks avoided. You’ll look like a professional, and you’ll outshine the competitors that didn’t write one.
Because you’ll know the size of the mountain you’re about to climb, you’ll be able to pace yourself and prevent problems in the future. But most importantly, thoroughly understanding your market means that you’ll be able to build the best solution possible for your customers’ problem.
What to include in your market analysis
Your market analysis should include an overview of your industry, a look at your target market, an analysis of your competition, your own projections for your business, and any regulations you’ll need to comply with.
1. Industry description and outlook
This is where you’ll outline the current state of your industry overall and where it’s headed. Relevant industry metrics like size, trends, life cycle, and projected growth should all be included here. This will let banks or investors see that you know what you’re doing, and have done your homework and come prepared with the data to back up your business idea.
2. Target market
In the industry section of your market analysis, you focused on the general scope. In this section, you’ve got to be specific. It’s important to establish a clear understanding of your target market early on. A lot of new entrepreneurs make the rookie mistake of thinking that everyone is their potential market. To put it simply, they’re not.
For example, if you’re a shoe company, you aren’t targeting “everyone” just because everyone has feet. You’re most likely targeting a specific market segment such as “style-conscious men” or “runners.” This will make it much easier for you to target your marketing and sales efforts and attract the kinds of customers that are most likely to buy from you.
This is a good thing; by narrowing in, you’ll be able to direct your marketing dollars efficiently while attracting loyal customers who will spread the word about your business.
The target market section of your business plan should include the following:
- User persona and characteristics: You’ll want to include demographics such as age, income, and location here. You’ll also need to dial into your customers’ psychographics as well. You should know what their interests and buying habits are, as well as be able to explain why you’re in the best position to meet their needs.
- Market size : This is where you want to get real, both with the potential readers of your business plan and with yourself. How much do your potential customers spend annually on the types of products or services you plan to offer? How big is the potential market for your business?
3. Competitive analysis
This is the section in which you get to dissect your competitors, which is important for a couple of reasons. Obviously, it’s a good idea to know what you’re up against, but it also lets you spot the competition’s weaknesses. Are there customers that are underserved? What can you offer that similar businesses aren’t offering?
The competitive analysis should contain the following components:
- Direct competitors: What other companies are offering similar products and services? What companies are your potential customers currently buying from instead of you?
- Indirect competitors: If your company is creating a new product category, perhaps you aren’t competing with similar companies, but instead competing with alternate solutions. For example, Henry Ford wasn’t competing so much with other car companies, but was instead competing with other forms of transportation such as horses and walking. A more modern example might be a to-do list application, where the indirect competition would include notebooks and hand-written lists.
- Competitor strengths and weaknesses: What is your competition good at? Where do they fall behind? Get imaginative to spot opportunities to excel where others are falling short.
- Barriers to entry: What are the potential pitfalls of entering your particular market? What’s the cost of entry—is it prohibitively high, or can anyone enter? This is where you examine your weaknesses. Be honest, with investors and yourself. Being unrealistic is not going to make you look good.
- The window of opportunity: Does your entry into the market rely on time-sensitive technology? Do you need to get in early to take advantage of an emerging market?
At this point, your projections are educated guesses, so don’t worry about absolute accuracy. However, it pays to be thoughtful and avoid hockey-stick forecasting .
- Market share: When you know how much money your future customers spend, you’ll know how much of the market you have a chance to grab. Be practical, but don’t sell yourself short. Make sure you are able to explain how you came up with your numbers. Don’t make the mistake of saying that you’ll easily get 1 percent of a huge market, and that this is enough to grow a successful business. Instead, do a bottom-up projection where you explain how your marketing and sales efforts will enable you to get a certain percentage of the market.
- Pricing and gross margin: This is where you’ll lay out your pricing structure and discuss any discounts you plan to offer. Your gross margin is the difference between your costs and the sales price. Again, be realistic yet optimistic. Optimistic projections not only serve as a guide—they can also be a motivator.
Are there any specific governmental regulations or restrictions on your market? If so, you’ll need to bring them up here and discuss how you’re going to comply with them.
You will also need to address the cost of compliance. Addressing these issues is essential if you are seeking investment or money from a lender, and everything has to be legally squared away and above board.
How to acquire the data for your market analysis
Market analyses vary from industry to industry and company to company. The hard truth is that some of the information you wish to include may not be publicly available. A little estimation is okay, but the bulk of your numbers need to be based on facts. Here are some good places to start your market research:
- Your current customers: If your business is already up and running, your current customers are an invaluable resource. They are your existing market. You can use online surveys or social media to gather feedback about buying habits, needs, and other psychographic information.
- U.S. Census Bureau: Here’s where you’ll find demographics you can use to figure out your market share. There is plenty of other information you can use in your market analysis here as well.
- USA.gov: The go-to place for national industry information, as well as links to state and local resources.
- U.S. Small Business Administration: The SBA offers industry guides, development programs, and local resources, as well as loan guarantees when the time comes.
- Bureau of Labor Statistics: The BLS is the place to find out where your industry has been and where it is headed.
- Commerce.gov: The U.S. Department of Commerce has a lot of good general information that you may be able to use, depending on your industry.
- The internet: You can do internet searches to find information about any state or local regulations or licenses you may need for your industry. As always, there’s a lot of stuff out there, so make sure you’re depending on reliable sources. For your market analysis, Wikipedia won’t cut it.
Ultimately, conducting a market analysis will help you uncover any blind spots. It should help you do some initial tests that will verify that your solution is actually addressing a real problem—and many startups don’t last simply because founders failed to figure out if anyone was interested enough in their solution to pay for it.
Whether you do a comprehensive analysis, or just spend a few hours on a leaner version, what you learn can be the difference between thriving and struggling.
Michael Kerr began his professional life as an entrepreneur. He built and managed a number of successful businesses before returning to school to indulge his passion for writing.
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A business plan is the blueprint for your business. It takes an idea for a product or service and turns it into a commercially viable reality. The market analysis section of your plan provides evidence that there is a niche in the market that your company can exploit. This analysis also provides the foundation on which your marketing and sales plan will rest.
What is a market analysis?
A market analysis provides insights into potential customers and your competition.
The core components of the market analysis are:
- Industry analysis: Assesses the general industry environment in which you compete
- Target market analysis: Identifies and quantifies the customers that you will be targeting for sales
- Competitive analysis: Identifies your competitors and analyzes their strengths and weaknesses
The exact way in which you choose to organize this information is up to you. As long as you include all the basic facts, there are a number of outline forms that can work well. Just keep the purpose of your plan in mind and highlight or expand the sections that have the greatest application to what you're trying to accomplish.
It's also important to realize that, as you go about planning a business startup or expansion, you should be doing a lot of research and learning an enormous amount about the marketing environment of your business.
Your business plan is not intended to include everything you've learned. It will just summarize the highlights in a way that shows the reader that you understand your industry, the place in which goods and services are sold, and how you will be a successful business.
The industry analysis is the section of your business plan where you demonstrate your knowledge about the general characteristics of the type of business you're in.
You should be able to present statistics about the size of the industry, such as total U.S. sales in the last year and industry growth rate over the last few years. Is the industry expanding, contracting, or holding steady? Why? Who are the major industry participants?
While you might not compete directly against these companies (they are likely to be large national or international corporations), it's important that you can identify them, and have a good understanding of their market share and why they are or aren't successful.
You should also be able to discuss the important trends that may affect your industry. For example, significant changes in the target market, in technology, or in other related industries may affect the market's perception of your product or your profitability.
This kind of information is often available for free from the following sources:
- Trade associations and industry publications
- Government databases: e.g., Census Bureau , Bureau of Economic Analysis , Bureau of Labor Statistics , state trade measurements
- Data and analysts' opinions about the largest players in the industry (e.g., Standard & Poor's reports, quotes from reputable news sources)
- Industry reports from such publishers or from aggregators such as Marketresearch.com
- Research company filings: Look at your competitors’ filings with the Securities & Exchange Commission and other regulators
Target market analysis
How do you determine if there are enough people in your market who are willing to purchase what you have to offer and at the price you need to charge to make a profit? The best way is to conduct a methodical analysis of the market you plan to reach.
Understand your customers
You need to know precisely who your customers are or will be.
For example, if you sell to consumers, do you have demographic and other information that paints a picture of who they are?
- Age, generation/life stage, gender
- Average income ranges
- Typical education and occupations
- Geographic location
- Family makeup
- Lifestyle information (e.g., hobbies, interests, recreational/entertainment activities, political beliefs, cultural practices, etc.)
Additionally, consider the market size and your target consumers’ motivations and purchasing potential.
You may very well sell to several types of customers. For example, you may sell at both retail and wholesale, and you may have some government or nonprofit customers as well. If so, you'll want to describe the most important characteristics of each group separately.
It’s likely that your product has appeal outside your target demographic, but a market analysis can help you focus your sales and marketing efforts on the audience segments that matter most so that you earn a higher return.
Use industry data
Directly surveying your current customers can be expensive. For planning purposes, it's acceptable to substitute published industry-wide information; for example, "the average U.S. electric vehicle owner is between the ages of 40 and 55, has graduated from college, and earns more than $100,000 per year".
Once obtained, this type of information can help you in two very important ways. It can help you develop or make changes to your product or service to better match what your customers are likely to want. It can also tell you how to reach your customers through advertising, promotions, etc.
Gathering competitive intelligence is the practice of discovering and analyzing useful information about your competitor’s business. Competitive intelligence is important because it helps businesses understand their competitive environment and the opportunities and challenges it presents.
Basic information every company should know about their competitors includes
- Each competitor's size and market share, as compared to your own
- How target buyers perceive or judge your competitors’ products and services
- Your competitors' financial strength, which affects their ability to spend money on advertising and promotions, among other things
- Each competitor's ability and speed of innovation for new products and services
There may be a wealth of other facts that you need to know, depending on the type of business you have. For example, if you're in ecommerce, you'll want to know how fast your competitors can fulfill a typical customer's order, what they charge for shipping and handling, and so on.
Company data from competitors may be available by interviewing competitor company executives, attending industry trade shows, and asking the right questions from industry "experts". They may be unaffordable as consultants, but willing to direct you to free databases that you would not ordinarily know of or have access to.
And don't overlook your competitor's suppliers. They can be excellent sources of information to aid your research.
Be very focused in your competitive research
In the industry overview section of your business plan, you may have identified the largest players in your industry. Not all these businesses will be directly competing with you, however. Some may be in geographically distant locations, and others may have pricing or distribution systems that are very different from those of a small business.
Therefore, in your competition analysis, focus on those businesses that directly compete with you for sales — the specific companies or brands that are solving the same problem as you and targeting the same customer base.
You may also want to include in your analysis some competitors who offer similar products in a different business category or who are more geographically remote. Study their ads, brochures, and promotional materials. Drive past their location. And if it's a retail business, make some purchases there, incognito if necessary.
Analyze your competitors' online presence
What type of content do they publish online and on social media?
Also, check out their online reviews — both product reviews on their website and independent reviews on Google, Yelp, Bing, and other online review listings.
Continuously monitor your competitors
Keeping an eye on how your competitors adapt to market conditions, develop their products, and evolve their brand can help you stay competitive.
Putting it all together: Tips for writing your market analysis
- Include a summary.
- Add graphics. Charts and graphs are great ways to show metrics and statistics.
- Be concise. Get to the point early, and avoid repetition and fluff. Plan several rounds of edits or have someone else review it.
- Keep everything in the context of your business. Make sure all the statistics and data you use in your market analysis relate back to your business. Your focus should be on how you are uniquely positioned to meet the needs of the target market.
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How to Conduct a Market Analysis for Your Business
A market analysis can help you identify how to better position your business to be competitive and serve your customers.
- A market analysis is a thorough assessment of a market within a specific industry.
- A market analysis has many benefits, such as reducing risk for your business and better informing your business decisions.
- There are seven steps in conducting a market analysis.
- This article is for business owners who want to know why they should conduct a market analysis and how to do it.
Understanding your customer base is one of the first key steps to success in business. Without knowing who your customers are, what they want, and how they want to get it from you, your business could struggle to come up with an effective marketing strategy. This is where a market analysis comes in. A market analysis can be a time-intensive process, but it is straightforward and easy to do on your own in seven steps.
What is a market analysis?
A market analysis is a thorough assessment of a market within a specific industry. You will study the dynamics of your market, such as volume and value, potential customer segments , buying patterns, competition, and other important factors. A thorough marketing analysis should answer the following questions:
- Who are my potential customers?
- What are my customers’ buying habits?
- How large is my target market ?
- How much are customers willing to pay for my product?
- Who are my main competitors?
- What are my competitors’ strengths and weaknesses ?
What are the benefits of running a marketing analysis?
A marketing analysis can reduce risk, identify emerging trends, and help project revenue. You can use a marketing analysis at several stages of your business, and it can even be beneficial to conduct one every year to keep up to date with any major changes in the market.
A detailed market analysis will usually be part of your business plan , since it gives you a greater understanding of your audience and competition. This will help you build a more targeted marketing strategy.
These are some other major benefits of conducting a market analysis:
- Risk reduction: Knowing your market can reduce risks in your business, since you’ll have an understanding of major market trends, the main players in your industry, and what it takes to be successful, all of which will inform your business decisions. To help you further protect your business, you can also conduct a SWOT analysis , which identifies the strengths, weaknesses, opportunities and threats for your business.
- Targeted products or services: You are in a much better position to serve your customers when you have a firm grasp on what they are looking for from you. When you know who your customers are, you can use that information to tailor your business’s offerings to your customers’ needs.
- Emerging trends: Staying ahead in business is often about being the first to spot a new opportunity or trend, and using a marketing analysis to stay on top of industry trends is a great way to position yourself to take advantage of this information.
- Revenue projections: A market forecast is a key component of most marketing analyses, as it projects the future numbers, characteristics and trends in your target market. This gives you an idea of the profits you can expect, allowing you to adjust your business plan and budget accordingly.
- Evaluation benchmarks: It can be difficult to gauge your business’s success outside of pure numbers. A market analysis provides benchmarks or key performance indicators (KPIs) against which you can judge your company and how well you are doing compared to others in your industry.
- Context for past mistakes: Marketing analytics can explain your business’s past mistakes or industry anomalies. For example, in-depth analytics can explain what impacted the sale of a specific product, or why a certain metric performed the way it did. This can help you avoid making those mistakes again or experiencing similar anomalies, because you’ll be able to analyze and describe what went wrong and why.
- Marketing optimization: This is where an annual marketing analysis comes in handy – regular analysis can inform your ongoing marketing efforts and show you which aspects of your marketing need work, and which are performing well in comparison to the other companies in your industry.
A market analysis can benefit your business in many ways, especially if you conduct regular analyses to make sure you have current information for your marketing efforts.
What are the drawbacks of running a marketing analysis?
The below drawbacks of running a market analysis pertain less to the method itself than the resources it requires.
- Market analysis can be expensive. If you’re not as familiar with marketing concepts such as market volume and customer segmentation, you might want to outsource your market analysis. Doing so can be great for your analysis’s quality, but it can also leave a big dent in your budget. Narrow your market analysis to a certain group – perhaps current customers – to lower your costs.
- Market analysis can be time-consuming. Market analysis can take precious time away from more directly business-related tasks. You can analyze one area at a time – say, buying patterns or competition – to free up your day-to-day schedule.
- Market analysis can require extra staff. Some larger companies retain in-house market analysis staff, and you can follow their lead. Doing so, though, comes with all the usual costs of hiring a new employee . The question then becomes: Do you conduct your market analysis yourself, outsource it, or hire in-house? The more expensive options can often yield more meaningful insights.
- Market analysis can be narrow. The most successful market analyses use actual customer feedback, which analysts often get through customer surveys. These surveys may reach only a portion of your entire customer base, leading to an inaccurate sample size. The result is that market analysis may not fully detail your customers and what you should know about them.
Market analysis vs. conjoint analysis vs. sentiment analysis
Where market analysis is broad and comprehensive, conjoint analysis focuses on how customers value what you offer. Surveys are often the backbone of conjoint analysis – they’re a great way for customers to share what drives their purchases. Product testing is an especially common application of conjoint analysis. This method can yield insights into pricing and product features and configurations.
Sentiment analysis goes beyond number-driven market and conjoint analysis to identify how customers qualitatively feel about your offerings. It can show you what customers are happy and unhappy about with your offerings or buying process. You can also wade into deeper emotional territory such as anger, urgency and intention, or you can dig up descriptive feedback. It’s a great tool to use alongside market analysis, whereas conjoint analysis is all but included in market analysis.
How to conduct a market analysis
While conducting a marketing analysis is not a complicated process, it does take a lot of dedicated research, so be prepared to devote significant time to the process.
These are the seven steps of conducting a market analysis:
1. Determine your purpose.
There are many reasons you may be conducting a market analysis, such as to gauge your competition or to understand a new market. Whatever your reason, it’s important to define it right away to keep you on track throughout the process. Start by deciding whether your purpose is internal – like improving your cash flow or business operations – or external, like seeking a business loan. Your purpose will dictate the type and amount of research you will do.
Use our guide to choosing a business loan to make the right decision after conducting a market analysis. Visit our business loan reviews page to find options and learn all about easy-approval options.
2. Research the state of the industry.
Map a detailed outline of the current state of your industry. Include where the industry seems to be heading, using metrics such as size, trends and projected growth, with plenty of data to support your findings. You can also conduct a comparative market analysis to help you find your competitive advantage within your specific market.
3. Identify your target customer.
Not everyone in the world will be your customer , and it would be a waste of your time to try to get everyone interested in your product. Instead, use a target market analysis to decide who is most likely to want your product and focus your efforts there. You want to understand your market size, who your customers are, where they come from, and what might influence their buying decisions. To do so, look at demographic factors like these:
During your research, you might consider creating a customer profile or persona that reflects your ideal customer to serve as a model for your marketing efforts.
4. Understand your competition.
To be successful, you need a good understanding of your competitors, including their market saturation, what they do differently than you, and their strengths, weaknesses and advantages in the market. Start by listing all your main competitors, then go through that list and conduct a SWOT analysis of each competitor. What does that business have that you don’t? What would lead a customer to choose that business over yours? Put yourself in the customer’s shoes.
Then, rank your list of competitors from most to least threatening, and decide on a timeline to conduct regular SWOT analyses on your most threatening competitors.
5. Gather additional data.
When conducting marketing analyses, information is your friend – you can never have too much data. It is important that the data you use is credible and factual, so be cautious of where you get your numbers. These are some reputable business data resources:
- U.S. Bureau of Labor Statistics
- U.S. Census Bureau
- State and local commerce sites
- Trade journals
- Your own SWOT analyses
- Market surveys or questionnaires
6. Analyze your data.
After you collect all the information you can and verify that it is accurate, you need to analyze the data to make it useful to you. Organize your research into sections that make sense to you, but try to include ones for your purpose, target market and competition.
These are the main elements your research should include:
- An overview of your industry’s size and growth rate
- Your business’s projected market share percentage
- An industry outlook
- Customer buying trends
- Your forecasted growth
- How much customers are willing to pay for your product or service
7. Put your analysis to work.
Once you’ve created a market analysis, it’s time to actually make it work for you. Internally, look for where you can use your research and findings to improve your business. Have you seen other businesses doing things that you’d like to implement in your own organization? Are there ways to make your marketing strategies more effective?
If you conducted your analysis for external purposes, organize your research and data into an easily readable and digestible document to make it easier to share with lenders.
Retain all of your information and research for your next analysis, and consider making a calendar reminder each year so that you stay on top of your market.
Making market analysis easy
If you have the time to conduct a market analysis yourself, go for it – this guide will help. If you don’t have the time, hiring an in-house expert or outsourcing your analysis is often worth the cost. Your analysis will help you figure out who to target and how – and that’s a huge part of business success.
How to Write the Market Analysis Section of a Business Plan
Written by Dave Lavinsky
On This Page:
What is a Market Analysis?
What should a market analysis include, how to write a market analysis, formatting the market analysis section of your business plan, business plan market analysis examples, market analysis conclusion, other resources for writing your business plan.
- Other Helpful Business Plan Articles & Templates
A market analysis is an important part of your business plan. It answers the crucial question, “Is there a good reason for someone to invest in this business?”
Sometimes referred to as the industry analysis, this section of your business plan outlines the economic environment, political, social, and technological factors in your particular industry.
It provides an industry overview of historical performance, both globally and domestically. The industry information provided will be used to help determine if you are entering a growing or shrinking market or one that is simply not growing as fast as other industries.
This section must convince investors that not only can you run a profitable company, but that it will be easy to do so because there are plenty of customers in your target market.
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You’ll want to address these issues in your market analysis:
- Size of Industry – How big is the overall industry?
- Projected Growth Rate of Industry – Is the industry growing or shrinking? How fast?
- Target Market – Who are you targeting with this product or service?
- Competition – How many businesses are currently in the same industry?
Learn how to write the full market analysis below.
Here’s how to write the market analysis section of a business plan.
- Describe each industry that you are competing in or will be targeting.
- Identify direct competition, but don’t forget about indirect competition – this may include companies selling different products to the same potential customer segments.
- Highlight strengths and weaknesses for both direct and indirect competitors, along with how your company stacks up against them based on what makes your company uniquely positioned to succeed.
- Include specific data, statistics, graphs, or charts if possible to make the market analysis more convincing to investors or lenders.
In your industry overview, you will define the market in which you are competing (e.g., restaurant, medical devices, etc.).
You will then detail the sub-segment or niche of that market if applicable (e.g., within restaurants there are fast food restaurants, fine dining, etc.).
Next, you will describe the key characteristics of your industry. For example, discuss how big the market is in terms of units and revenues. Let the reader know if the market is growing or declining (and at what rate), and what key industry trends are facing your market.
Use third-party market research as much as possible to validate the discussion of your industry.
Here is a list of additional items you may analyze for a complete industry overview:
- An overview of the current state of the industry . How big is it, how much does it produce or sell? What are its key differentiators from competitors? What is its target customer base like – demographic information and psychographics? How has the industry performed over time (global, domestic)?
- Analyze the macro-economic factors impacting your industry . This includes items such as economic growth opportunities, inflation, exchange rates, interest rates, labor market trends, and technological improvements. You want to make sure that all of these are trending in a positive direction for you while also being realistic about them. For example, if the economy is in shambles you might want to wait before entering the particular market.
- Analyze the political factors impacting your industry . This is an often-overlooked section of any business plan, but it can be important depending on what type of company you are starting. If you’re in a highly regulated industry (such as medical devices), this is something that you’ll want to include.
- Analyze the social factors impacting your industry . This includes analyzing society’s interest in your product or service, historical trends in buying patterns in your industry, and any effects on the industry due to changes in culture. For example, if there is a growing counter-culture trend against big oil companies you might want to position yourself differently than a company in this industry.
- Analyze the technological factors impacting your industry . This includes analyzing new technologies being developed in software, hardware, or applications that can be used to improve your product or service. It also includes emerging consumer trends and will be highly dependent on your business type. In a technology-related venture, you would analyze how these changes are impacting consumers. For an educational-related venture, you would analyze how these changes are impacting students, teachers, and/or administrators.
For each of these items, you want to provide some detail about them including their current state as well as what external factors have played a role in the recent past. You can also include many other important factors if they apply to your business including demographic trends, legal issues, environmental concerns, and sustainability issues.
When you are done analyzing all of these factors, wrap it up by summing them up in a statement that includes your view on the future of the industry. This should be positive to attract investors, potential customers, and partners.
If you’re having trouble thinking about all of these factors then it might be helpful to first develop a SWOT analysis for your business.
Once you have an understanding of the market, you’ll need to think about how you will position yourself within that potential market.
Picking Your Niche
You want to think about how large your market is for this venture. You also want to consider whether you’d like to pick a niche within the overall industry or launch yourself into the mainstream.
If you have an innovative product it can be easier to enter the mainstream market – but at the same time, you might face some additional competition if there are similar products available.
You can choose to specialize in a niche market where you’ll face less competition – but might be able to sell your services at a higher price point (this could make it easier for you to get potential customers).
Of course, if your product or service is unique then there should be no competition. But, what happens if it isn’t unique? Will you be able to differentiate yourself enough to create a competitive advantage or edge?
If you are planning on entering the mainstream market, think about whether there are different sub-niches within your specific market. For example, within the technology industry, you can choose to specialize in laptops or smartphones or tablets, or other categories. While it will be more difficult to be unique in a mainstream market, you will still be able to focus on one type or category of products.
How Will You Stand Out?
Many companies are able to stand out – whether by offering a product that is unique or by marketing their products in a way that consumers notice. For example, Steve Jobs was able to take a business idea like the iPhone and make it into something that people talked about (while competitors struggled to play catch up).
You want your venture to stand out – whether with an innovative product or service or through marketing strategies. This might include a unique brand, name, or logo. It might also include packaging that stands out from competitors.
Write down how you will achieve this goal of standing out in the marketplace. If it’s a product, then what features do you have that other products don’t? If it’s a service, then what is it about this service that will make people want to use your company rather than your competition?
You also need to think about marketing. How are you going to promote yourself or sell your product or service? You’ll need a marketing plan for this – which might include writing copy, creating an advertisement, setting up a website, and several other activities. This should include a description of each of these strategies.
If you’re struggling with the details of any of these sections, it might be helpful to research what other companies in your market are doing and how they’ve been successful. You can use this business information to inform your own strategies and plans.
Relevant Market Size & Competition
In the second stage of your analysis, you must determine the size and competition in your specific market.
Target Market Section
Your company’s relevant market size is the amount of money it could make each year if it owned a complete market share.
To begin, estimate how many consumers you expect to be interested in purchasing your products or services each year.
To generate a more precise estimate, enter the monetary amount these potential customers may be ready to spend on your goods or services each year.
The size of your market is the product of these two figures. Calculate this market value here so that your readers can see how big your market opportunity is (particularly if you are seeking debt or equity funding).
You’ll also want to include an analysis of your market conditions. Is this a growing or declining market? How fast is it growing (or declining)? What are the general trends in the market? How has your market shifted over time?
Include all of this information in your own business plan to give your readers a clear understanding of the market landscape you’re competing in.
Next, you’ll need to create a comprehensive list of the competitors in your market. This competitive analysis includes:
- Direct Competitors – Companies that offer a similar product or service
- Indirect Competitors – Companies that sell products or services that are complementary to yours but not directly related
To show how large each competitor is, you can use metrics such as revenue, employees, number of locations, etc. If you have limited information about the company on hand then you may want to do some additional research or contact them directly for more information. You should also include their website so readers can learn more if they desire (along with social media profiles).
Once you complete this list, take a step back and try to determine how much market share each competitor has. You can use different methods to do this such as market research, surveys, or conduct focus groups or interviews with target customers.
You should also take into account the barriers to entry that exist in your market. What would it take for a new company to enter the market and start competing with you? This could be anything from capital requirements to licensing and permits.
When you have all of this information, you’ll want to create a table like the one below:
Once you have this data, you can start developing strategies to compete with the other companies which will be used again later to help you develop your marketing strategy and plan.
Writing a Market Analysis Tips
- Include an explanation of how you determined the size of the market and how much share competitors have.
- Include tables like the one above that show competitor size, barriers to entry, etc.
- Decide where you’re going to place this section in your business plan – before or after your SWOT analysis. You can use other sections as well such as your company summary or product/service description. Make sure you consider which information should come first for the reader to make the most sense.
- Brainstorm how you’re going to stand out in this competitive market.
Now that you understand the different components of the market analysis, let’s take a look at how you should structure this section in your business plan.
Your market analysis should be divided into two sections: the industry overview and market size & competition.
Each section should include detailed information about the topic and supporting evidence to back up your claims.
You’ll also want to make sure that all of your data is up-to-date. Be sure to include the date of the analysis in your business plan so readers know when it was conducted and if there have been any major changes since then.
In addition, you should also provide a short summary of what this section covers at the beginning of each paragraph or page. You can do this by using a title such as “Industry Overview” or another descriptive phrase that is easy to follow.
As with all sections in a business plan, make sure your market analysis is concise and includes only the most relevant information to keep your audience engaged until they reach your conclusion.
A strong market analysis can give your company a competitive edge over other businesses in its industry, which is why it’s essential to include this section in your business plan. By providing detailed information about the market you’re competing in, you can show your readers that you understand the industry and know how to capitalize on current and future trends.
The following are examples of how to write the market analysis section of a business plan:
Business Plan Market Analysis Example #1 – Hosmer Sunglasses, a sunglasses manufacturer based in California
According to the Sunglass Association of America, the retail sales volume of Plano (non-prescription) sunglasses, clip-on sunglasses, and children’s sunglasses (hereinafter collectively referred to as “Sunwear”) totaled $2.9 billion last year. Premium-priced sunglasses are driving the Plano Sunwear market. Plano sunglasses priced at $100 or more accounted for more than 49% of all Sunwear sales among independent retail locations last year.
The Sunglass Association of America has projected that the dollar volume for retail sales of Plano Sunwear will grow 1.7% next year. Plano sunglass vendors are also bullish about sales in this year and beyond as a result of the growth of technology, particularly the growth of laser surgery and e-commerce.
Business Plan Market Analysis Example #2 – Nailed It!, a family-owned restaurant in Omaha, NE
According to the Nebraska Restaurant Association, last year total restaurant sales in Nebraska grew by 4.3%, reaching a record high of $2.8 billion. Sales at full-service restaurants were particularly strong, growing 7% over 2012 figures. This steady increase is being driven by population growth throughout the state. The Average Annual Growth Rate (AGR) since 2009 is 2.89%.
This fast growth has also encouraged the opening of new restaurants, with 3,035 operating statewide as of this year. The restaurant industry employs more than 41,000 workers in Nebraska and contributes nearly $3 billion to the state economy every year.
Nebraska’s population continues to increase – reaching 1.9 million in 2012, a 1.5% growth rate. In addition to population, the state has experienced record low unemployment every year since 2009 – with an average of 4.7% in 2013 and 2014.
Business Plan Market Analysis Example #3 – American Insurance Company (AIC), a chain of insurance agencies in Maine
American Insurance Company (AIC) offers high-quality insurance at low prices through its chain of retail outlets in the state of Maine. Since its inception, AIC has created an extensive network of agents and brokers across the country with expanding online, call center and retail business operations.
AIC is entering a market that will more than double in size over the next 50 years according to some industry forecasts. The insurance industry is enjoying low inflation rates, steady income growth, and improving standards of living for most Americans during what has been a difficult period for much of American business. This makes this a good time to enter the insurance industry as it enjoys higher margins because customers are purchasing more coverage due to increased costs from medical care and higher liability claims.
American Insurance Company provides affordable homeowners, auto, and business insurance through high-quality fulfillment centers across America that have earned a reputation for top-notch customer service.
AIC will face significant competition from both direct and indirect competitors. The indirect competition will come from a variety of businesses, including banks, other insurance companies, and online retailers. The direct competition will come from other well-funded start-ups as well as incumbents in the industry. AIC’s competitive advantages include its low prices, high quality, and excellent customer service.
AIC plans to grow at a rate that is above average for the industry as a whole. The company has identified a market that is expected to grow by more than 100% in the next decade. This growth is due to several factors: the increase in the number of two-income households, the aging population, and the impending retirement of many baby boomers will lead to an increase in the number of people who are purchasing insurance.
AIC projects revenues of $20M in year one, which is equivalent to 100% growth over the previous year. AIC forecasts revenue growth of 40%-60% each year on average for 10 years. After that, revenue growth is expected to slow down significantly due to market saturation.
The following table illustrates these projections:
Direct Competition: P&C Insurance Market Leaders
Indirect Competition: Banks, Other Insurance Companies, Retailers
When writing the market analysis section, it is important to provide specific data and forecasts about the industry that your company operates in. This information can help make your business plan more convincing to potential investors.
If it’s helpful, you should also discuss how your company stacks up against its competitors based on what makes it unique. In addition, you can identify any strengths or weaknesses that your company has compared to its competitors.
Based on this data, provide projections for how much revenue your company expects to generate over the next few years. Providing this information early on in the business plan will help convince investors that you know what you are talking about and your company is well-positioned to succeed.
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How to Write a Great Business Plan Executive Summary
How to Expertly Write the Company Description in Your Business Plan
The Customer Analysis Section of Your Business Plan
Completing the Competitive Analysis Section of Your Business Plan
The Management Team Section of Your Business Plan
Financial Assumptions and Your Business Plan
How to Create Financial Projections for Your Business Plan
Everything You Need to Know about the Business Plan Appendix
Business Plan Conclusion: Summary & Recap
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