Analyze your market like a pro with this step-by-step guide + insider tips
Don’t fall into the trap of assuming that you already know enough about your market.
No matter how fantastic your product or service is, your business cannot succeed without sufficient market demand.
You need a clear understanding of who will buy your product or service and why.
You want to know if there is a clear market gap and a market large enough to support the survival and growth of your business.
Industry research and market analysis will help make sure that you are on the right track.
It takes time, but it is time well spent. Thank me later.
The Market Analysis section of a business plan is also sometimes called:
First and foremost, you need to demonstrate beyond any reasonable doubt that there is real need and sufficient demand for your product or service in the market, now and going forward.
Your due diligence on the market opportunity and validating the problem and solution described in the Product and Service section of your business plan are crucial for the success of your venture.
Also, no company operates in a vacuum. Every business is part of a larger overall industry, the forces that affect your industry as a whole will inevitably affect your business as well.
Evaluating your industry and market increases your own knowledge of the factors that contribute to your company’s success and shows the readers of your business plan that you understand the external business conditions.
In fact, if you are seeking outside financing, potential backers will most definitely be interested in industry and market conditions and trends.
You will make a positive impression and have a better chance of getting their support if you show market analysis that strengthens your business case, combining relevant and reliable data with sound judgement.
Let’s break down how to do exactly that, step by step:
So, let’s break up how market analysis is done into three steps:
For example, the fashion industry includes fabric suppliers, designers, companies making finished clothing, distributors, sales representatives, trade publications, retail outlets online and on the high street.
Briefly describe your industry, including the following considerations:
Outline the current and projected economic conditions that influence the industry your business operates in, such as:
Highlight the distinct characteristic of your industry, including:
Estimate the size of your industry and analyze how industry growth affects your company’s prospects:
One business can have–and often does have–more than one target customer group.
The success of your business depends on your ability to meet the needs and wants of your customers. So, in a business plan, your aim is to assure readers that:
So, how many people are likely to become your customers?
To get an answer to this questions, narrow the industry into your target market with a manageable size, and identify its key characteristics, size and trends:
Define your target market by:
Estimate how large is the market for your product or service (e.g., number of customers, annual purchases in sales units and $ revenues). Explain the logic behind your calculation:
Illustrate the most important themes, changes and developments happening in your market. Explain the reasons behind these trends and how they will favor your business.
Estimate future demand for your offering by translating past, current and future market demand trends and drivers into forecasts:
Well, if the market opportunity is small, it will limit how big and successful your business can become. In fact, it may even be too small to support a successful business at all.
On the other hand, many businesses make the mistake of trying to appeal to too many target markets, which also limits their success by distracting their focus.
Large and growing market suggests promising demand for your offering now and into the future. Nevertheless, your business can still thrive in a smaller or contracting market.
Instead of hiding from unfavorable stats, acknowledge that you are swimming against the tide and devise strategies to cope with whatever lies ahead.
The market analysis section of your business plan should illustrate your own industry and market knowledge as well as the key findings and conclusions from your research.
Back up your findings with external research sources (= secondary research) and results of internal market research and testing (= primary research).
Yes, there are two main types of market research – primary and secondary – and you should do both to adequately cover the market analysis section of your business plan:
Unless you are working for a corporation, this exercise is not about your ability to do professional-level market research.
Instead, you just need to demonstrate fundamental understanding of your business environment and where you fit in within the market and broader industry.
There are countless ways you could go collecting industry and market research data, depending on the type of your business, what your business plan is for, and what your needs, resources and circumstances are.
For tried and tested tips on how to properly conduct your market research, read the next section of this guide that is dedicated to primary and secondary market research methods.
In any case, tell the reader how you carried out your market research. Prove what the facts are and where you got your data. Be as specific as possible. Provide statistics, numbers, and sources.
When doing secondary research, always make sure that all stats, facts and figures are from reputable sources and properly referenced in both the main text and the Appendix of your business plan. This gives more credibility to your business case as the reader has more confidence in the information provided.
Go to the Primary and Secondary Market Research post for my best tips on industry, market and competitor research.
Above all, make sure that you are realistic in your projections about how your product or service is going to be accepted in the market, otherwise you are going to seriously undermine the credibility of your entire business case.
Discuss only characteristic of your target market and customers that are observable, factual and meaningful, i.e. directly relate to your customers’ decision to purchase.
Always relate the data back to your business. Market statistics are meaningless until you explain where and how your company fits in.
For example, as you write about the market gap and the needs of your target customers, highlight how you are uniquely positioned to fill them.
In other words, your goal is to:
On a similar note, tailor the market analysis to your target audience and the specific purpose at hand.
For example, if your business plan is for internal use, you may not have to go into as much detail about the market as you would have for external financiers, since your team is likely already very familiar with the business environment your company operates in.
Make sure that there is a compelling storyline and logical flow to the market information presented.
The saying “a picture is worth a thousand words” certainly applies here. Industry and market statistics are easier to understand and more impactful if presented as a chart or graph.
Keep your market analysis concise by only including pertinent information. No fluff, no repetition, no drowning the reader in a sea of redundant facts.
While you should not assume that the reader knows anything about your market, do not elaborate on unnecessary basic facts either.
Do not overload the reader in the main body of the business plan. Move everything that is not essential to telling the story into the Appendix. For example, summarize the results of market testing survey in the main body of the business plan document, but move the list of the actual survey questions into the appendix.
Note that market analysis and marketing plan are two different things, with two distinct chapters in a business plan.
As the name suggests, market analysis examines where you fit in within your desired industry and market. As you work thorugh this section, jot down your ideas for the marketing and strategy section of your business plan.
Remember that the very act of doing the research and analysis is a great opportunity to learn things that affect your business that you did not know before, so take your time doing the work.
The purpose of industry and market research and analysis is to qualitatively and quantitatively assess the environment of a business and to confirm that the market opportunity is sufficient for sustainable success of that business.
Industry and market research and analysis are important because they allow you to gain knowledge of the industry, the target market you are planning to sell to, and your competition, so you can make informed strategic decisions on how to make your business succeed.
Industry and market research and analysis benefit a business by uncovering opportunities and threats within its environment, including attainable market size, ideal target customers, competition and any potential difficulties on the company’s journey to success.
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