Researching a market or defining customer demographics for a business plan can seem a bit intimidating at first. But take heart, because at the very core of this information you’ll find your target customer. It’s easy to be overwhelmed with the business jargon of the phrase market analysis. Really, all you need to do is determine who your customers are and where they’re found, and how many of them you need in order to hit your sales targets.
The basic idea in researching and writing a market analysis for your business plan is to simply compile a solid picture of your customer and their needs. You need to discover exactly who is going to buy your products and how much they’ll pay—which is the kind of information that provides your business plan with a solid foundation and a reason to believe in net profits.
Here’s what you’ll need to do, in this order:
- Gather Information
- Define Your Customer
- Define Your Market
- Determine How Many Customers You Need
Gathering Information for a Market Analysis
Gathering information is critical. Search the Internet for any data you can find, including industry reports and statistical data, that supports your business concept. You might need to spend a bit of money on market reports for your specific industry if you can’t find free information. If anything, underestimate your market. Avoid overestimating like the plaque. Take the time to cite your sources. Your business plan will only be as reliable as your research information. Search for sample business plans from similar ventures that can provide additional, previously researched insight into the market. Several research resources are provided at the end of this article that can help in your research efforts.
Define Your Customer
The first step in developing a market analysis is to define your typical customer. Let’s say, for example, that you’re opening a women’s fitness center in your city. You estimate that your target customer is most likely female and between the ages of 30-60, with a median annual household income that’s slightly above the national average. Your customer profile might include that the customer most likely has several school-age children and a busy schedule—one that would benefit from the types of fitness programs you offer at your fitness center. Setting these parameters is important, but your assumptions must be supported by actual facts. Do these people really exist in the numbers that you need to support your sales goals? Can you justify whether your targeted demographic can afford to pay the prices you need to charge?
You can begin to develop a profile of your target customer by answering the following questions. If possible, use these questions to create a questionnaire to distribute to potential customers and really gain insight into their needs:
- Home and Email Address (use this to build a customer database)
- Number of children
- Income Range
- Personal Goals
- What type of similar products/services have they purchased in the past, and from whom?
- How much are they willing to pay for these services?
- What type of customer service do they expect for this price range?
- How often might the customer use your products/services?
Define Your Market
Start by writing a very specific paragraph that exactly describes your market. Answer the following questions to compile your paragraph.
- State the industry your business will participate in.
- Briefly describe your product/service.
- Briefly describe where your product will be available.
- Briefly describe your customer’s profile.
Your next task is to define how many potential customers exist in your market. Here’s where your financial forecasts come into play. The bottom line for this exercise is to determine whether or not you’ll have enough customers to support your sales targets.
Before you can complete this section, you’ll need to have investigated your sales targets and understand how many sales you need to generate every month to realize a profit. Let’s say your sales target is set at steadily maintaining 500 customers per month. Using our fitness center again, your demographic research reveals there are 10,000 30-60 year old women living within five miles of your location. You need 5% of that population to become customers (5% of 10,000 = 500). That’s your target market. The real question in all of this boils down to figuring out how many customers you need, not really in figuring out the sheer number of how many potential customers are out there. You don’t need everyone – you just need to hit your targets every month, and preferably then some.
Those are the basics for developing a market analysis for your business plan: describe your customer and describe your market. Figure out how many customers you need to hit your sales targets. Don’t try to conquer the world, just your corner of it.
Research Resources for Writing a Market Analysis
Most local government offices, Chambers of Commerce and Economic Development Commissions all provide data regarding population demographics within geographic areas. Research your area and pinpoint several locations that fit your customer profile. Focus the rest of your marketing research efforts on your targeted locations. Additionally, most industries have associations that provide good data about their respective markets. For example, the National Restaurant Association is an excellent source for data on the food services industry.
An excellent resource for gathering data about your region is the US Census Bureau’s State and County Quick Facts page at Quick Facts.
For comprehensive statistics for individual industries, visit the NAICS (North American Industry Classification) page at Census.gov.
Current economic and industry statistics are compiled by the US government and can be accessed at FedStats.
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