What market research should be included in your business plan?
Writing a business plan can be intimidating. The process of putting your dream down on paper is certainly not easy, but a well-thought business plan is one of an entrepreneur’s most valuable tools.
A key component of a business plan is a market analysis. This analysis offers both startups and existing businesses the opportunity to do an in-depth examination of their industry. Analyzing opportunities, threats, potential customer behavior, competitors and market share is critical to defining your business’ competitive advantage, developing your mission and vision and appealing to funders. Though this process will look different for each business, there are a few important types of research to include in your market analysis.
What’s happening in your industry? Describe the size of your industry, expected growth, any sales, operational or management trends. Is the industry seasonal? Are there expected economic fluctuations? Government regulations? Addressing these industry characteristics helps provide a detailed picture of the environment in which your business is operating.
Identify your slice of the industry. Who is your business targeting, and what are their characteristics? What needs does your target market have? How big is the potential market for your business? This analysis should include both demographics and psychographics.
Demographics include population size, household size, median income, age, sex, race, ethnicity, family status, housing status, population density maps, traffic data points and population data trends.
Psychographics measure the personality and behavior of your target market. Valuable measures include lifestyle information, buying habits, values and opinions.
It’s important to spend some time analyzing your competitors. By understanding what’s already out there, you can better determine your business’ competitive advantage. A competitive analysis should address the size of the market, competitor strengths and weaknesses, barriers to entry and opportunity.
What is your expected market size and share? Knowing how much your potential customers spend will allow you to estimate how much of the market you can attract. You’ll also need to project your pricing structure and gross margins. These figures help determine how profitable your business will be, and all of the prior research you’ve conducted will help you determine your pricing, gross margin and sales projections.
Every great business needs a plan. Market research acts as the backbone of that plan, framing your environment and your value proposition. Taking the time to analyze this information will strengthen your business plan for approaching lenders, as well as strategic growth. For a great resource on where to get this information, you can visit this page at sba.gov.