More than a great idea is needed to make a successful business plan. It requires real data and real insight that validates your vision. That’s where a market analysis is useful. Whether you’re fundraising your business or setting clear growth plans, you can’t skip out on a thorough market analysis to know your industry, recognize your customers, and realize opportunities for growth.
Don’t know how to do a market analysis for a business plan? This step-by-step guide will guide you through the intricacies of what you need to know—everything from industry trends to financial projections—to create an informed and strategic business plan.
Executive Summary
Before we get to the specifics of how to do a market analysis for a business plan, it’s a good idea to open your market analysis with an executive summary. This section aggregates the most important aspects of your research into a digestible snippet for stakeholders. Emphasize key points such as market opportunities, target audience specifics, main competitors, and sales projections. Although this section appears first in your business plan, it is the last section you’ll write.
Industry Analysis
Understand Your Industry
Your market analysis is built on your industry. This section takes an in-depth look at current market trends and future growth potential for your industry and how your business fits into the marketplace. Learning how to do a market analysis for a business plan means answering these key questions:
Key questions to address:
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How big is the industry, and how fast is it growing?
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What, if any, industry-wide technological, cultural or regulatory forces are acting as tailwinds?
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What is there a need of similar to the product or service you provide?
If you are, say, launching a plant-based meal delivery service, your evaluation of the industry might point to the surge of growth in plant-based eating, using third-party data to illustrate that the market is expected to grow at an 11.9% annual rate, rising to $11.9 billion in 2030. You’re demonstrating that there’s a demand for your industry and that there’s only more of it to come, which sets an interesting precedent for a business that’s aiming to succeed, doesn’t it?
Use Reliable Sources
Use reputable sources such as industry reports, government publications, and reputable market research firms like IBISWorld or Statista. Small business owners with tight budgets can gain insights from free resources such as U.S. Census Bureau or local Chamber of Commerce reports. These sources are essential when learning how to do a market analysis for a business plan correctly.
Target Market
Know Your Customer
This is your opportunity to be laser-focused on your ideal customer. The target market is the specific set of individuals or companies who are most likely to buy what you are selling. Knowing how to do a market analysis for a business plan includes defining your customer in detail.
Indicate details on their:
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Demography: Age, gender, income, location, education, employment)})
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Psychographics: Attitudes, values, lifestyle, habits of shopping and purchasing
For example, if you’re creating a fitness app for the busy professional, a possible target market might be health-conscious users, aged 25–45, living in urban locations, who weigh convenience and technology heavily in purchase decision making.
Break Down and Analyze Your Market
Your market is normally not a single, monolithic group of customers who will all behave the same. Consider the various communities in your audience and learn from them. Do you have both millennials and seniors? You mean, like, students and corporate professionals? This grouping will ensure you’re not wasting energy by trying to reach everyone at once. This is a key part of how to do a market analysis for a business plan.
Competitive Analysis
Know Your Competition
Nobody operates in a vacuum, so competition is just a part of business. Find your most competitive opponents and analyse their strengths and weaknesses as part of how to do a market analysis for a business plan.
Questions to examine:
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Who are your competitors?
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What are they selling?
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How do they charge and how do they present themselves?
For instance, if you’re opening a small coffee shop, other coffee shops in the area and larger chains like Starbucks will be direct competition. Observe what benefits they offer to patrons, like reward programs, ideal locations, or one-of-a-kind dishes. The idea is to identify openings where your business might fit uniquely.
Create a Competitive Matrix
Competitive matrix – What is it? A competitive matrix is a great tool to organise competitors side by side. Make a list of your competitors and evaluate each according to your pricing, quality, customer service, and brand. Then systematize this information to illuminate how your business striving is in a position to provide more value or stand out. Including a competitive matrix is a useful part of how to do a market analysis for a business plan.
SWOT Analysis
A SWOT analysis outlines your business’s Strengths, Weaknesses, Opportunities, and Threats. It’s a fundamental framework for evaluating both your company and the market landscape — a key element when learning how to do a market analysis for a business plan.
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Strengths are internal benefits that provide an edge over your competition (e.g., a talented team, patented technology).
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Weaknesses are all of the internal elements that might hold you back (budget, brand recognition, etc.).
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Opportunities represent external things your business could leverage (e.g. an unmet market need, or a growing trend).
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Threats are obstacles your business must overcome (e.g., a weak economy, new competition).
By knowing these factors, you can more effectively deal with difficulties, and plan plans that will best suit you.
Marketing Strategy
Outline Your Plan
After determining your target audience and where you stand in the competitive landscape, now it’s time to create a road map for reaching them. It’s great if you’ve calculated this down to the last penny accurately, but it’s just more important that it’s something you’ve thought of — calculating your customer acquisition rate is crucial for your marketing strategy so that you can figure out how much resources you need to dedicate to attracting and retaining customers. This is an important step in how to do a market analysis for a business plan.
Your marketing plan should respond to the following questions:
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What will your target audience see or hear about your product or service (e.g., Facebook, email, Google search results)?
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What is the price for your services?
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How will you promote your brand in the marketplace?
For example, a yoga studio focused on young professionals might use Instagram ads, referral programs and team up with health influencers to drum up excitement.
Budget for Success
Provide information on how much you’re spending on marketing. If you’ll spend money on Facebook ads, or have a content marketing system in place, make it known how much you’ll invest and what return you expect.
Financial Projections
Back It Up With Data
Your financial forecast is built on the findings of the market analysis. Sum of the parts — How much money, according to your own research, will your company make? This will typically involve:
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Sales projections: Estimate the revenue your business will generate over time based on market demand and how much you can charge.
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Cost estimate: Estimate cost of goods sold, marketing, and operating costs.
For instance, when forecasting the sales for that boutique coffee shop, you might look at data that urbanites spend $1,000 a year at coffee shops, multiplied by your expected customer count.
Showcase the Growth Potential
Try painting a picture that’s optimistic while maintaining realness, by including the excitement but reeling it back with hard numbers. One that will make potential investors or lenders trust in the fact that you have put a lot of thought into your proposal.
How Market Analysis Leads to Business Success
Meaty market research is the foundation of a good business plan. Once you have clarity in your industry, your market and your competition, you’ll know better how to devise strategies to help your business grow.
And remember, a well-conducted market analysis provides more than just insight. It’s a chance to demonstrate to the investors, stakeholders and partners that your business is rooted in data-driven strategies. This is the ultimate goal of how to do a market analysis for a business plan.
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