Q: I really like working with numbers and enjoy payroll processing, along with figuring quarterly tax forms and reports. I enjoy it so much, I want to start a business out of my home doing payroll and possibly expand to other business services, such as collections. My problem is, in order to research whether there's a market in my area for payroll processing, I have to contact local small businesses and ask if they would be interested in outsourcing their payroll. How do I just call them up and ask without them feeling like I'm wasting their time? After all, they're busy enough without having to answer my questions.

A: You're smart to want to research your potential market to determine whether there's a need for your services. However, you'll want to do more than just call local businesses. And I'd bet that if you did call them without doing any other research, many of them would give you a resounding "No, thanks" if you asked them whether they'd use your services. Even though you aren't selling something to them yet, that's the impression they might get if you're calling them with no prior understanding of your target market.

That's not to say you should never call them, but I would recommend doing other research first. That way, when you do call, you'll be armed with information about why they might need your services--and why they might choose you over the competition. Here are some market research tactics that can help you approach potential customers knowledgeably:

1. Find out what your competitors are doing. Take a look at all the services they offer. You could even approach them as though you are a customer and ask questions about their offerings. What do they do that you could do better? Is there anything they're not doing that you could do? What are their prices like?

2. Set the right price. That means being priced competitively while also allowing you to cover costs and earn you a profit. Don't price yourself so low that clients view you as a lesser value, nor so high that they choose one of your competitors over you.

3. Test-market your service. Before you start offering your service en masse, try it out on a few local businesses. You'll get valuable feedback that could help you make the necessary adjustments to your offering.

4. Visit the library. You'd be surprised at the wealth of information you can find there just by digging around a bit. Not only can you get specific information about your target group, but you can also discover industry associations and professional organizations (many of which publish their own reports and publications) related to your business.

Once you've gone through these steps, you might also want to develop a questionnaire. Based on your other research, think of several standardized questions that you could easily ask prospective customers over the phone or even in person. Having this list of questions in front of you will help you feel less like you're wasting anyone's time, and the answers will help you fine-tune your offering even further.

You always have the option of conducting focus groups or hiring a market research firm, but the costs can be prohibitive, so consider doing it on your own first. In the end, when you're ready to actually start selling your service, you'll be able to pick up the phone and call prospects with confidence, knowing they'll have trouble turning you down.

Karen E. Spaeder is editor of Entrepreneur.com and managing editor ofEntrepreneur magazine.


The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.