Inexpensive Market Research Methods

Step 2: Decide if You Have a Market

Before you commit hours to researching what customers want from you, it makes sense to find out whether you have a viable target market.

The cheapest and simplest way to do this is through "secondary data," or information someone else has already gathered for you. Usually, this takes the form of various statistics and can only answer closed-ended questions: How many? When? Where? Your own questions will depend on your customer profile and become more tightly targeted based on what you find out as you go.

You can find answers in a number of ways:

1. Reference librarians: Most are delighted to help you research. Often, they'll practically do it for you. These days, they can look up a lot of what you need on computer databases, and you have a decent chance of walking away with all your answers. Printouts may cost several cents per page.

2. The local field office of the Department of Commerce: It should supply you with free or nearly free information on population, demographics, housing, the economy, market trends, surveys of current businesses, and more.

3. The business libraries of local universities: These often have more specific information on business trends than a public library. Ask the librarian for help.

4. Your local SBA branch or Small Business Development Center: It has a multitude of publications and business literature full of advice and market forecasts.

Once you've got all the answers, it's time for a judgment call: Do you have a working market?

Only you can decide if 14 competitors are too many for 19,000 target customers, or if you want to gamble on the fact that your target customer spent 30 percent more last year than three years ago. If you don't like the numbers, at least you've just saved yourself a potential financial disaster. Now you're armed with a much better grasp of market conditions to revamp your business idea or marketing direction and return to Step 1.

Portrait of a Customer
Before your research is over, your ideas about your target customer may change several times. Add explanations and qualifiers under each category as they occur to you; these will document your thought processes and remind you of how you got to the final concept.

This is a preliminary customer profile for an entrepreneur's actual business idea. He wanted to offer faux paint effects, but wasn't sure if there was enough of a market in his area for him to do this for a living. Going only on his own knowledge, this is the customer profile we came up with (comments, qualifiers and all):

  • Gender: Both, since many clients will be couples
  • Age: Late 20s to 40s-let's say 29 to 45. Very young people usually can't afford this, and the older generation might be too conservative.
  • Location: The Denver area. Since projects usually require at least a few days to complete, it's not practical to drive long distances every day.
  • Income: $60,000 upwards for the household combined. Since the cost per job ranges between $500 and up, people who make less than that aren't likely to be able to afford this.
  • Occupation: Probably white-collar
  • Other factors:Owns a home-many landlords won't let renters paint, especially when it comes to daring effects like this. Married-because couples have a greater pooled income and are more likely to be homeowners. No young children-because parents aren't as likely to invest in fancy paint effects and might also be worried about the safety of kids around chemicals during the process.

    When creating a customer profile, you'll want to use secondary research to answer questions like the following:

  • How many people in the Denver area are between 29 and 45 years old?
  • How many of these are married?
  • How many couples have young children (under age 10)?
  • How many have a combined household income of $60,000 or more?
  • What percentage of them own their own homes?
  • Are the numbers of homeowners and relatively high-income families in my area increasing or decreasing?
  • How many decorative painters and faux finishers work in my area? Who are they?
  • How many were there five years ago, three years ago and last year? Are there more of them now than before?
  • How many clients hired them last year?
  • How much did they make on average?
  • Where are they located? Are there more of them in certain areas than others?

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This article was originally published in the August 2004 print edition of Entrepreneur with the headline: On Target.

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