Biz Plan Market Analysis

An in-depth market analysis is a biz plan must-have, but what do you need to know about potential customers?

learn more about Tim Berry

By Tim Berry • Jul 27, 2005

Opinions expressed by Entrepreneur contributors are their own.

Every business plan should include market analysis. This is oneof the first and most important reasons to do a business plan. Andwhether you're just starting a new business or reviewing anexisting business, you should renew your market analysis at leastevery year. Markets change--a business needs to watch for changesin its market.

The market you need to look at is your potential market, not theactual market served, the one that's limited to your existingcustomers. Your target market is much wider than just the peopleyou already reach. It's the people you might someday reach, orpeople you could reach, that you need to be concerned about.

For example, the market of a local movie theater or restaurantincludes not just the people who regularly go there but everybodywho lives within driving distance. The market for a landscapingbusiness includes all the homes and commercial properties within alogical reach. The market for downloadable e-books over theinternet includes everyone connected to the web. The market forpersonal computers includes homes, schools, businesses, andgovernment organizations.

It's your plan--and every plan is different--so you need toknow as much as you can about your target market.

Getting the Information

The information sources that will help you conduct a marketanalysis are different for every business plan. For example, youmight need local information you can get from your local chamber ofcommerce. Or you might be able to find your market information atwww.business.gov, which is a good source forinformation from the U.S. Census Bureau, the Department of Labor,the Department of Commerce and others. You might also need to findother government statistics, or other commercial statistics, so youmay be conducting some internet searches to track down theinformation.

Not all the information you need is going to be publiclyavailable, and you may have to settle for educated estimates.Sometimes you'll have to extrapolate information from differentsources to get the information you're seeking. I've seengood market research come from telephone directories, catalogs,industry association statistical compilations, real estateinformation and density maps.

Segmentation

Always try to divide your target market into useful slices orsegments. For years, I consulted with a computer manufacturingcompany that targeted such market segments as homes, small offices,businesses, educational organizations, and government. Dividing themarket into these segments helped the company address the morespecific market needs, media, pricing patterns and decisioncriteria in each of their different market segments.

Segmentation helps you target specific people with specificmessages and helps you focus on user needs. Families might needquick, consistent service while students might need late-nightservice. Families read the newspaper; students read posters onbookstore walls. Knowing your market segments will help you makesmart decisions when it comes to providing the products andservices that will work best for them and for communicating withthem.

Market Size and Growth

You need to be able to measure and quantify your market. Forexample, if local homeowners are part of your target market, thenyou should be able to count them. You need to know whether you have500 people in your market, or 200,000, or 2 billion. Be able toshow what the total market is for your business.

When it comes to market growth, you need to think aboutpercentage change as a market forecast. Is the number of homeownersin your target market increasing or decreasing? By how much peryear? How many older workers retire every year, and how is thischanging? How many people eat in restaurants in your market area,and how is this behavior changing? Market forecasts start with thetotal numbers of possible purchasers in each market segment, thenproject percentage change over the next three to five years.

Market Trends

You need to understand what's going on with your market.What trends and fashions do you see having an influence on yourmarket segments? If you're selling cars, for example, is therea trend that shows people responding to higher gasoline prices ormore environmental concerns? In computers, is there a trend towardmore power and lower prices? How does the increase in TV recorderequipment affect your market? The questions that affect targetmarkets will be different for every business, and these are justexamples. What's important is that as you create your businessplan, you become aware of the market trends that affect yourspecific market.

Tim Berry

Entrepreneur, Business Planner and Angel Investor

Tim Berry is the chairman of Eugene, Ore.-Palo Alto Software, which produces business-planning software. He founded Bplans.com and wrote The Plan-As-You-Go Business Plan, published by Entrepreneur Press. Berry is also a co-founder of HavePresence.com, a leader in a local angel-investment group and a judge of international business-plan competitions.

Editor's Pick

Have More Responsibilities at Work, But No Pay Bump? Use This Script to Get the Raise You Deserve.
Black and Asian Founders Face Opposition at All Levels — Here's Why That Has to Change