importance of market analysis when preparing a business plan

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How to Write a Market Analysis for a Business Plan

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A lot of preparation goes into starting a business before you can open your doors to the public or launch your online store. One of your first steps should be to write a business plan . A business plan will serve as your roadmap when building your business.

Within your business plan, there’s an important section you should pay careful attention to: your market analysis. Your market analysis helps you understand your target market and how you can thrive within it.

Simply put, your market analysis shows that you’ve done your research. It also contributes to your marketing strategy by defining your target customer and researching their buying habits. Overall, a market analysis will yield invaluable data if you have limited knowledge about your market, the market has fierce competition, and if you require a business loan. In this guide, we'll explore how to conduct your own market analysis.

How to conduct a market analysis: A step-by-step guide

In your market analysis, you can expect to cover the following:

Industry outlook

Target market

Market value

Competition

Barriers to entry

Let’s dive into an in-depth look into each section:

Step 1: Define your objective

Before you begin your market analysis, it’s important to define your objective for writing a market analysis. Are you writing it for internal purposes or for external purposes?

If you were doing a market analysis for internal purposes, you might be brainstorming new products to launch or adjusting your marketing tactics. An example of an external purpose might be that you need a market analysis to get approved for a business loan .

The comprehensiveness of your market analysis will depend on your objective. If you’re preparing for a new product launch, you might focus more heavily on researching the competition. A market analysis for a loan approval would require heavy data and research into market size and growth, share potential, and pricing.

Step 2: Provide an industry outlook

An industry outlook is a general direction of where your industry is heading. Lenders want to know whether you’re targeting a growing industry or declining industry. For example, if you’re looking to sell VCRs in 2020, it’s unlikely that your business will succeed.

Starting your market analysis with an industry outlook offers a preliminary view of the market and what to expect in your market analysis. When writing this section, you'll want to include:

Market size

Are you chasing big markets or are you targeting very niche markets? If you’re targeting a niche market, are there enough customers to support your business and buy your product?

Product life cycle

If you develop a product, what will its life cycle look like? Lenders want an overview of how your product will come into fruition after it’s developed and launched. In this section, you can discuss your product’s:

Research and development

Projected growth

How do you see your company performing over time? Calculating your year-over-year growth will help you and lenders see how your business has grown thus far. Calculating your projected growth shows how your business will fare in future projected market conditions.

Step 3: Determine your target market

This section of your market analysis is dedicated to your potential customer. Who is your ideal target customer? How can you cater your product to serve them specifically?

Don’t make the mistake of wanting to sell your product to everybody. Your target customer should be specific. For example, if you’re selling mittens, you wouldn’t want to market to warmer climates like Hawaii. You should target customers who live in colder regions. The more nuanced your target market is, the more information you’ll have to inform your business and marketing strategy.

With that in mind, your target market section should include the following points:

Demographics

This is where you leave nothing to mystery about your ideal customer. You want to know every aspect of your customer so you can best serve them. Dedicate time to researching the following demographics:

Income level

Create a customer persona

Creating a customer persona can help you better understand your customer. It can be easier to market to a person than data on paper. You can give this persona a name, background, and job. Mold this persona into your target customer.

What are your customer’s pain points? How do these pain points influence how they buy products? What matters most to them? Why do they choose one brand over another?

Research and supporting material

Information without data are just claims. To add credibility to your market analysis, you need to include data. Some methods for collecting data include:

Target group surveys

Focus groups

Reading reviews

Feedback surveys

You can also consult resources online. For example, the U.S. Census Bureau can help you find demographics in calculating your market share. The U.S. Department of Commerce and the U.S. Small Business Administration also offer general data that can help you research your target industry.

Step 4: Calculate market value

You can use either top-down analysis or bottom-up analysis to calculate an estimate of your market value.

A top-down analysis tends to be the easier option of the two. It requires for you to calculate the entire market and then estimate how much of a share you expect your business to get. For example, let’s assume your target market consists of 100,000 people. If you’re optimistic and manage to get 1% of that market, you can expect to make 1,000 sales.

A bottom-up analysis is more data-driven and requires more research. You calculate the individual factors of your business and then estimate how high you can scale them to arrive at a projected market share. Some factors to consider when doing a bottom-up analysis include:

Where products are sold

Who your competition is

The price per unit

How many consumers you expect to reach

The average amount a customer would buy over time

While a bottom-up analysis requires more data than a top-down analysis, you can usually arrive at a more accurate calculation.

Step 5: Get to know your competition

Before you start a business, you need to research the level of competition within your market. Are there certain companies getting the lion’s share of the market? How can you position yourself to stand out from the competition?

There are two types of competitors that you should be aware of: direct competitors and indirect competitors.

Direct competitors are other businesses who sell the same product as you. If you and the company across town both sell apples, you are direct competitors.

An indirect competitor sells a different but similar product to yours. If that company across town sells oranges instead, they are an indirect competitor. Apples and oranges are different but they still target a similar market: people who eat fruits.

Also, here are some questions you want to answer when writing this section of your market analysis:

What are your competitor’s strengths?

What are your competitor’s weaknesses?

How can you cover your competitor’s weaknesses in your own business?

How can you solve the same problems better or differently than your competitors?

How can you leverage technology to better serve your customers?

How big of a threat are your competitors if you open your business?

Step 6: Identify your barriers

Writing a market analysis can help you identify some glaring barriers to starting your business. Researching these barriers will help you avoid any costly legal or business mistakes down the line. Some entry barriers to address in your marketing analysis include:

Technology: How rapid is technology advancing and can it render your product obsolete within the next five years?

Branding: You need to establish your brand identity to stand out in a saturated market.

Cost of entry: Startup costs, like renting a space and hiring employees, are expensive. Also, specialty equipment often comes with hefty price tags. (Consider researching equipment financing to help finance these purchases.)

Location: You need to secure a prime location if you’re opening a physical store.

Competition: A market with fierce competition can be a steep uphill battle (like attempting to go toe-to-toe with Apple or Amazon).

Step 7: Know the regulations

When starting a business, it’s your responsibility to research governmental and state business regulations within your market. Some regulations to keep in mind include (but aren’t limited to):

Employment and labor laws

Advertising

Environmental regulations

If you’re a newer entrepreneur and this is your first business, this part can be daunting so you might want to consult with a business attorney. A legal professional will help you identify the legal requirements specific to your business. You can also check online legal help sites like LegalZoom or Rocket Lawyer.

Tips when writing your market analysis

We wouldn’t be surprised if you feel overwhelmed by the sheer volume of information needed in a market analysis. Keep in mind, though, this research is key to launching a successful business. You don’t want to cut corners, but here are a few tips to help you out when writing your market analysis:

Use visual aids

Nobody likes 30 pages of nothing but text. Using visual aids can break up those text blocks, making your market analysis more visually appealing. When discussing statistics and metrics, charts and graphs will help you better communicate your data.

Include a summary

If you’ve ever read an article from an academic journal, you’ll notice that writers include an abstract that offers the reader a preview.

Use this same tactic when writing your market analysis. It will prime the reader of your market highlights before they dive into the hard data.

Get to the point

It’s better to keep your market analysis concise than to stuff it with fluff and repetition. You’ll want to present your data, analyze it, and then tie it back into how your business can thrive within your target market.

Revisit your market analysis regularly

Markets are always changing and it's important that your business changes with your target market. Revisiting your market analysis ensures that your business operations align with changing market conditions. The best businesses are the ones that can adapt.

Why should you write a market analysis?

Your market analysis helps you look at factors within your market to determine if it’s a good fit for your business model. A market analysis will help you:

1. Learn how to analyze the market need

Markets are always shifting and it’s a good idea to identify current and projected market conditions. These trends will help you understand the size of your market and whether there are paying customers waiting for you. Doing a market analysis helps you confirm that your target market is a lucrative market.

2. Learn about your customers

The best way to serve your customer is to understand them. A market analysis will examine your customer’s buying habits, pain points, and desires. This information will aid you in developing a business that addresses those points.

3. Get approved for a business loan

Starting a business, especially if it’s your first one, requires startup funding. A good first step is to apply for a business loan with your bank or other financial institution.

A thorough market analysis shows that you’re professional, prepared, and worth the investment from lenders. This preparation inspires confidence within the lender that you can build a business and repay the loan.

4. Beat the competition

Your research will offer valuable insight and certain advantages that the competition might not have. For example, thoroughly understanding your customer’s pain points and desires will help you develop a superior product or service than your competitors. If your business is already up and running, an updated market analysis can upgrade your marketing strategy or help you launch a new product.

Final thoughts

There is a saying that the first step to cutting down a tree is to sharpen an axe. In other words, preparation is the key to success. In business, preparation increases the chances that your business will succeed, even in a competitive market.

The market analysis section of your business plan separates the entrepreneurs who have done their homework from those who haven’t. Now that you’ve learned how to write a market analysis, it’s time for you to sharpen your axe and grow a successful business. And keep in mind, if you need help crafting your business plan, you can always turn to business plan software or a free template to help you stay organized.

This article originally appeared on JustBusiness, a subsidiary of NerdWallet.

The Ultimate Guide to Market Analysis for Your Business Plan

When creating a business plan , conducting a thorough market analysis is essential to understand your target market, industry trends, and the competitive landscape. A well-executed market analysis for a business plan provides the foundation for informed decision-making, helping you develop strategies that capitalize on opportunities and mitigate potential risks.

In this article, we'll explore the importance of market analysis in a business plan, outline the steps for conducting one effectively, and discuss best practices for ensuring that your analysis is comprehensive and insightful.

What Is Market Analysis for a Business Plan?

Market analysis is a critical component of a business plan that involves gathering and interpreting data about your target market, industry trends, and competitors. It provides a clear picture of the landscape in which your business will operate, enabling you to make data-driven decisions and develop strategies that align with your business plan objectives.

A comprehensive market analysis for a business plan should include:

• Target market identification and segmentation
• Industry trends and growth forecasts
• Competitor analysis
• Market size and potential market share
• Pricing and positioning strategies

Why Do You Need to Conduct Market Analysis for a Business Plan?

Conducting market analysis is critical to the development of a business plan for several reasons:

• Feasibility assessment: Market analysis helps determine whether your business idea is viable and likely to succeed in the current market environment,, which is essential to creating a realistic business plan.
• Informed decision-making: By providing insights into your target market, industry trends, and competition, market analysis enables you to make data-driven decisions that support your business plan's objectives.
• Investor confidence: Including a thorough market analysis in your business plan demonstrates to potential investors that you have a deep understanding of your industry and target market, increasing their confidence in your ability to execute your plan successfully.
• Competitive advantage: Market analysis helps identify your competitors' strengths, weaknesses, and market positioning, allowing you to develop strategies that differentiate your business and strengthen your business plan.

Steps to Conduct Market Analysis for a Business Plan

• Define your target market: Identify your ideal customer and segment your target market based on shared characteristics to ensure your business plan is tailored to their needs and preferences.
• Analyze industry trends: Research your industry's current state, growth projections, and emerging trends to identify factors that may impact your business plan, such as technological advancements or regulatory changes.
• Conduct competitor analysis: Evaluate your competitors' market share, strengths, weaknesses, and unique selling propositions to identify opportunities for differentiation in your business plan.
• Determine market size and potential: Estimate the total size of your target market and your potential market share to set realistic goals and projections in your business plan.
• Develop pricing and positioning strategies: Based on the results of your market analysis, determine the optimal pricing and positioning for your products or services to align with the goals of your business plan.

Best Practices for Effective Market Analysis in a Business Plan

• Use multiple data sources: Gather data from a variety of sources to ensure a comprehensive and balanced analysis that supports your business plan.
• Conduct primary research: Engage directly with potential customers to gain valuable insights that can inform your business plan's strategies and tactics.
• Stay up-to-date: Regularly monitor industry trends, competitor activities, and market conditions to ensure your business plan remains relevant and accurate.
• Collaborate with experts: Consult with industry experts, mentors, or business advisors to gain valuable insights and validate your findings for your business plan.
• Present findings clearly: Use visuals, such as charts, graphs, and infographics, to present your market analysis findings in a clear and engaging manner within your business plan.

By conducting a comprehensive market analysis for your business plan, you'll gain a deep understanding of your target market, industry landscape, and competitive environment. This knowledge will inform your business plan's strategies, guide your decision-making, and ultimately increase your chances of success.

Remember to regularly review and update your market analysis as your business grows and market conditions evolve to ensure that your business plan remains adaptable and well-positioned for long-term success.

Analyze your market like a pro with this step-by-step guide + insider tips

Don’t fall into the trap of assuming that you already know enough about your market.

No matter how fantastic your product or service is, your business cannot succeed without sufficient market demand .

You need a clear understanding of who will buy your product or service and why .

You want to know if there is a clear market gap and a market large enough to support the survival and growth of your business.

Industry research and market analysis will help make sure that you are on the right track .

It takes time , but it is time well spent . Thank me later.

WHAT is Market Analysis?

The Market Analysis section of a business plan is also sometimes called:

• Market Demand, Market Trends, Target Market, The Market
• Industry Analysis & Trends, Industry & Market Analysis, Industry and Market Research

WHY Should You Do Market Analysis?

First and foremost, you need to demonstrate beyond any reasonable doubt that there is real need and sufficient demand for your product or service in the market, now and going forward.

• What makes you think that people will buy your products or services?
• Can you prove it?

Your due diligence on the market opportunity and validating the problem and solution described in the Product and Service section of your business plan are crucial for the success of your venture.

Also, no company operates in a vacuum. Every business is part of a larger overall industry, the forces that affect your industry as a whole will inevitably affect your business as well.

Evaluating your industry and market increases your own knowledge of the factors that contribute to your company’s success and shows the readers of your business plan that you understand the external business conditions.

External Support

In fact, if you are seeking outside financing, potential backers will most definitely be interested in industry and market conditions and trends.

You will make a positive impression and have a better chance of getting their support if you show market analysis that strengthens your business case, combining relevant and reliable data with sound judgement.

Let’s break down how to do exactly that, step by step:

HOW To Do Market Analysis: Step-by-Step

So, let’s break up how market analysis is done into three steps:

• Industry:  the total market
• Target Market: specific segments of the industry that you will target
• Target Customer: characteristics of the customers that you will focus on

Step 1: Industry Analysis

How do you define an industry.

For example, the fashion industry includes fabric suppliers, designers, companies making finished clothing, distributors, sales representatives, trade publications, retail outlets online and on the high street.

How Do You Analyze an Industry?

Briefly describe your industry, including the following considerations:

1.1. Economic Conditions

Outline the current and projected economic conditions that influence the industry your business operates in, such as:

• Official economic indicators like GDP or inflation
• Labour market statistics
• Foreign trade (e.g., import and export statistics)

1.2. Industry Description

Highlight the distinct characteristic of your industry, including:

• Market leaders , major customer groups and customer loyalty
• Supply chain and distribution channels
• Profitability (e.g., pricing, cost structure, margins), financials
• Key success factors
• Barriers to entry preventing new companies from competing in the industry

1.3. Industry Size and Growth

Estimate the size of your industry and analyze how industry growth affects your company’s prospects:

• Current size (e.g., revenues, units sold, employment)
• Historic and projected industry growth rate (low/medium/high)
• Life-cycle stage /maturity (emerging/expanding/ mature/declining)

1.4. Industry Trends

• Industry Trends: Describe the key industry trends and evaluate the potential impact of PESTEL (political / economic / social / technological / environmental / legal) changes on the industry, including the level of sensitivity to:
• Seasonality
• Economic cycles
• Government regulation (e.g. environment, health and safety, international trade, performance standards, licensing/certification/fair trade/deregulation, product claims) Technological change
• Global Trends: Outline global trends affecting your industry
• Identify global industry concerns and opportunities
• International markets that could help to grow your business
• Strategic Opportunity: Highlight the strategic opportunities that exist in your industry

Step 2: Target Customer Identification

Who is a target customer.

One business can have–and often does have–more than one target customer group.

The success of your business depends on your ability to meet the needs and wants of your customers. So, in a business plan, your aim is to assure readers that:

• Your customers actually exist
• You know exactly who they are and what they want
• They are ready for what you have to offer and are likely to actually buy

How Do You Identify an Ideal Target Customer?

2.1. target customer.

• Identify the customer, remembering that the decision-maker who makes the purchase can be a different person or entity than the end-user.

2.2. Demographics

• For consumers ( demographics ): Age, gender, income, occupation, education, family status, home ownership, lifestyle (e.g., work and leisure activities)
• For businesses ( firmographic ): Industry, sector, years in business, ownership, size (e.g., sales, revenues, budget, employees, branches, sq footage)

2.3. Geographic Location

• Where are your customers based, where do they buy their products/services and where do they actually use them

2.4 Purchasing Patterns

• Identify customer behaviors, i.e., what actions they take
• how frequently
• and how quickly they buy

2.5. Psychographics

• Identify customer attitudes, i.e., how they think or feel
• Urgency, price, quality, reputation, image, convenience, availability, features, brand, customer service, return policy, sustainability, eco-friendliness, supporting local business
• Necessity/luxury, high involvement bit ticket item / low involvement consumable

Step 3: Target Market Analysis

What is a target market.

Target market, or 'target audience', is a group of people that a business has identified as the most likely to purchase its offering, defined by demographic, psychographic, geographic and other characteristics. Target market may be broken down to target customers to customize marketing efforts.

How Do You Analyze a Target Market?

So, how many people are likely to become your customers?

To get an answer to this questions, narrow the industry into your target market with a manageable size, and identify its key characteristics, size and trends:

3.1. Target Market Description

Define your target market by:

• Type: B2C, B2B, government, non-profits
• Geographic reach: Specify the geographic location and reach of your target market

3.2. Market Size and Share

Estimate how large is the market for your product or service (e.g., number of customers, annual purchases in sales units and $ revenues). Explain the logic behind your calculation:

• TAM (Total Available/Addressable/Attainable Market) is the total maximum demand for a product or service that could theoretically be generated by selling to everyone in the world who could possibly buy from you, regardless of competition and any other considerations and restrictions.
• SAM (Serviceable Available Market) is the portion of the TAM that you could potentially address in a specific market. For example, if your product/service is only available in one country or language.
• SOM (Service Obtainable Market / Share of Market) is the share of the SAM that you can realistically carve out for your product or service. This the target market that you will be going after and can reasonably expect to convert into a customer base.

3.3. Market Trends

Illustrate the most important themes, changes and developments happening in your market. Explain the reasons behind these trends and how they will favor your business.

3.4. Demand Growth Opportunity

Estimate future demand for your offering by translating past, current and future market demand trends and drivers into forecasts:

• Historic growth: Check how your target market has grown in the past.
• Drivers past: Identify what has been driving that growth in the past.
• Drivers future: Assess whether there will be any change in influence of these and other drivers in the future.

How Big Should My Target Market Be?

Well, if the market opportunity is small, it will limit how big and successful your business can become. In fact, it may even be too small to support a successful business at all.

On the other hand, many businesses make the mistake of trying to appeal to too many target markets, which also limits their success by distracting their focus.

What If My Stats Look Bad?

Large and growing market suggests promising demand for your offering now and into the future. Nevertheless, your business can still thrive in a smaller or contracting market.

Instead of hiding from unfavorable stats, acknowledge that you are swimming against the tide and devise strategies to cope with whatever lies ahead.

Step 4: Industry and Market Analysis Research

The market analysis section of your business plan should illustrate your own industry and market knowledge as well as the key findings and conclusions from your research.

Back up your findings with external research sources (= secondary research) and results of internal market research and testing (= primary research).

What is Primary and Secondary Market Research?

Yes, there are two main types of market research – primary and secondary – and you should do both to adequately cover the market analysis section of your business plan:

• Primary market research is original data you gather yourself, for example in the form of active fieldwork collecting specific information in your market.
• Secondary market research involves collating information from existing data, which has been researched and shared by reliable outside sources . This is essentially passive desk research of information already published .

Unless you are working for a corporation, this exercise is not about your ability to do professional-level market research.

Instead, you just need to demonstrate fundamental understanding of your business environment and where you fit in within the market and broader industry.

Why Do You Need To Do Primary & Secondary Market Research?

There are countless ways you could go collecting industry and market research data, depending on the type of your business, what your business plan is for, and what your needs, resources and circumstances are.

For tried and tested tips on how to properly conduct your market research, read the next section of this guide that is dedicated to primary and secondary market research methods.

In any case, tell the reader how you carried out your market research. Prove what the facts are and where you got your data. Be as specific as possible. Provide statistics, numbers, and sources.

When doing secondary research, always make sure that all stats, facts and figures are from reputable sources and properly referenced in both the main text and the Appendix of your business plan. This gives more credibility to your business case as the reader has more confidence in the information provided.

Go to the Primary and Secondary Market Research post for my best tips on industry, market and competitor research.

7 TOP TIPS For Writing Market Analysis

1. realistic projections.

Above all, make sure that you are realistic in your projections about how your product or service is going to be accepted in the market, otherwise you are going to seriously undermine the credibility of your entire business case.

2. Laser Focus

Discuss only characteristic of your target market and customers that are observable, factual and meaningful, i.e. directly relate to your customers’ decision to purchase.

Always relate the data back to your business. Market statistics are meaningless until you explain where and how your company fits in.

For example, as you write about the market gap and the needs of your target customers, highlight how you are uniquely positioned to fill them.

In other words, your goal is to:

• Present your data
• Analyze the data
• Tie the data back to how your business can thrive within your target market

3. Target Audience

On a similar note, tailor the market analysis to your target audience and the specific purpose at hand.

For example, if your business plan is for internal use, you may not have to go into as much detail about the market as you would have for external financiers, since your team is likely already very familiar with the business environment your company operates in.

4. Story Time

Make sure that there is a compelling storyline and logical flow to the market information presented.

The saying “a picture is worth a thousand words” certainly applies here. Industry and market statistics are easier to understand and more impactful if presented as a chart or graph.

6. Information Overload

Keep your market analysis concise by only including pertinent information. No fluff, no repetition, no drowning the reader in a sea of redundant facts.

While you should not assume that the reader knows anything about your market, do not elaborate on unnecessary basic facts either.

Do not overload the reader in the main body of the business plan. Move everything that is not essential to telling the story into the Appendix. For example, summarize the results of market testing survey in the main body of the business plan document, but move the list of the actual survey questions into the appendix.

7. Marketing Plan

Note that market analysis and marketing plan are two different things, with two distinct chapters in a business plan.

As the name suggests, market analysis examines where you fit in within your desired industry and market. As you work thorugh this section, jot down your ideas for the marketing and strategy section of your business plan.

Final Thoughts

Remember that the very act of doing the research and analysis is a great opportunity to learn things that affect your business that you did not know before, so take your time doing the work.

Related Questions

What is the purpose of industry & market research and analysis.

The purpose of industry and market research and analysis is to qualitatively and quantitatively assess the environment of a business and to confirm that the market opportunity is sufficient for sustainable success of that business.

Why are Industry & Market Research and Analysis IMPORTANT?

Industry and market research and analysis are important because they allow you to gain knowledge of the industry, the target market you are planning to sell to, and your competition, so you can make informed strategic decisions on how to make your business succeed.

How Can Industry & Market Research and Analysis BENEFIT a Business?

Industry and market research and analysis benefit a business by uncovering opportunities and threats within its environment, including attainable market size, ideal target customers, competition and any potential difficulties on the company’s journey to success.

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How to Do a Market Analysis for a Business Plan

A market analysis is an integral part of writing a business plan . It shows that you have conducted research into the market in which your business is entrenched. In this article we provide an overview on what a market analysis is, and how to do a market analysis for a business plan.

• What is a market analysis?

A market analysis is a study of the current and future state of a particular industry. It helps in understanding the opportunities and threats that exist in the industry. It is a detailed overview and analysis of target demographics and buying trends, industry competition, and the overall health of the economy.

• What should be included in a market analysis?

A market analysis typically consists of:

• Size of target market and industry
• Customer purchase trends and needs
• Analysis of competition and market share
• Any challenges in the industry
• Forecasted growth of your business
• Qualitative vs quantitative market research

An effective market analysis will have both a qualitative and quantitative aspect. Quantitative analyses help with short-term predictions and include market statistics and forecasting. A lot of entrepreneurs use outside resources in business analysis techniques, such as financial experts.

Conversely, qualitative analyses are limited to data available and rely on opinions, which can be slightly subjective. There will always be a margin of error.

A quantitative market analysis seeks to remove that human margin of error and relies solely on objective figures. These figures will also look outside your particular industry and include wider economic health such as fluctuating real estate, average household debt, and gross domestic product , among others. A quantitative analysis can be used for long-term forecasting.

We’ve compiled these seven steps to help entrepreneurs conduct a market analysis for their business plans .

• 7 steps to prepare a market analysis for a business plan

There are a few key steps on how to conduct a market analysis for a business plan. These business analysis techniques will help entrepreneurs get a clear picture of not just the market, but the future health of their company.

• 1. Identify the primary objectives of the business

The primary objectives of your company should also be an integral part of your business plan. What is it you are setting out to achieve with your business? This will include a few key considerations:

• What is your service or product that you are offering?
• Who is your target market ?
• What market gaps are you trying to fill?
• What milestones are you setting about to achieve with your business plan?
• 2. Define the scope of your business analysis

Not all analyses are the same, and not all set out to achieve the same goals. Some can be all-encompassing, but for newer entrepreneurs, this can be a big undertaking and might require the use of a business analyst.

When defining the scope of your analysis, ask yourself what it is you are looking to do with it. Are you looking to plan for the next six months? Long-term forecasting? Or are you trying to secure funding or investigating expansion?

Identify a problem or opportunity that can be analyzed. This could include:

• launching a new product, service, or project
• identifying brand effectiveness
• fiscal quarter outlook
• investigating which business model is best for you

These questions will help you set out the detailed requirements of your analysis and restrict the time that you are looking to investigate.

• 3. Create your business analysis deliverables

A business analysis is a set of deliverables that need to be completed in order for you to be successful. The market analysis will give you a fully-formed picture of the future of your company in the identified timeframe within which you are working.

Business analysis deliverables can include:

• financial achievements
• detailed company expansion
• social media exposure
• 4. Define the requirements in detail

Defining the requirements is your next step. These can include:

Industry description and outlook: This is like the introduction and sets the tone for the entire analysis. This should be a clear and concise description of the industry in which your company is situated and the overall outlook of that industry, including trends and projected growth.

Target market: In your market research process, you should identify the size of your target market as accurately as possible. You can gather this information from government data, industry research reports, or other organizations that specialize in market data compilation. Target market research can include a SWOT analysis : strengths, weaknesses, opportunities and threats.

Competitive analysis: This is where you look critically at your competitors in the business community and analyze what they are doing right and what they are doing wrong. This will help you identify any market gaps that you can fill.

Projections : Projections are estimated guesses that are based on statistical data and are well-informed. However, there is always room for error, which should be taken into consideration.

Regulations : Being aware of any government regulations regarding your industry or potential changes in legislation is important. You want to make sure you invest wisely in an industry that will become subject to stricter regulations. This is particularly relevant to gig-workers .

• 5. Supporting the technical implementation

You now have a fairly clear understanding of the market and where it is going, in whatever time constraints you have applied to your particular research. Now you can relate this back to your own company and look at how your team will go about implementing changes in reaction or anticipation of market fluctuations.

How this is completed will include factors such as products and services, growth, or amendments. This might include the introduction of new products, holding off on launches, or investing in new services. Asking yourself if your company will need to hire employees or expertise, outsource materials, or perhaps acquire more capital or physical space is part of technical implementation.

• 6. Apply the solution

Applying the solution means a clear breakdown of the steps required to achieve the goal that you set out to accomplish at the beginning of the market analysis. Remember your initial question or problem? Here is where you answer that. This should be a step-wise solution with actionable and measurable goals.

• 7. Assess value created by the solution

Step back and take stock. Has this solution that is based on the market research gathered and analyzed created value for your company? If so, how much? Is the upfront investment worth the gains? How risky is this?

This value assessment will help inform your overall business plan by giving you insight into possible needs like labour, supplies, capital, or if you need to pivot strategy in reaction to market changes. This value assessment should be in the same timeframe in which the original market research analysis was conducted.

Creating a financial statement that dovetails your current financial health and incorporating this new solution will help give a clear picture of where your company can go.

• Reduce risk with a market analysis

When creating a business plan, a market analysis is an integral part. It helps make you aware of any potential problems while also giving you room to test some proposed solutions. Any new direction, product, or re-branding always comes with risk, but a market analysis can help you reduce that risk and keep potential fall-out to a minimum should your endeavour fail.

A market analysis can make the difference between floundering and failure—or flourishing and success.

This article offers general information only, is current as of the date of publication, and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Ventures Inc. or its affiliates.

How to Perform a Market Analysis for Your Business Plan

• Market Research

In a recent article we discussed the importance of the role that an effective executive summary plays in a business plan. This article will address another critical component of any business plan — the market analysis.

Conducting a market analysis is an essential process for anyone looking to start a successful business. 

The market analysis portion of your business plan should communicate your profound knowledge of your particular market, and provide an explanation of why that market is enticing from a financial perspective.

What is a Market Analysis?

A market analysis consists of the combination of quantitative and qualitative assessments of a given market. 

A thorough market analysis will convey insights derived from investigating the size of the market in both volume and value, the customer segments that comprise the market, the buying habits that these consumers exhibit, competitors, and any barriers to entry. We’ll go into detail on barriers to entry later on in this article.

The purpose of the market analysis section of a business plan is to prove to stakeholders such as potential investors that you know your market thoroughly, and that there is viable opportunity for a sustainable business venture.

How to Perform a Market Analysis

Step #1: determine market size .

The first step in performing a market analysis is to assess the size of the market.

While doing so, your approach will depend on the scale of your potential business. For example, if you’re looking to open a local coffee shop then you should take a local approach to assessing your market. 

Contrastly, if your business plan is proposing a nationwide chain of coffee shops, then you need to assess your market at a national scale. 

While determining market size, you must look at both volume and value. Volume refers to the number of potential customers, and value refers to the value of the market itself. 

Determining market value can be a challenge. One approach is to see if the figure is publicly available, perhaps shared by a government entity. Other approaches include buying a market research report, or simply estimating the figure yourself.

Step #2: Conduct Market Segmentation

If your proposed business will target certain market segments, then you should segment the market to understand it further. 

A best practice to start market segmentation is to examine the market from a demographic perspective . This provides surface level insights that can help you determine where next to drill into. 

Other segmentation methods that you can use as they pertain to the business’ products and services include geographic segmentation , behavioral segmentation , and psychographic segmentation . 

You can even use these various methods of segmentation in tandem!

Step #3: Define Your Target Market

A target market is comprised of the customers that you will focus on within the market. 

For example, if you were thinking about opening a coffee shop, you could decide to either be a generalist — selling standard, affordable coffee drinks — or you could choose to focus on high-end, expensive gourmet coffee instead. 

Each of these examples would appeal to different market segments, and the approach to connecting with the relevant target market would be different despite having a similar core product (coffee). 

Defining your target market is most important when your market has obvious segments that have differing drivers of demand. 

Step #4: Define The Market Need

Now we are moving on to the more qualitative assessment of the market by defining the market need.

While defining the market need, you should go into detail on the drivers of demand for your product. Why will people buy your product? What problem is it solving? How is it different from what is already in market? Why should this market purchase from your company specifically? 

It helps here to be exhaustive about researching existing competition in the market and their relevant strengths and weaknesses. This will inform your market positioning, which should be thoroughly addressed later on in your business plan. 

The market need can often be derived from looking at the efforts of competitors, and drilling down into the areas that they are not focusing on, or areas that you can provide better value than what they offer. 

Step #5: Outline Barriers to Entry

In this section of your market analysis, you should answer two questions that investors always ask:

• What factors prevent someone from opening a competing shop in proximity to yours and taking 50 percent of your business?

• What factors do you think will make you successful while entering this market?


Simply put, barriers to entry protect your business from new competition. 

Examples of barriers to entry include:

• Brand — the costs required to obtain a certain level of recognition

• Regulation

• Access to resources — such as suppliers and third-party vendors

• Technology

• Investment

• Access to distribution channels


By following the steps outlined above, you’ll be able to put together a comprehensive market analysis for your business plan. 

Doing so will give you the familiarity and knowledge necessary for deciding whether or not to move forward with launching your business plan.

To learn about another vital component of any business plan, an effective executive summary, be sure to read this recent article .

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How to Conduct a Market Analysis in 4 Steps — 2024 Guide

Posted february 5, 2021 by noah parsons.

Understanding your customers is the key to success for any startup. If you don’t have a deep understanding of who your customers are, you’ll have trouble developing products that truly fit their needs, and you’ll struggle to develop a successful marketing strategy.

This is where a market analysis comes in. It may sound like a daunting and complex process, but fortunately, it’s not.

What is a market analysis?

A market analysis is a thorough qualitative and quantitative assessment of the current market.

It helps you understand the volume and value of the market, potential customer segments and their buying patterns, the position of your competition, and the overall economic environment, including barriers to entry, and industry regulations.

Why you should conduct a market analysis

Whether you are writing a one-page plan or putting together a detailed business plan for a bank or other investor, a solid market analysis is expected. But, don’t just do a market analysis because you’re developing a plan. Do it because it will help you build a smarter strategy for growing your business.

Once you have in-depth knowledge of your market, you’ll be better positioned to develop products and services that your customers are going to love. And while diving into market research may seem like a daunting task it can be broken up into four simple elements:

• Industry overview: You’ll describe the current state of your industry and where it is headed.
• Target market: Who are your actual customers? You’ll detail how many of them are there, what their needs are, and describe their demographics.
• Competition: Describe your competitors’ positioning, strengths, and weaknesses.
• Pricing and forecast: Your pricing will help determine how you position your company in the market, and your forecast will show what portion of the market you hope to get.

How to conduct a market analysis

Now, let’s go into each step in more detail so you know exactly what you need for your market analysis.

1.  Industry overview

In this step, you’ll describe your industry and discuss the direction that it’s headed. You’ll want to include key industry metrics such as size, trends, and projected growth.

Industry research is different than market research , where you are learning about your customers. When you’re researching your industry, you’re looking at all of the businesses like yours.

Your industry overview shows investors that you understand the larger landscape that you are competing in. More importantly, it helps you understand if there’s going to be more demand for your products in the future and how competitive the industry is likely to be.

For example, if you are selling mobile phones, you’ll want to know if the demand for mobile phones is growing or shrinking. If you’re opening a restaurant, you’ll want to understand the larger trends of dining out. Are people eating at restaurants more and more over time? Or is the market potentially shrinking as consumers take advantage of grocery delivery services?

If you’re in the United States, the U.S. Census has excellent industry data available . I’ve also found Statista to be useful. You should also look up your industry association—they often have a wealth of information on the trends in your industry.

2. Define your target market

Your target market is the most important section of your industry analysis. This is where you explain who your ideal customer is.

You may find that through the course of your analysis, that you identify different types of customers. When you have more than one type of customer, you do what’s called market segmentation. This is where you group similar types of customers into segments and describe the attributes of each segment.

You’ll need to start broadly and refine your research by defining the following elements.

Market size

Unlike industry size, which is usually measured in dollars, your market size is how many potential customers there are for your product or service. We have a great method for figuring out your market size , which helps you break down the total available market into what you can realistically service.

Demographics

Describe your customer’s typical age, gender, education, income, and more. If you could paint a picture of your perfect customer, this is where you’ll describe what they look like.

Where are your customers located? A specific country, region, state, city, county, you’ll want to describe that here. You may even find that your customer base is segmented based on location which can help you determine where you’ll be doing business.

Psychographics

It’s here that you need to get inside the mindset of your customers, know their needs, and how they’ll react. What are your customers’ likes and dislikes? How do they live? What’s their personality?

This piece can even help you better approach analyzing the competition.

This is essentially an extension of some of your psychographic information. Explain how your customers shop for and purchase products like yours.

Customer behavior is always changing. If there are trends that you’ve noticed with your target market, detail them here.

3. Competition

Your market analysis isn’t complete without thinking about your competition . Beyond knowing what other businesses you are competing with, a good competitive analysis will point out competitors’ weaknesses that you can take advantage of. With this knowledge, you can differentiate yourself by offering products and services that fill gaps that competitors have not addressed.

When you are analyzing the competition, you should take a look at the following areas.

Direct competition

These are companies that are offering very similar products and services. Your potential customers are probably currently buying from these companies.

Indirect competitors

Think of indirect competition as alternative solutions to the problem you are solving. This is particularly useful and important for companies that are inventing brand new products or services. For example, the first online task management software wasn’t competing with other online task managers—it was competing with paper planners, sticky notes, and other analog to-do lists.

How you’re different

You don’t want to be the same as the competition. Make sure to discuss how your company, product, or service is different than what the competition is offering. For a common business type, such as hair salons, your differentiation might be location, hours, types of services, ambiance, or price.

Barriers to entry

Describe what protections you have in place to prevent new companies from competing with you. Maybe you have a great location, or perhaps you have patents that help protect your business.

The best way to research your competition is to talk to your prospective customers and ask them who they are currently buying from and what alternate solutions they are using to solve the problem you are solving. Of course, spending some time on Google to figure out what else is out there is a great idea as well.

4. Pricing and forecast

The final step in a market analysis is to figure out your pricing and create a sales forecast to better understand what portion of the market you think you can get.

Pricing your product or service

First, think about your pricing . Of course, you should ensure that your price is more than what it costs you to make and deliver your product or service. But, beyond that, think about the message that your price sends to consumers.

Customers usually link high prices to quality. But, if you are pricing on the higher end of the spectrum, you need to make sure the rest of your marketing is also signaling that you are delivering a high-quality product or service. From what your business looks like to its logo and customer service experience, high-prices should come with a high-quality experience during the entire sales process.

On the other end of the spectrum, maybe you’re competing as a low-priced alternative to other products or businesses. If that’s the case, make sure your marketing and other messaging are also delivering that same, unified message.

Forecasting for initial sales volume

Once you have an idea of your pricing, think about how much you expect to sell. Your industry research will come into play here as you think about how much of the overall market you expect to capture. For example, if you’re opening a new type of grocery store, you’ll want to know how much people spend on groceries in your area. Your forecast should reflect a realistic portion of that total spend. It’s probably not realistic to gain 50 percent of the market within your first year.

However, don’t make the mistake of assuming that you can easily get 1 percent of a very large market. 1 percent of a 3 billion dollar market is still $30 million and even though 1 percent seems like a small, attainable number, you need to understand and explain how you will actually acquire that volume of customers.

When you build your forecast, use it as a goal for your business and track your actual sales compared to what you had hoped you would sell. Sales forecasting software like LivePlan can help you automatically compare your forecast to your accounting data and even provide hands-on market research services to simplify your analysis. But, even if you use a spreadsheet, tracking your progress will help you adjust your business strategy quickly so that you can do more of what’s working and less of what isn’t.

Prepare your business with a market analysis

Creating a good market analysis is a very worthwhile exercise. It will help you uncover your blind spots and prepare you to compete with other businesses. More importantly, it will help you understand your customers so you can deliver the best possible service to them.

Looking for some examples of market analysis? Take a look at our free sample business plans on Bplans. There are more than 500 of them across a wide range of industries, and each one of them has a market analysis section.

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More From Forbes

Understanding market research for your business plan.

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When you’re building a business plan, market research needs to happen pretty early in the process. It’s where you learn about your audience’s wants and needs and the financial trends in your industry, and where you combine the data, and uncover trends that tell you what customers want and how to provide it most effectively.

The results of that research and analysis will shape aspects of the rest of your business plan. Assessments of your market and competition inform critical decisions in areas such as product design or service offerings, price, marketing methods, and business location.

That means accurate and comprehensive market research matters. To be comprehensive, your information and analysis should answer every possible question about the market you plan to enter and the consumers you believe will buy your product or service, including (but not limited to):

• Demand: Do consumers want what you’re offering?

• Economic indicators: Do they have the money to buy your product/service?

• Pricing: How much will they pay for your product/service?

• Location: Where do they live, and where are they likely to make their purchases?

• Saturation: How many other options do they currently have for that product/service?

First Steps: Budget

You can spend a lot answering these questions. Many large businesses hire firms to do the research and analysis, employing large-scale surveys, focus groups and statistical models, among other methods. However, for entrepreneurs just starting out, marketing budgets are typically too slim to cover that kind of research.

So, the work needs to stay in-house and fit a small marketing budget. Affordable, effective market research is possible. It may not be as specific to your market as the big-budget stuff, but it can get you the information you need to work out a solid understanding of your market.

First Steps: Market-Research Objectives

Before you start your research and analysis, determine your objectives. Decide what you want to learn from the process. It will guide the data you search for and how you use it, so be specific. Write down actual goals – what would give you the most accurate, comprehensive and useful picture of your market? This could include areas such as demographics, competitor offerings and customer pain points.

First Steps: Research Terminology

In market research, you’re basically dealing with two types of research and two types of data:

• Primary research: This is research you perform yourself in order to get very specific insights into your very specific business. It includes methods such as surveys, interviews and direct observations (by visiting competitor locations, for instance). It can help you gather qualitative data. This is data that goes beyond statistics and market trends. It can tell you what your consumers want, what they don’t want and how they feel about your offerings.

• Secondary research: This is research other people have performed and analyzed. To conduct secondary research, you can visit government websites such as the U.S. Census Bureau and the Bureau of Labor Statistics, as well as private data collectors such as Google and market-research companies. It can help you gather quantitative data. This is generally statistical data and can reveal insights on consumer demographics, spending patterns, market trends and earnings projections.

Where To Start Your Market Research

There’s a ton of existing research out there, and a lot of it is totally free. The Small Business Administration website has a list of free government sources for various types of quantitative data, such as industry statistics, consumer demographics, consumer demand and spending, and sales indicators. Much of it comes from the U.S. Census Bureau and the Bureau of Labor Statistics. A simple search will turn up enough places to start gathering secondary research to build a picture of your market.

With a good understanding of your market from secondary sources, you’re in a good position to know which types of primary research, if any, would be worth an investment of your time and energy. Maybe a well-designed survey completed by everyone you know could help fill in some holes.

You can also conduct primary research by visiting and speaking with your would-be competition and their customers; through crowdsourcing forums such as Quora, where you can glean raw data from comments and responses and post questions related to your product, service and market; on social-media websites such as Facebook, where you can parse conversations in relevant interest groups; and by reading product and service reviews on sites such as Amazon or Yelp.

Analyzing Your Market Research

Armed with all your data, you’ll draw conclusions that will help guide many of your business decisions.

But first, make sure all of your data will benefit those decisions. Don’t start analyzing until you weed out extraneous information that will waste your time and hinder focused insights. If it doesn’t relate directly to your business and your market, set it aside.

Then organize the relevant data into tables, graphs, lists and pie charts, and see what trends emerge. What do those trends mean for your business? Your product? Your location? Your planned promotions?

Be open to whatever the data tells you. Even if your research findings are unexpected, embrace them, and make any necessary adjustments. Listening to good market research can save you a lot of headaches down the road: The better you know your consumers, the better your chances of successfully selling to them.

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How to Write a Market Analysis for Your Business Plan

An important part of any good business plan is the Market Analysis. Before you can describe your marketing and sales strategies, you need to figure out what market you serve and what need you fulfill. Then, your Marketing Strategy and Implementation Plan, ideally covered in the next section of your business plan, will fit into a logical flow.

I have read many business plans that make the mistake of starting a Market Analysis section, only to wander off into a description of what the company sells, how it will promote its products, and how its product or service is different. These are all undeniably important points; however, they deserve a their own section and should be addressed in turn.

Let’s start with what a market is. A market, in this instance, refers either to a place where goods can be sold, or to a particular class of buyers. So the market is the “Where?” that your product or service is sold, and the “Who?” you sell it to.

So what should you include in the Market Analysis section of your business plan?

Size of the Market

The first number you need to identify is the total annual sales, in dollars, of the market you serve. If you are selling cars, state the total sales of cars in your geographical area for the most recently ended year. This number will be important later when you forecast your sales because it will enable you to calculate what share of the market you expect to capture.

Besides stating the current size of the market, it is also valuable to include forecasts of the future size of the market. Such market projections should be offered only if they come from acknowledged government or research organizations. Certainly you can make up your own projection, but it will lack the credibility of a recognized authority on the subject and probably will serve only to make you look amateurish.

We hope you find this article helpful. For more great information about writing a quality business plan, check out “How to Write a Shark-Ready Business Plan” by our Founder Al Lierman.

Market Segments

There are several ways that you can break a market down into segments. Doing so will help you and the reader of your plan understand where your specific product fits into the total market, and who the potential customers are.

Geography and Location

It is a good idea to indicate the geographic segments of your product’s market, especially the market in which you sell. If you are an international company, then describe the size and characteristics of the international market. If, on the other extreme, you only sell to customers within 10 miles of your location, then provide information about this local segment.

Customer Segments

On one level, all customers who a buy a particular product make up that product’s market. But, not all buyers of the product buy it for the same reason. For example, buyers of Personal Computers can be segmented into business users and home users. This type of market segmentation is essential because your marketing plan, which you will present later, will describe your strategy for targeting these customers.

Further segmentation might be called for in many cases. To continue with the PC example, if your business is selling servers to corporate clients, it makes sense to identify the portion of the PC market that is businesses that buy network servers. The more detail you can provide about the customer segments that you target, the better.

The level of detail you provide about your market’s customer segments depends on the level of detail in your marketing plan. Any customers you intend to pursue with your marketing strategy should be identified and quantified in the market analysis section.

This section is also an appropriate place to provide a profile of your target customer. This profile should include any demographic or psychographic information relevant to buyers of your product or service. For business customers, provide statistics about the size of the typical client firm, number of employees, location, or industry.

Market Trends and Needs

Once you have described the segments of your product’s market, explain the trends, growth, and needs of the market. Turn your focus especially to the trends in the market segments within which your product fits. In this section you should provide statistics for the growth in the market over the last five to ten years. If you can provide forecasted growth rates from an acknowledged agency or research firm, do it.

If your market segment is growing and is projected to continue to grow, talk about it and back it up with numbers. If the trend is for new products like yours to sell well and replace older models, then say so. Ideally, the trends you identify should support the positioning statement and marketing strategy that you are about to present.

As for market needs, a business plan can make a powerful statement about a company’s chance for success if it can show a need in the market that is unmet or underserved, and then present the company’s product as the perfect solution to that problem.

Venture capitalists and angel investors often refer to products as either painkillers or vitamins. Painkillers tend to get the most funding because they are products that, as soon as they come out, people have to have them. Vitamins are products that are good, useful, and maybe even important, but we can live without them.

The ultimate goal of the Market Analysis is to show where the burning need, the source of the pain, is in the market. In the best business plans, the Marketing Strategy describes how the company will position its product to ease the pain.

Industry Analysis

The final section of the Market Analysis is the Industry Analysis. Where the earlier sections of the Market Analysis dealt with issues of who buys the product and where they are located, the Industry Analysis addresses the making and selling of the product: industry participants, distribution patterns, and competition. A thorough discussion of these aspects of the industry will provide a good overview of the industry to a reader who is otherwise unfamiliar with it.

Industry Participants

Industry participants are those firms and individuals that are involved in at least one aspect of bringing the industry’s product to its customers. Examples include manufacturers, suppliers, service providers, wholesalers, distributors, dealers, and reps.

For example, an analysis of the book publishing industry would identify participants such as authors, agents, publishers, book manufacturers, book wholesalers, bookstores, and book clubs.

Distribution Patterns

If you are dealing with a physical product you will probably want to describe how it is distributed, from the time it is created until it makes its way into a customer’s hands. Explain the various ways that finished products are distributed, whether directly to end users, through wholesalers, from wholesalers to retailers, and so on.

A company can often distinguish itself, even if it does not have a unique product, by providing a new way to sell or distribute the product to its customers. Dell Computer was a great example back in the day. The company was successful not because its PCs were better then any other company’s; it made a fortune because it revolutionized the way computers were manufactured and distributed to consumers. It configured its products to its customers’ specifications and sold them direct rather than prebuilding them and selling them through distributors as its competitors did. In short, it’s success was based on a better business model more than on a better product.

Competition

Once you have identified all of the industry’s participants you are in a better position to explain where your company fits in. Unless you have a completely new concept or product with no competition, your industry analysis should include a thorough discussion of your competitors. I have seen many first-time plan writers gloss over this section or ignore it altogether. Don’t make this mistake.

Any smart venture capitalist, angel investor, or lending officer recognizes that every business has competition. By avoiding this topic in your business plan you will show your reader one of two things: either you are naïve about your competition and have not done your homework, or you are less than forthcoming and are hiding something. Furthermore, you miss an opportunity to show exactly how your proposition is unique and different from your competitors’.

The Market Analysis section of your business plan is a great place to show that you know your business inside and out. Stick to the concept of describing the market and the industry as they exist today, a sort of situation analysis. If you do it right, the stage will be set for you to present your plan for conquering the world in your Marketing Plan and Strategy Implementation section immediately following the Market Analysis.

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Conducting a Market Analysis for Your Business Plan One of the most critical sections of your business plan is your market analysis. Find out just what information you need to know about your potential customers.

By Tim Berry Edited by Dan Bova Jun 13, 2005

Opinions expressed by Entrepreneur contributors are their own.

Every business plan should include market analysis. This is one of the first and most important reasons to do a business plan . And whether you're just starting a new business or reviewing an existing business, you should renew your market analysis at least every year. Markets change--a business needs to watch for changes in its market.

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

For example, the market of a local movie theater or restaurant includes not just the people who regularly go there but everybody who lives within driving distance. The market for a landscaping business includes all the homes and commercial properties within a logical reach. The market for downloadable e-books over the internet includes everyone connected to the web. The market for personal computers includes homes, schools, businesses, and government organizations.

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

Getting the Information The information sources that will help you conduct a market analysis are different for every business plan. For example, you might need local information you can get from your local chamber of commerce. Or you might be able to find your market information at https://www.usa.gov/business , which is a good source for information from the U.S. Census Bureau, the Department of Labor, the Department of Commerce and others. You might also need to find other government statistics, or other commercial statistics, so you may be conducting some internet searches to track down the information.

Not all the information you need is going to be publicly available, and you may have to settle for educated estimates. Sometimes you'll have to extrapolate information from different sources to get the information you're seeking. I've seen good market research come from telephone directories, catalogs, industry association statistical compilations, real estate information and density maps.

Segmentation Always try to divide your target market into useful slices or segments. For years, I consulted with a computer manufacturing company that targeted such market segments as homes, small offices, businesses, educational organizations, and government. Dividing the market into these segments helped the company address the more specific market needs, media, pricing patterns and decision criteria in each of their different market segments.

Segmentation helps you target specific people with specific messages and helps you focus on user needs. Families might need quick, consistent service while students might need late-night service. Families read the newspaper; students read posters on bookstore walls. Knowing your market segments will help you make smart decisions when it comes to providing the products and services that will work best for them and for communicating with them.

Market Size and Growth You need to be able to measure and quantify your market. For example, if local homeowners are part of your target market, then you should be able to count them. You need to know whether you have 500 people in your market, or 200,000, or 2 billion. Be able to show what the total market is for your business.

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

Market Trends You need to understand what's going on with your market. What marketing trends and fashions do you see having an influence on your market segments? If you're selling cars, for example, is there a trend that shows people responding to higher gasoline prices or more environmental concerns? In computers, is there a trend toward more power and lower prices? How does the increase in TV recorder equipment affect your market? The questions that affect target markets will be different for every business, and these are just examples. What's important is that as you create your business plan, you become aware of the market trends that affect your specific market.

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How to Do a Market Analysis for a Business Plan?

What is market analysis in a business plan.

Market analysis for a  business plan serves the purpose of exploring the suitability of your product or service for the market. 

Your market analysis for a business plan lets you see your position in the market. It helps you identify the market trends, product demand, buying trends, seasonality, competition, etc.

A good market analysis will prepare you for a successful launch and steady growth. The time you invest in exploring your target market is well-spent. 

In this article, we have discussed how to conduct market research for a business plan. Make sure you read till the end to fully understand  how to do a market analysis in business plan .

Want to write a business plan? Get help from our business plan writers for hire !

Why you should do market analysis for a business plan.

When you analyze your target market in-depth, you understand it better. You understand what market demands are and how your product can serve the market. This market knowledge will help you convince your lenders and investors to work with you. 

These are some reasons why you should include a market analysis business plan.

Reduce Risk

Target on the right customer base, know the trend, project revenues, set growth benchmarks , optimize marketing strategy .

Doing a market analysis will lower your risk of failure by helping you spot market pitfalls. When you know what lies ahead, you can plan better and prepare better. 

A market analysis for a business plan will help you identify the right customer base for your product or service. 

Many people cast a wide net at the start but a market analysis proves them wrong. 

For example, if we say that many Indians live in a neighborhood and an Indian food restaurant will be a sure hit there may be wrong. Maybe all they are eating at home is Indian food and they don’t wish to eat the same food at a restaurant. 

Another example would be thinking that since your product or service is a good match for small businesses, all small businesses are your target customers. 

When you do market analysis and look critically at your customer base, you can dodge false optimism.

All markets are unpredictable in one way or another. Knowing how the market behaves when changes occur and understanding the market trends is important for long-term success. 

Check for seasonality, innovation in the market, and consumer behavior trends. See how your industry responds to the changes in economy.

 A market analysis for a business plan can help you make sound revenue projections for your business. Your projections with data are no longer your wishful thoughts. 

If your revenue forecast is based on solid market research, potential investors and lenders will know it and consider you a serious candidate for funding. 

Every industry moves in a distinct way. Some industries have favorable business conditions and growth is rapid in that industry. 

Doing a market analysis and knowing your industry will help you set realistic growth benchmarks. When you set aggressive growth benchmarks with a reasonable chance of success, you can maximize your business growth. 

Your marketing strategy is how you’ll raise awareness and drive sales for your product or service. Your market analysis can tell you:

• how to reach your customers, 
• how you should design your offers, 
• how much will you need to spend 
• When will you achieve your marketing goals

What should you include in Market Analysis?

You will analyze the target market in business plan in this section. Here is what you should include in a market analysis for business plan.

Industry Outlook

Industry outlook shows the direction of your industry. It shows if you are in a growing industry, a stagnant, or a declining industry. 

Consider adding these points to  your industry outlook:

• Are you in a big market like casual wear clothing or a niche market like heavy snow coats 
• Discuss the product life cycle 
• Discuss projected year-over-year growth

Target Market 

Determine and specify your target market. Your initial, super-optimistic estimations about your target market may be incorrect. 

Base your assumptions on data. Specify your target market by using these markers. 

• Identify your target customers’ demographics like gender, age, location, income, education, etc. 
• Create a buyer persona to show what your ideal customer looks like 
• Include research and surveys about your target market like focus groups, and feedback surveys

Product/Service Demand 

Document your product or service demand in the market. See how many units of similar products or services are sold per year and how many people make the purchase. 

Market Growth Prospects 

Assess the overall change in your industry. Every industry has different dynamics. Some industries react to economic shocks with a rapid decline while others may show resilience. 

Many consumer goods industries stay stable for a long stretch of time and you can spot the decline years ahead. On the same lines, discuss the growth prospects of your industry and the market.

Market Trends 

Trends are the sudden changes that disrupt. The fashion industry is one of the best examples to study market trends. 

Watch for similar market trends in your industry and document them. 

Competitor Analysis 

Competitor analysis is the meat of your market analysis for a business plan. These businesses are like case studies as you can learn from their business practices and growth trajectories. 

Industry Entry Barriers 

If the industry entry barriers are low, you’ll compete with a lot of businesses. However, your chances of early success are higher in such industries as you can easily reach the breakeven point and sustain your business. 

Hard entry barriers mean there are established players in that industry and it will take time for you to grab a share of the market. 

Industry Regulations 

See the level of regulations for your industry and make a plan ahead to deal with them. The regulations increase business operating and overhead costs.

When doing industry analysis in business plan, list the industry regulations you’ll need to care for. 

Access our free business plan examples now!

How to do market analysis for a business plan.

A market analysis is about collecting all the necessary information and research and getting into the details of your industry and competitors. 

You can do a market analysis using this simple framework.

Decide your Purpose 

Do industry research, define your customer, understand competition, collect more data for the market , make use of this data .

You may be doing a market analysis for knowing your industry better or for convincing a potential lender or investor. Once you determine the purpose of market analysis, you can estimate the time and type of research the process will take.

Discuss the industry trends and see how the market is changing over the past few years. You’ll also need to include industry forecasts to complete the picture. 

A comparative market analysis helps you identify your competitive advantage. Make sure to include this in the market analysis.

Defining your customer helps you understand their needs. Define your customer in terms of demographics like:

• Occupation 

Build a buyer persona for your product or service. This will help you understand the customer well and design products and services for your ideal customer. 

Pro Tips: Learn how to write a business plan products and services section.

Understanding your competition will prepare you for the market. Look into their strengths and weakness. See what businesses are successful in your industry and study them to understand how they are doing it. 

Steps for doing competitor analysis business plan.

• List your top competitors 
• Do a SWOT analysis for each competitor 
• Compare their product or service with yours 
• Analyze why a customer chooses their product over others 
• Identify opportunities on how you can improve your product

The more data you have, the better your chances are of doing a top-notch market analysis. 

Collect your data from credible sources. Make sure your data is factually correct. You will be making decisions on the basis of this data. 

Here are some reliable and credible data sources that you use in your market analysis. 

• U.S. Bureau of Labor Statistics
• U.S. Census Bureau
• Local Chamber of Commerce & Industries 
• Trade Journals and Academic Research
• Your own SWOT analysis
• Market surveys or feedback

It is time to make sense of the numbers. 

The market analysis includes details from business conditions to long-term success in the industry. It calculates risk for your business.  Some factors may not be in your favor and you’ll have to decide on your chances of success.  

Keep your data organized in sections. Organize your data with a goal to present it before investors, lenders, and the team. That way, you’ll keep it simple and easy to understand.

Do you want to see an example of market analysis in a business plan? See our business plan examples to understand how it is done. 

Still wondering what is a market analysis in a business plan? See this example of market analysis in a business plan and writer a killer market analysis. Download the  Business Plan Market Analysis Example PDF  here. 

Market Research from WiseBusinessPlans

At Wise Business Plans™ we pride ourselves on giving you the best market research for business plans available. We subscribe to commercial software programs and pay hefty licensing fees to give your business a competitive edge. 

Instead of spending hours on figuring out how to do market research for a business plan, hire professionals from WiseBusinessPlans and get a top-notch market research report for your business plan. 

Market Research Institutes and Databases we use 

IBIS World’s Industry Market Research Reports are powerful business tools that provide strategic insight and analysis on over 700 U.S. industries. 

ESRI: Market Research combines GIS (Geographic Information System) technology with extensive demographic, consumer spending, and business data for the entire United States to deliver on-demand, boardroom-ready reports and maps.

Dun & Bradstreet: D&B’s products and services are drawn from a global database of more than 130 million companies.

Hoovers : Hoover’s database of industry information, 65 million company records, and 85 million people records you can deliver valuable business insight to your employees and customers.

First Research: First Market Research is the leading provider of market analysis tools that help sales and marketing teams perform faster and smarter, open doors, and close more deals.

Worried about writing a business plan? Hiring a business plan writer can ease your worries and create a strong plan.

Sample research.

Base your Market Research on data and expertise you can trust.   Hire professional market researchers from WiseBusinessPlans and take a solid start. 

A market analysis in a business plan is an assessment of the target market and industry in which your business operates. It involves researching and analyzing factors such as market size, competition, customer needs, trends, and growth potential.

Gather information for a market analysis by conducting market research through various methods like surveys, interviews, online research, and analyzing industry reports. Collect data on customer demographics, market trends, competitors, and customer preferences.

Include key components in a market analysis, such as an overview of the industry, target market segmentation, customer profiles, competitor analysis, market trends and growth projections, and barriers to entry. Use this information to identify opportunities and assess the viability of your business.

Analyze the competition by identifying direct and indirect competitors in your target market. Assess their strengths, weaknesses, market share, pricing strategies, and unique selling propositions. This analysis will help you understand your competitive landscape and differentiate your business.

A market analysis is crucial for a business plan as it provides insights into the market potential, customer demand, and competitive landscape. It helps you make informed decisions, develop effective marketing strategies, and demonstrate to investors or lenders that there is a viable market for your products or services.

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How to Write the Market Analysis Section of a Business Plan

Alyssa Gregory is an entrepreneur, writer, and marketer with 20 years of experience in the business world. She is the founder of the Small Business Bonfire, a community for entrepreneurs, and has authored more than 2,500 articles for The Balance and other popular small business websites.

The market analysis section of your business plan comes after the products or services section and should provide a detailed overview of the industry you intend to sell your product or service in, including statistics to support your claims.

In general, the market analysis section should include information about the industry, your target market, your competition, and how you intend to make a place for your own product and service. Extensive data for this section should be added to the end of the business plan as appendices, with only the most important statistics included in the market analysis section itself.

What Should a Market Analysis Include?

The market analysis section of your small business plan should include the following:

• Industry Description and Outlook : Describe your industry both qualitatively and quantitatively by laying out the factors that make your industry an attractive place to start and grow a business. Be sure to include detailed statistics that define the industry including size, growth rate , trends, and outlook.
• Target Market : Who is your ideal client/customer? This data should include demographics on the group you are targeting including age, gender, income level, and lifestyle preferences. This section should also include data on the size of the target market, the purchase potential and motivations of the audience, and how you intend to reach the market.
• Market Test Results : This is where you include the results of the market research you conducted as part of your initial investigation into the market. Details about your testing process and supporting statistics should be included in the appendix.
• Lead Time : Lead time is the amount of time it takes for an order to be fulfilled once a customer makes a purchase. This is where you provide information on the research you've completed on how long it will take to handle individual orders and large volume purchases, if applicable.
• Competitive Analysis : Who is your competition? What are the strengths and weaknesses of the competition? What are the potential roadblocks preventing you from entering the market?

7 Tips for Writing a Market Analysis

Here is a collection of tips to help you write an effective and well-rounded market analysis for your small business plan.

• Use the Internet : Since much of the market analysis section relies on raw data, the Internet is a great place to start. Demographic data can be gathered from the U.S. Census Bureau. A series of searches can uncover information on your competition, and you can conduct a portion of your market research online.
• Be the Customer : One of the most effective ways to gauge opportunity among your target market is to look at your products and services through the eyes of a purchaser. What is the problem that needs to be solved? How does the competition solve that problem? How will you solve the problem better or differently?
• Cut to the Chase : It can be helpful to your business plan audience if you include a summary of the market analysis section before diving into the details. This gives the reader an idea about what's to come and helps them zero in on the most important details quickly.
• Conduct Thorough Market Research : Put in the necessary time during the initial exploration phase to research the market and gather as much information as you can. Send out surveys, conduct focus groups, and ask for feedback when you have an opportunity. Then use the data gathered as supporting materials for your market analysis.
• Use Visual Aids : Information that is highly number-driven, such as statistics and metrics included in the market analysis, is typically easier to grasp when it's presented visually. Use charts and graphs to illustrate the most important numbers.
• Be Concise : In most cases, those reading your business plan already have some understanding of the market. Include the most important data and results in the market analysis section and move the support documentation and statistics to the appendix.
• Relate Back to Your Business : All of the statistics and data you incorporate in your market analysis should be related back to your company and your products and services. When you outline the target market's needs, put the focus on how you are uniquely positioned to fulfill those needs.

Table of contents

How to do market analysis for a business plan.

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When launching a business, having a clear business plan is critical for success. One aspect of the business plan, how to do market analysis, often eludes new business owners. Below you’ll learn how to identify your market, analyze competitors, read market trends, and more, to create a realistic market analysis for a business plan.

What Is Market Analysis for a Business Plan?

A market analysis is a comprehensive exploration of the target market a business wishes to enter. It aims to determine a company’s position in the market, develop marketing strategies, and identify areas where competitors lack or fail to effectively reach their target audience. 

A market analysis works for all types of businesses, be it a courier business or an organization business or a laundry business . Market analysis looks at a company’s strengths, weaknesses, opportunities, and threats to effectively capture market share and capitalize on growth opportunities. Whether you’re starting a business with $1,000 , launching a stay-at-home-mom business , or considering low-maintenance businesses with big returns, market analysis for business plans can build the foundation for long-term growth. 

7 Steps to Conduct Market Analysis for a Business Plan

Conducting market analysis for a business plan is perhaps the most foundational aspect of a business. Choose the wrong niche, and your business could be a flop; choose an oversaturated market, and you’ll struggle to break in. Here are seven simple steps for effective market analysis:

Identify Your Target Market

Identifying your target market includes describing your potential customers and defining the characteristics of your target market. This is also the stage to clearly define your objective and consider different industries to understand current trends, size, and scope. 

Target market and industry outlook analysis will demonstrate to lenders and potential investors that your business has a reasonable chance of success. It can also help you gauge potential sales and how to effectively reach the target market. 

Determine Market Size and Potential

To understand growth potential, it’s important to define your market size and potential. Market size is measured by segmentation, the process of aggregating prospective buyers into groups (or segments) with common needs. Assuming they will respond similarly to a marketing action, you can use this information to effectively build a marketing plan.

To understand market potential, consider the total market of your target industry, and calculate the market share of major players. Then, consider growth opportunities, new pain points, and potential revenue to gauge business potential. Discuss both market potential and market segmentation as part of your market analysis for a business plan.

Conduct Competitor Analysis

Once you have an industry and target market, it’s time to identify key competitors. Analyze their products, pricing, marketing, and distribution strategies. Consider their market share, presence, and offerings in terms of the pain points of potential consumers. Based on this, explore how to differentiate your business from the competition and enumerate key value propositions that stand out from competitors. 

Determine Market Entry Barriers

Identify any barriers to entry into the target market, such as high capital requirements, legal and regulatory restrictions, or strong competitor presence. Evaluate the challenges and potential risks associated with entering the market. This is the perfect moment to do a SWOT analysis – looking at the strengths, weaknesses, opportunities, and threats for your business positioning and those of your competitors. 

Analyze Market Trends

Market trends can change the landscape of a market over time. While some markets don’t respond to trends, many are highly vulnerable to changes, such as technological advancements. Understand industry trends that can impact your business launch and potential growth. Determine potential opportunities and threats in the market and its current trends to identify opportunities for growth and future demand for your product or service.

Outline a Marketing Strategy

Once you understand market trends, barriers to entry, market potential, and the target market’s pain points, you can develop an effective marketing strategy. A marketing strategy should utilize the right channels and messaging to reach your target audience. As part of the marketing strategy, consider brand voice, positioning, shared beliefs of your audience, and an emotional connection to build brand loyalty and stand out from competitors.

Summarize Findings and Projections

The final step of market analysis for a business plan is to put it all together in an actionable report. Consolidate your market research findings and projections into a concise summary. Highlight key insights, market opportunities, competitive analysis, and potential risks. Use charts, graphs, and data to support your analysis. Effective market analysis for a business plan should show and tell key market opportunities while addressing potential hurdles or threats. 

Clear market analysis will demonstrate value not only to investors or lenders but may provide additional insights into how to effectively market to the target audience and new opportunities to leverage for faster business growth. 

Key Takeaways and Best Practices for Effective Market Analysis

When conducting market analysis for a business plan, make sure to consider each of the following:

Conduct Focus Groups/Surveys

To truly understand your market and target audience, use focus groups or surveys to gather valuable insights. There are several free or paid sites to do this including HubSpot Free Online Form Builder, SurveyMonkey, SurveySparrow, Lucky Orange, and ProProfs Survey Maker. If you already have a mailing list of clients, you can send surveys out and offer entry into a giveaway or any other incentive. If you’re launching the business from scratch, consider paid surveys with a niched-down target audience for relevant findings. 

Gather Secondary Data

Use secondary sources like industry research reports, government statistics, and articles to supplement your primary research. Government and industry reports, in particular, can offer valuable insights and in-depth industry trends that can shape your market analysis with actionable data. 

Track Market Changes and Modify Strategies Accordingly

Market analysis for business plans isn’t a stagnant document. It must be updated regularly as the market shifts and the business grows. Update your SWOT analysis every three months, or more frequently, if needed, to address and build on marketing strategies and increase market share. 

Why Do You Need Market Analysis?

Market analysis for a business plan is the engine that drives business growth. It provides key data and insights. A great product in a vacuum won’t sell. By conducting market analysis, you’ll understand the industry, competitors, potential customers, and opportunities to fill unique targeted needs, capture a greater market share, and build long-term business success. 

To help achieve business success, consider opening an LLC for your business. In addition, get the tools and resources to ensure your business succeeds. Doola Books is designed for founders like you to automate accounting and give you more time to focus on business growth. Get Doola bookkeeping services here!

What are the benefits of conducting market analysis for a business plan?

Market analysis for a business plan means you can understand the current shape of the market and identify opportunities for growth or weaknesses in competitors’ offerings. It allows you to realistically predict business opportunities and analyze clients’ needs to build effective solutions. 

How can I conduct market analysis for my business plan?

Conducting market analysis for your business plan involves conducting direct market research and relying on secondary sources like industry and government reports. Together, these can give you a picture of your business plan’s strengths, weaknesses, opportunities, and threats and help identify the best course of action to build your business.

What are some common methods used for conducting market analysis?

Market analysis includes surveys, focus groups, and analysis of industry-wide trends, government reports, and competitors’ positioning within the market. Market analysis involves deeply examining your industry, objective, potential clients, and brand offerings. 

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5 Steps to Preparing a Market Analysis for Your Small Business

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If you’re considering launching a new business or adding a new product to your existing business, your first step should be to do a market analysis, a process that provides an in-depth look at potential customers and competitors along with detailed information about the industry you’re looking to enter.

Overview: What is a market analysis?

Market analysis is an important tool to utilize if you’re looking to start a business, expand your business into another field, or add a new product line to your existing business.

Market analysis helps you identify potential markets and customers, provides you with valuable information such as industry health and outlook, and gives you a long look at the competition.

A market analysis also provides data such as whether your proposed product or service would be entering an already crowded field, or whether your potential customers would pay for the product or service you’re offering.

If you’re looking for potential investors or thinking about applying for a loan, completing a market analysis is a must.

How to perform a market analysis for your small business

While larger businesses may hire a firm that specializes in preparing a business market analysis, anyone can complete a market analysis summary. There are numerous resources available to assist you through the process; here are some of the best.

• U.S. Census Bureau : The U.S. Census Bureau contains plenty of demographic data that you can use to prepare your market analysis, including quick facts and data profiles.
• Bureau of Labor Statistics : Even better than the Census Bureau, the Bureau of Labor Statistics provides regional, state, and local data on everything from inflation and pricing to productivity and pay and benefit information.
• U.S. Small Business Administration : The Small Business Administration provides detailed information on planning your business, including preparing a business plan, completing a market analysis, and numerous other resources to assist you with starting a new business.

While the links above are helpful, there are even more resources you can use to prepare a competitive market analysis, such as local and state chambers of commerce, trade journals, and even visits to local stores.

If you’re not sure where to start, just follow the steps below.

Step 1: Industry outlook

Do you know a lot about the industry you’re interested in? In order to be successful, you should.

Data such as size, scope, projected growth rates, and the life cycle of businesses in your target industry are just a few of the things you should be researching. This is particularly important if you’re planning on bringing in investors or applying for a loan, since those parties will want to know this information as well.

It’s also important to make the information as relevant to your situation as possible. For example, if you’re planning on opening a local business that relies on foot traffic, your research will be much different than if you’re planning to start an online business that ships across the globe.

Step 2: Find your customers

While it’s tempting to assume that everyone is a potential customer, they’re not. The more time you spend researching exactly who your customers are, the more likely it is that your business will be successful.

For example, if you want to sell high-end leather purses and wallets, your target audience is likely affluent adults between ages 25-65.

While it’s certainly possible that someone younger than 25 or older than 65 will purchase a wallet or purse from your store, appealing to a specific demographic helps you target your core customer base in your marketing and sales efforts.

Don’t just identify your core customer base; drill down to include details such as income and location. When identifying your core customer base, you may also want to spend a little time researching their buying habits.

Do women spend a lot of money annually on purses? Do men purchase wallets frequently, or do they wait until they absolutely need one? While you’re at it, spend a little time researching the gift aspect of your product. Does it have a place in the gift market?

Step 3: Dig into the competition

One of the most important parts of your market analysis is the competition. When researching your potential competitors, consider the following things.

• Market saturation: Preparing a target market analysis can provide information on market saturation along with the number of current competitors in your area.
• Value of the competition: If someone is looking for a custom-designed leather wallet, what store do they buy it from? These are the places you want to study closely. What do they offer their customers? Is there something you would offer that they don’t? What would you need to offer those customers in order for them to purchase a wallet from your store instead?
• Value of indirect competition: When studying the competition, be sure to look at indirect competition as well. In the case of wallets and purses, indirect competition could be a luxury clothing store that sells accessories as well as high-end department stores that sell expensive purses and wallets. How would you convince their current customers to purchase from your store instead?

Strengths and weaknesses: When studying the competition, be sure to look at both their strengths and their weaknesses.

Competitors strengths and weaknesses Image source: Author

Step 4: Explore regulations

This is a fairly simple aspect to research and is much more important for those opening a business that needs special licensing or is subject to government oversight such as food service or medical/health businesses.

Be sure you know and understand any restrictions that currently exist in the industry.

Once you know those restrictions, you can decide whether you’ll be able to abide by the restrictions easily, whether there’s additional work that needs to be completed in order to abide by those restrictions, or whether it’s best that you drop the idea for a more feasible one.

Step 5: Analyze your findings and create a plan

Once you’ve completed your market analysis, it’s time to analyze your findings and start planning.

You can easily create a cash flow forecast for your market analysis using Microsoft Excel. Image source: Author

When creating your plan, be sure to include a cash-flow forecast for your business. This financial projection can help predict profitability levels, and it’s a necessity if you’re looking for investors or hoping to obtain a business loan.

Even if you’re funding the business yourself, a cash-flow forecast can help you plan out your business operations for the next 12 months and provide you with a set of goals to achieve.

Here are some additional items you’ll want to pay close attention to when preparing your market analysis.

• Current economy: The economy is in constant fluctuation. Is this the best time to launch a business, or is it better to wait? How will your business handle future downturns in the economy? Will your business be able to survive a long downturn in the economy? These are all questions that should be addressed in your market analysis.
• Industry outlook: Beanie Babies, anyone? Before you hop aboard the next big thing, be sure it has some staying power. At one time, only small, specialty card and gift stores sold Beanie Babies, but by the end of the product’s life span, gas stations and mini-marts were selling them as well. Before you invest a lot of time and money into a product or service that’s currently trending, do as much research as possible to determine whether it has staying power.
• Pricing: While it helps to look at competitor pricing, do some estimating of your own. If you’re opening the purse and wallet store, will you buy directly from a supplier, or do you intend to produce custom items in a warehouse? How much will those products or materials cost, and how much will you have to charge in order to make a profit? The answers to those questions can help determine whether your business has a good chance of success.

Do your market analysis before opening your doors

How many businesses open their doors only to close months later? While doing a market analysis won’t ensure that your newly launched business will be a success, it does allow you to explore possible pitfalls as well as ways to make your business stand out from the competition.

Once you launch your business, be sure to arm yourself with the accounting tools needed to manage your business finances properly. To find an accounting software application that’s right for your brand-new business, be sure to check out The Ascent’s accounting software reviews .

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The Importance of a Market Analysis

A complete market analysis is a cornerstone of a successful marketing and advertising campaign.  All too often companies neglect to perform a thorough market analysis and are left to the bleak alternative of guesswork. Market analysis is a strategic management strategy that provides an analytical approach to answering some of your companies most difficult questions:

• Who are our customers?
• How competitive is the current market landscape?
• How risky is entering this market?
• How efficient are our branding efforts?

Most business plans start on a hunch that a product or service could sell or be beneficial to someone. That may have been enough to launch your idea off the ground, but in order to keep your business plans thriving, it’s important you get accurate and concise answers to these questions and to perform a SWOT analysis.

What is market analysis?

A market analysis is a qualitative and quantitative evaluation of the external market and your internal resources. Thorough market analysis adequately assesses opportunity, value, risk, customer purchasing behavior, competition, and economic entry barriers and regulations.

3 Reasons Market Analysis is Important

This strategic management strategy does not tell you exactly how you should run your marketing campaign or position your company’s brand. However, it provides analytical insight that allows you to steer your company and brand around barriers or obstacles that could have impeded or completely halted your company’s progression.  So, while there are many, let’s focus on the top 3 reasons market analysis is important.

1.     Market Analysis Puts Your Customer First

Not long ago, Harvard Business School professor, Clayton Christensen , shook up the marketing world when he asked, “What job are people hiring your product for?” This simple question opened a door for those selling commodities to differentiate themselves from their competition.

The principle at play in Professor Christensen’s idea can be summed up in just one sentence,

“People don’t want to buy a quarter-inch drill; they want a quarter-inch hole.” – Theodore Levitt

Once we discover that people are hiring our services or products we realize that our competitors are not always what we think. A morning bagel’s competition might be a fruit smoothie, or an ice cream sundae’s competition could be a pastry. These things are often competitors to the problem of morning hunger or late-night dessert, yet they are not always sold by the business you would generally consider your “competition.”

Market analysis allows you to optimize your service or product for the job your consumer is hiring it to do.

TAKE A LOOK AT HOW WE INITIATED A REBRAND THAT RESULTED IN 6.5X WEB CONVERSIONS.

2.     market analysis forces companies to look inward.

Critically acclaimed author Simon Sinek prompts business owners to think differently in regards to how they sell. He says, “People don’t buy what you do; people buy why you do it.”

He asks us to compare the following sales pitches:

“We make great computers. They’re beautifully designed, simple to use and user-friendly. Want to buy one?”

“Everything we do, we believe in challenging the status quo. We believe in thinking differently. The way we challenge the status quo is by making our products beautifully designed, simple to use and user-friendly . We just happen to make great computers. Want to buy one?”

This principle is especially important when your product or service is tied to the consumer’s self-actualizing vision of themselves. This benchmarking principle is more apparent in the apparel business than any other. Take the members of the surf culture around the North Shore of Hawaii, for example. Do you think they care how breathable the fabric of their t-shirt is? Or the thread-count of their hoodie? No. Their predominant want is to identify with a brand that helps them feel like their best self.

Market analysis forces companies to consider how their product makes their consumer feel and to what degree that feeling is driving the purchase decision.

TAKE A LOOK AT HOW WE TURNED AN INTERNATIONAL LAW FIRM’S BRAND FROM COMMONPLACE TO CONTEMPORARY 

3. market analysis helps determine your unique sales proposition.

Though they are not always semantically agreed upon, there are five ways a company can differentiate their product or service in order to make it appealing to customers. Market analysis enables you to determine which of these methods of differentiation would be the most effective way to enter the market through strategic control.

• Brand- Companies differentiate themselves by brand by standing for something or associating their brand with a cause. Ex: TOMS’ slogan is, “One for One.” Their initiative to give shoes to the impoverished and shoeless is built heavily into their branding strategy. This branding strategy seeks to resonate with empathetic people who can turn a common purchase into one that helps others.
• Product- Companies differentiate themselves by product by positioning themselves as the highest quality product on the market. Ex: BMW’s slogan is, “The Ultimate Driving Machine.”  Their branding and marketing goals set out to position themselves as the best car someone can own in the minds of their consumers.
• Service- Companies with organizational structure differentiate themselves by service by offering a one-of-a-kind experience for their customer; this is typically done by showing exceptional customer service. Ex: Nordstrom’s mission statement begins with, “To provide outstanding service every day one customer at a time.” Nordstrom’s has been accredited for having an extremely lenient return policy, swift response time to customer inquiry via email and even social media. Their brand is built around treating their customers with care and they are therefore retained.
• Price- Companies differentiate themselves by price by positioning themselves as the most affordable or even the most expensive. Ex: Wal-Mart’s slogan is, “Save money. Live better.” After Wal-Mart introduced their price matching program, they successfully branded themselves as the most affordable grocer by doing just that, literally being the most affordable.
• Audience- Companies differentiate themselves by audience by branding their product or services to specifically aid or benefit a certain group or type of person. Ex: Whole Foods’ brand is reflected in their motto, “Whole Foods, Whole People, Whole Planet.” Because their branding stands for healthy living, it often resonates with healthy people. Because of this people are often willing to pay more for the shopping experience.

Take a look at these two e-commerce Cheerio’s offers. Can you guess which one is from Wal- Mart and which is from Whole Foods?

Marketing analysis is the first step to making data-driven decisions in your business plan. Get in touch with our marketing team to see how we can assist you with finding your brand voice and your audience.

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Launching a Brand New Product: Tricks, Tips, and Traps

Marketing Psychology 101: How to Get Inside the Mind of Your Target Market

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The importance of market analysis in a business plan

A business plan contains business goals and the process on how to attain them. The written document presents a specific period within which these goals need to be achieved.

Business plans, which are inherently strategic, aim to identify, describe and analyze a business opportunity and examine the technical, economic and financial feasibility of a business underway. One of the most important components of a business plan is one of the most important components of a business plan .

To help businesses with all the required information and making wise business decisions, a market analysis is needed. There should be a substantial market analysis on competitors and customers for the product or service to be successful in the market.

As the most important step in the development of any marketing plan, market analysis involves a thorough process of data collection. It chooses whether the product or the service will cater to customers’ needs and it effectively provides valuable insights into the ongoing market trends, competitors and demographics, the shifts in the economy and the customer spending.

How important is market analysis when it comes to the customers?

Market analysis is a way to understand the customers better and is a technique through which the comprehensive profile of an ideal customer for the business can be collected. It helps ascertain the size of the market and gain insights on their location, age, income and gender that are helpful factors for specific marketing campaigns.

What does market analysis do with the competitors?

A significant weapon to evaluate other players in the industry, market analysis helps in examining the new competitors trying to gain power in the market and is a way to measure the competitor’s reaction when you introduce a new product or service is introduced. This also identifies the weaknesses of your competitors, which is one of the most significant things in the process.

Market analysis allows testing the product or service before launch. Before jumping directly into the marketing, the analysis is conducted first to help plan for the most suitable strategy.

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Published by Conan Altatis

Conan Altatis wrote for CONAN Daily from 2002 to 2023. He wrote about beauty pageants, mixed martial arts, music and movies. View all posts by Conan Altatis

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“Why Is a Market Analysis Important in a Business Plan?”

“ Why include an analysis of the market in your business plan?” The market analysis is the foundation of the business plan. Other sections are important, of course. Not the least of which is the financial projections. But the market analysis is what will really make or break your business plan. It will solidify what problem you’re solving and what makes you unique.

If the market analysis is neglected, then the reader of your business plan is left to guess about your customers, competitors, and the environment you expect to operate in. Not surprisingly, if people are left to guess about these things – they’ll probably guess that there is no market for your product or service.

By committing to all the necessary steps involved in market analysis, you demonstrate to the reader that you understand important factors related to your company’s success. Furthermore, you’ve demonstrated your aptitude in analysis and willingness to be flexible.

Showing the reader that you know your customers, the competitive landscape, and the risk in your industry will set you apart from others who are looking for financing. Particularly those who are merely operating on a hunch.

**While writing a post for InvestSomeMoney.com on the topic of competitive market analyses, I stumbled upon this post on Buffer.com . I thought it had a lot of great ideas and would complement the information in this post.

What is a market analysis in a business plan?

The market analysis section of the business plan is where you demonstrate your qualitative and quantitative understanding of your environment. Also your company’s strengths and weaknesses.

A good market analysis will address anything and everything that pertains to your new company’s internal and external environment. For instance, topics covered could include:

• Distribution
• Manufacture
• Demographics
• Geographics
• Identification
• Decision making
• Government instability
• Operational risk
• Market size
• Unique selling proposition
• Problem identification
• Product/service benefits

What is the importance of a market study?

A market analysis won’t tell you what to do, unfortunately. But if you commit time and effort, it should shine some light on how to proceed. Hopefully, it will make the course of action a little easier to see. A correctly executed market analysis should help your young company to navigate obstacles and avoid being stopped in its tracks.

There are many reasons to do a market analysis. Many are unique to the small business and the industry it operates in. Here are some potential reasons for you to consider…

Think about what problem your product or service will solve

It’s kind of an old cliché, but customers buy benefits. Not features.

For instance, people don’t buy saws to cut wood – they buy them to have a perfectly shaped piece of wood. We all know this intuitively. But it still takes an effort on most of our part to consistently think in this different way.

Unfortunately, thinking in this manner opens up a whole new list of competitors. Substitute products were discussed in the demand analysis post .

To use the previous example – say you were selling saws in your retail store. You might have to consider the local lumberyard a competitor if they started making custom cuts for their customers. Their primary product isn’t the same. But they are selling the same solution .

Be honest with yourself about your product or service

When a fresh idea pops into an entrepreneur’s head, they feel like they’ve just solved all the world’s problems. If it were up to entrepreneurs, everything they conceive would be an absolute hit.

The reality is – you’re not the only one who’s going to buy your product or service. Hell, you may not buy it at all. A business plan market analysis forces you to look at your idea objectively. To confront its faults, its shortcomings, and your erroneous assumptions.

Never forget why your customers would buy your product or service. They’re just as egotistical as you, and you’ll have to convince them that you’ve solved their problem in order to get them to buy.

Solidifying your unique selling proposition (USP)

Some say there are five ways that a company (or brand) can make itself unique. That’s kind of narrow, I think. Because if there are only five ways then there’s not much room for uniqueness. Nevertheless, it serves as a good thought experiment and a way in which a company can begin to think about its USP.

There’s an old saying in business “price, quality, or customer service. Pick two.” As far as I can tell, this cliché actually has some basis in reality. It seems that companies can be above average in two of these – but never all three.

So, your company can set itself apart with one of these three categories. Or, it can look to set itself apart in terms of image. It’s good to be above average in as many categories feasible. But ultimately, your company needs to decide to be the best at something. Something unique.

Working through the steps of writing a market analysis in your business plan will help you understand what distinguishes your product or service from others in the market.. If it doesn’t, then you probably have a little more work to do!

Here are the five (general) categories of uniqueness you might explore to clarify your USP.

Usually, a product or service has to be of high-quality in order for a company to be renowned for it. Or, at the very least, it needs to have unique features (benefits).

Porsche is an example of a company with a reputation for quality. Porsche is, of course, a luxury automobile brand that uses high-quality and unique materials. According to Consumer Reports, Porsche’s quality is viewed as higher than other reputable automobile brands such as BMW or Mercedes.

2) Customer service

Just as a quality product can set you apart from the competition, quality customer service can do the same. Service so good that the (lower) quality and/or (higher) cost of your product or service can be overlooked.

Ritz Carlton is a company well known for its exceptional customer service. This is another luxury brand. But, it doesn’t mean that only luxury brands can offer great customer service. Ritz-Carlton sets itself apart by offering personalized and unique service to its patrons.

There are many different pricing strategies that a company can employ. Typically, though, the only one that is going to resonate with customers is economy pricing.

Walmart is the de facto example when it comes to economy pricing. But, I would also submit Amazon for consideration. While Walmart might beat Amazon on a lot of prices. Particularly, well-known consumables. Amazon seems to have earned itself a reputation of low pricing for things that are a little harder to find. You might be able to find unique products on a specialty retail site too. But rarely will the specialty site beat Amazon on price.

4) Branding

Of the two perception-based categories for a USP, branding is the internal one. It’s the one that has to do with the company itself. It’s the image that’s portrayed to the public and the concepts that the company associates itself with.

Burt’s Bees is known for its all-natural beeswax lip balm. But, they actually have over 350 natural body care products. Burt’s Bees’ philosophy is “what you put on your body should be made from the best nature has to offer.“ They’ve worked hard to brand themselves as a natural and healthy alternative in an industry that uses a lot of unsavory ingredients in its products.

5) Customer avatar

Sometimes companies are defined by their customers. Their customer avatar is their image. Of the two perception-based USP categories, this is the external one.

There are lots of companies that could be considered as “defined by their audience.” Lululemon is an example that comes to mind. Typically if someone is a Lululemon customer you can picture in your mind some of their demographic characteristics. They’re probably, white, young, suburban, women from above-average income households. Whether Lululemon chose that demographic, or it chose them is debatable.

Now look at the competition

Since the goal here is to determine your unique selling proposition, you’re going to have to size yourself up against the competition.

The most straightforward way to do that is to lay out your information in regards to the five categories of uniqueness and compare it side-by-side with your competitors. After you’ve examined the competition’s products, customer service, pricing, branding, and custom avatars then you will have a very good idea of what it will take to be unique. More importantly, you should have an idea if that uniqueness can put you in a position to be successful.

See below for an example of how the comparison might look.

An example of USP in a business plan

If this is the first Spreadsheets for Business business plan post you’ve read then let me bring you up to speed.

For all of the business plan posts I’ve written, I attempt to apply the subject at hand to a hypothetical startup. This hypothetical business would manufacture and distribute an all-natural, topical, hair regrowth supplement.

Previously, by going through the market analysis steps, I’ve learned that there may be an issue with market saturation in this space. An issue that might not make this a feasible business. But, for the sake of consistency I’ll stick with the same business idea when examining the topic of why a market analysis is important in a business plan.

In previous market analysis posts, I outlined what problems I thought my hypothetical product would solve . I also addressed some of the strengths and weaknesses of my product and business model. So, here, I’ll take the opportunity to walk through the five categories of uniqueness and what my potential business might look like when stacked up against the existing competition in that space.

So, what conclusions can I draw from this?

For starters, I’ll know that getting (authentic) positive reviews will be crucial to get my business off the ground. Additionally, it will probably be best to leave the customer service up to the retailers – at first anyways.

In order to justify my pricing, I’m going to have to place a huge emphasis on my unique ingredients. That’s my rough USP, for now. A “one of a kind” formula.