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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.
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.
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.
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.
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.
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?
One of the most important parts of your market analysis is the competition. When researching your potential competitors, consider the following things.
Strengths and weaknesses: When studying the competition, be sure to look at both their strengths and their weaknesses.
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.
Once you’ve completed your market analysis, it’s time to analyze your findings and start planning.
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.
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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