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Market Analysis – How to Write a Business Plan : Part 2 of 8
The Market Analysis portion of your business plan is a means for showing your knowledge of the industry your business is involved in. This is where your market research will come into play. And you’re going to have to do a lot of work for this portion.
Start by studying, very thoroughly, your industry market and gathering as much information as possible. Additionally, you will need to conduct market tests of your product/service and compile that information. While the data and information you collect is crucial, this portion of your business plan will only cover the highlights and conclusions of all of your diligent work. The bulk of the information, as we will later see, will be contained within the Appendix section of your business plan.
You will first need to describe the industry your business is, or is hoping to be, a part of. This portion should include information on the current size and stage of the industry, the industry’s growth history, its projected rate of growth, the industry’s trends and characteristics, and who the target market is that makes up the industry.
The most important piece of advice that I can give you for this section is to keep your target market manageable. All too often, people try and include far too many demographics in their target market and find that they just can’t accomplish their goal of reaching everyone.
Once you have determined who your target market is, you will need to specifically define it by the following aspects:
1. Distinguishing Characteristics — what makes your target market special, including the location of the individuals and seasonal/cyclical trends.
2. Size — the number of potential customers your target market contains and the average annual purchases of your product/service they make.
3. The percentage of market shares you expect to obtain.
4. Pricing — how much your customers will be charged for your product/service (including any discount structures, such as purchasing in bulk or annual sales) and your gross margin levels.
5. Resources — how/from whom you obtained your information about your target market.
6. Media — what media outlets you will use to advertise to your target market (i.e. television, radio, billboards, fliers, newspaper ads, etc.)
7. Need/Solution — identify the needs of your target market; research and evaluate possible solutions; and identify who within your company has the authority to choose which solutions your business will be implementing.
8. Trends & Changes — what trends and changes may effect your target market and how well they respond to your product/service.
This portion should contain information regarding the results, and only the results (the rest, again, will go in the Appendix) of the market test for your product/service. Consider adding charts to help make your results more clear.
Analysis of Competition
In order to properly know what you face in the market your business caters to, you need to know about your competition. First, specifically identify who your competition is. Then, identify their weaknesses. These are the things they lack that your business can provide.
Also, identify their strengths, such as satisfying the needs of the target market, holding a large portion of the market shares, having customer recognition and a solid reputation, financial backing, and a strong staff. Remember that these strengths will be part of the barriers for your business being successful in the market.
Finally, identify the other barriers that may hinder the immediate success of your business. Some of these barriers may include: high investment costs, time, lack of staff, customer loyalty elsewhere, and existing patents/trademarks you have to work around..
Finally, list any federal or state restrictions and regulations that your business will have to meet, if applicable. Include the time and cost required to meet them. Identify how you will comply with these restrictions/regulations and how doing so will affect your business (whether positively or negatively).
I realize that this is a lot of information, and it’s only the beginning. Let it soak in a bit. Tomorrow we will cover the second and third portions of a Business Plan, the Company Description and Organization & Management.
Business Plan – Part 1: Overview
Business Plan – Part 2: Market Analysis
Business Plan – Part 3: Define Organizational Structure & Management
Business Plan – Part 4: Define Strategies, Service & Product Line
Business Plan – Part 5: Funding Request & Financial Information
Business Plan – Part 6: Executive Summary, Table of Contents and Appendix
Business Plan – Part 7: Common Business Plan Mistakes
Business Plan – Part 8: Obtaining a Business Loan
Related Small Business Buzz Posts:
Funding Request & Financial Information – How to Write a Business Plan : Part 5 of 8
Define Strategies, Service & Product Line – How to Write a Business Plan: Part 4 of 8
Overview – How to Write a Business Plan : Part 1 of 8
Define Organizational Structure & Management – How to Write a Business Plan : Part 3 of 8
4 Ways to Keep Up on Industry Trends