Market analysis is anything but empty lingo. It’s really exactly what it sounds like: determining the characteristics unique to your particular market and analyzing this information, which will help you make decisions for your business. By conducting a market analysis, you will be able to gather valuable data that will help you get to know your customers, determine appropriate pricing, and figure out your competitors’ vulnerabilities.
The time you spend doing the research and putting it all together will come back to you many times over in dollars earned and heartbreaks avoided. You’ll look like a professional, and you’ll outshine the competitors that didn’t write one.
A market analysis can be a measuring stick you use over time to see how far you’ve come, and it allows you to make projections based on data rather than guesswork. Because you’ll know the size of the mountain you’re about to climb, you’ll be able to pace yourself and prevent problems in the future.
What to include in your market analysis
Your market analysis should include an overview of your industry, a look at your target market, an analysis of your competition, your own projections for your business, and any other factors that could affect your business.
Industry description and outlook
This is where you’ll discuss the current state of your industry overall and where it’s headed. Relevant industry metrics like size, trends, life cycle, and projected growth should all be included here.
It’s important to establish a clear idea of your target market early on. A lot of new contractors make the rookie mistake of thinking that everyone is their potential market, they’re not.
By narrowing in on your real customers, you’ll be able to direct your marketing dollars efficiently while attracting loyal customers who will spread the word about your business. The target market section of your business plan should include the following:
- User persona and characteristics: You’ll want to include demographics such as age, income, and location here. You’ll also need to dial into your customers’ psychographics as well. You should know what their interests and buying habits are, as well as being able to explain why you’re in the best position to meet their needs.
- Market size: This is where you want to get real, with yourself. Do your research and find out who and where your competitors are, and how much your customers spend annually on your product or service. How big is the potential market for your business?
Here is where you get to dissect your competitors, which is important for a couple of reasons. It’s a good idea to know what you’re up against, but it lets you spot the competition’s weaknesses too. Are there customers out there being underserved? What can you offer that similar businesses aren’t offering? The competitive analysis should contain the following components:
- Market: How big is the market for goods and services similar to what you plan on offering? What’s the growth rate? Include the general outlook and trends in this market. Who are your main competitors? Are there any secondary competitors who could impact your business?
- Competitor strengths and weaknesses: What is your competition good at? Where do they fall behind? Get imaginative to spot opportunities to excel where others are falling short.
- The importance of your target market to competitors: Ideally, you’re going after customers whose needs aren’t being met by your competitors.
- Barriers to entry: What are the potential pitfalls of entering your particular market? What’s the cost of entry—is it high, or can anyone enter your market? This is where you examine your weaknesses. Be honest, with yourself. Being unrealistic is not going to make you look good.
- Window of opportunity: Does your entry into the market rely on timing? Do you need to get in early to take advantage of an emerging market? Contractors need to think seasonally.
- Market share: When you know how much money your future customers spend, you’ll know how much of the market you have a chance to grab. Be practical, but don’t sell yourself short.
- Pricing and gross margin: This is where you’ll lay out your pricing structure and discuss any discounts you plan to offer. Your gross margin is the difference between your cost and the sales price. Be realistic yet optimistic. Optimistic projections not only serve as a guide, they can be a motivator.
How to acquire the data for your market analysis
Market analyses vary from industry to industry and company to company. The truth is that some of the info you wish to include may not be available. An estimation is okay, but the bulk of your numbers need to be based on facts. Here are some good places to start your market research:
- Your current customers: If your business is up and running, your current customers are an invaluable resource. They are your existing market. You can use online surveys or social media to gather feedback about buying habits, needs, and other info
- U.S. Census Bureau: Here’s where you’ll find demographics you can use to figure out your market share. There is plenty of other information you can use in your market analysis here as well.
- Business.gov: The go-to place for national industry information, as well as links for state and local resources.
- U.S. Small Business Administration: The SBA offers industry guides, development programs, and local resources, as well as loan guarantees when the time comes.
- Bureau of Labor Statistics: The BLS is the place to find out where your industry has been and where it is headed.
- Commerce.gov: The U.S. Department of Commerce has a lot of good general information that you may be able to use, depending on your industry.
- Internet: You can do internet searches to find information. As always, there’s a lot of stuff out there, so make sure you’re depending on reliable sources. For your market analysis, Wikipedia won’t work.
What is market research?
Market research sounds like a complex process. But, it’s actually really simple: it’s the process of learning about your potential customers. Who are they? What are their buying and shopping habits? How many of them are in your market area?
I’ve made plenty of mistakes in my career. Some mistakes were hard to avoid, but some of the biggest and most expensive ones could have been dodged by simply doing a little homework.
If you really care about your business and want to learn how to better market your business, check back tomorrow for part 2 of the series.
Need help with your marketing? Call 800-771-9671 for a free consultation.