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. It is a detailed overview and analysis of target demographics and buying trends, industry competition, and the overall health of the economy. This includes challenges in the industry.
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 in preparing 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.
These 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.
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This article offers general information only 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 Royal Bank of Canada or its affiliates.