A key component in any business plan, your market analysis demonstrates that you know your market is ideal for building a sustainable business. When you understand your potential customers and market conditions, you’ll reduce your risk because you’ll have a better chance of developing a viable product or service.
Having a thorough market analysis will also protect you from wasting resources and time on creating a product or service before you’ve determined if the solution is even needed. It will also solidify that your product or service’s need is significant enough that people will pay for it.
So how do you write the market analysis of a business plan?
First, it’s essential to understand what a market analysis is. A quantitative and qualitative assessment of a market, your analysis identifies:
- the size of the market both in volume and in value
- the various customer segments and their buying and shopping patterns
- your competition and their challenges and successes
- what makes you different from your competitors
- the economic environment in terms of barriers to entry and regulation
How to Write the Market Analysis of a Business Plan
Now that you are familiar with what a market analysis is, it’s time to start putting it together. The Internet can help uncover information about your competition and ascertaining market research details. So can considering your analysis from the eyes of your customer. Ask yourself, “What is the problem that needs to be solved? How can I solve it differently than my competitors?”. Alternatively, you can send out surveys and conduct focus groups.
Here are the sections that should be considered:
- Industry Description and Outlook
- Target Market
- Market Need
- Competition and Barriers to Entry
Industry Description and Outlook
When assessing your market size, your approach will vary depending on the type of business you are selling to investors. You may need to take a local approach or assess the market on a national level. You may also need to divide the market into different segments, primarily if you or your competitors focus on specific segments. Segments may include:
- Market volume (the number of potential customers), trends, life cycle, and growth
- Potential customer
- Market value (may need to estimate using the bottom-up approach or top-down approach)
- Pricing and gross margin (the difference between your costs and the sales prices)
When you are figuring out how to write the market analysis of a business plan, the type of customers you target within the market needs to be specific and front and centre, particularly when your market has clear segments with different demand drivers.
We recommend including your customers’ age, gender, income level, location, and lifestyle preferences. Also, it’s beneficial to include the size of your target market, the purchase potential and motivations of your customer, their interests and buying habits, how you intend to reach your market, and how you are uniquely positioned to fulfill those needs.
This section is critical in showing your potential investor that you have an intimate knowledge of your market. It should prepare the reader to embrace your positioning and invest in your company before reaching your plan’s strategy section. Here you want to focus on the details that drive the demand for your product or services and your competitive edge (without mentioning it explicitly), including:
- an overview of any market research results you conducted, with detailed breakdowns and analyses included in the appendix.
- The amount of time it takes for an order to be fulfilled once a customer makes a purchase.
Competition and Barriers to Entry
In this section, your goal is to give an accurate view of who your direct and indirect competition is, their positioning, and their strengths and weaknesses. To do this effectively, you want to analyze your competitor’s angle to the market (price, quality, add-on service, etc.) to find a weakness that your company can then use in its market positioning. You also want to mention any potential roadblocks preventing you from entering the market, also called barriers to entry.
In considering what your barriers to entry are, consider the following:
- Investment (particularly projects that require a substantial one)
- Technology (for high ticket items)
- Brand (the marketing costs needed to reach a certain level of recognition)
- Regulation (particularly licenses and concessions)
- Access to resources (exclusivity with suppliers, proprietary resources)
- Access to distribution channels (exclusivity with distributors, proprietary network)
- The window of opportunity (for example, does your entry into the market rely on time-sensitive technology?)
If regulation is also a barrier in your sector, you may merge this section with the former. Otherwise, you will want to use this section to explain the principal regulations applicable to our business and which steps you will take to remain compliant. Are there any specific governmental regulations or restrictions on your market? You will also want to address the costs of compliance, especially if you seek investment or money from a lender, and the arrangement needs to be legally squared away and above board.
Do I Need to Write a Market Analysis?
Depending on the goal of your business plan and its audience, the structure and needs of your plan may vary. For example, if your business is relatively small and you know your customers well, you may not need a deep, formal market analysis. Or, if you’re writing the plan for internal use only, rather than to secure a loan or funding, you may not need to worry about spending hours reviewing industry data to corroborate your financial forecast.
Perhaps you are still struggling with what makes your business different from your competitors, or you’ve only made, but not tested, some assumptions about who your customer is. In that case, we’d recommend doing at least an abbreviated market analysis. Finally, suppose you’re using your plan to seek funding. In that case, a market analysis is essential in convincing your audience that your business idea has the facts and numbers to back it up.
When writing the market analysis for your business plan:
- Take the time to assess the value of this information for your business. You want to ensure your business plan demonstrates that you are solving a real problem and that your target audience wants your solution and will pay for it.
- Use visual aids to illustrate the most important numbers, making the information easier to grasp.
- Try to be concise by including the most critical data, results, moving the supporting documentation and statistics to the appendix.
- Always relate to your business, products and services.
Knowing how to write the market analysis of a business plan, even though it can be time-consuming to pull all the research and numbers together; in the end, will reward you with dollars earned and the headaches avoided. It also positions you and your business as professionals, giving you a leg up on your competition who may not demonstrate the same due diligence. Having the market analysis also means that you’ll be able to build what your customers deserve most – the best solution possible for their problem.
A Bsbcon Market Analysis for Your Business Plan
At Bsbcon, our team of experienced business consultants are available to support you in creating a market analysis that will support your business. We have years of experience in working with SMEs to break through the barrier of their industry. We partner with companies to tackle their most significant challenges and capture their greatest opportunities. Contact us today to get started!