How to Write a Market Analysis
Once you start selling, will people start buying? Analyze your market to find out. The market analysis is one of the most important parts of any startup strategy. Do it right, and you will have a clear idea of the path down which you are headed. A good market analysis will enable you to lure investors, sidestep pitfalls, and most importantly, attract customers.
Bear in mind that all businesses starting out are different, and they may be creating business plans and strategies for different reasons or audiences. If your business is quite small and you know your customers inside and out, this may not be the best use of your time. If this is an internal plan, and there isn’t a need for industry data to corroborate your forecast, a market analysis may not be necessary. Be sure to assess the value of this information for your business, and act accordingly.
If you are seeking funding, market analysis is going to be key data to convince your audience that your business idea has the facts and hard numbers to back it up. With that said, let’s explore the details of writing a market analysis.
What is a Market Analysis?
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.
Market Analysis and Your Business Plan
It’s smart to write a business, especially if you are beginning a new business venture. Even if you’re a sole proprietor or don’t intend to borrow any money to get your business off the ground, it’s important to have a clear plan in place. The market analysis isn’t just one part of a successful business plan—it’s one of the best reasons to write one.
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 for 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 prohibitively high, or can anyone enter your market? This is where you examine your weaknesses. Be honest, with investors and yourself. Being unrealistic is not going to make you look good.
- Window of opportunity: Does your entry into the market rely on time-sensitive technology? Do you need to get in early to take advantage of an emerging market?
How to Acquire the Data for Your Market Analysis
Market analyses vary from industry to industry and company to company. The hard truth is that some of the information you wish to include may not be publicly available. A little 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:
- 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. - https://www.census.gov/
- Business.gov: The go-to place for national industry information, as well as links for state and local resources. - http://business.usa.gov/
- 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. - http://www.bls.gov/
- 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. - http://www.commerce.gov/
About the Author Michael Kerr began his professional life as an entrepreneur. He built and managed a number of successful businesses before returning to school to indulge his passion for writing.