When writing a business plan, the market analysis will be a crucial element. It’s the section that shows potential investors you know your industry and that your business is based on solid assumptions and projections that support a realistic vision for your business.
Here’s what a market analysis should include:
Industry Description and Expectations for the Future
Show investors you know your stuff. Describe the industry including its size, history, past growth rates, and projections for future earnings. List the larger customer groups within your industry.
Identify Your Market
Don’t make the error of many small businesses who try to be all things to all customers within your industry. Pinpoint your target market and be sure it’s of a size that your business could reasonably be expected to successfully serve.
Significant Characteristics
This section will outline the critical needs of customers and will describe to what extent those needs are currently being served. It will identify the demographics of the customer groups and indicate where they are located. It will also outline any cyclical or seasonal trends that may play a role in your business.
Size of the Primary Target Market
After you’ve pinpointed your market, ask yourself what data or statistical information you can provide that supports its potential. Make note of its current annual purchase power and of the projected future growth rate.
Market Share
Here’s where you discuss your particular expectations for your business. Include the market share you believe your business can achieve within a set geographic area and explain how you’ve arrived at this projection.
Pricing
Outline your pricing plan for your products or services, gross margin levels and any discounting plans you have.
Know Your Competition
Show you know who your competitors are and what they are doing. This analysis will include such information as the product or service they provide, their market share, their strengths and weaknesses and how much their business relies on the target market you also plan to serve.
This section also will identify secondary or indirect competitors that may impact your business. In addition, you should identify any factors that could be obstacles on your company’s road to success. These would include such items as a shortage of trained workers or changing technology.
Regulatory Restrictions
Identify any governmental regulatory restrictions that will impact your business and how you plan to meet those. Also, make note of how complying with those regulations will affect your business in terms of cost or operations.