how to do market analysis for business plan

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How to Conduct a Market Analysis for Your Business

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A market analysis can help you identify how to better position your business to be competitive and serve your customers.

Table of Contents

A market analysis is a thorough assessment of a market within a specific industry. These analyses have many benefits, such as reducing risk for your business and better informing your business decisions. A market analysis can be a time-intensive process, but it is straightforward and easy to do on your own in seven steps.

To perform a market analysis for your business, follow the steps outlined in this guide.

What does a market analysis include?

In a market analysis, you will study the dynamics of your market, such as volume and value, potential customer segments , buying patterns, competition, and other important factors. A thorough marketing analysis should answer the following questions:

• Who are my potential customers?
• What are my customers’ buying habits?
• How large is my target market ?
• How much are customers willing to pay for my product?
• Who are my main competitors?
• What are my competitors’ strengths and weaknesses ?

What are the benefits of running a marketing analysis?

A marketing analysis can reduce risk, identify emerging trends, and help project revenue. You can use a marketing analysis at several stages of your business, and it can even be beneficial to conduct one every year to keep up to date with any major changes in the market.

A detailed market analysis will usually be part of your business plan , since it gives you a greater understanding of your audience and competition. This will help you build a more targeted marketing strategy.

These are some other major benefits of conducting a market analysis:

• Risk reduction: Knowing your market can reduce risks in your business, since you’ll have an understanding of major market trends, the main players in your industry, and what it takes to be successful, all of which will inform your business decisions. To help you further protect your business, you can also conduct a SWOT analysis , which identifies the strengths, weaknesses, opportunities and threats for your business.
• Targeted products or services: You are in a much better position to serve your customers when you have a firm grasp on what they are looking for from you. When you know who your customers are, you can use that information to tailor your business’s offerings to your customers’ needs.
• Emerging trends: Staying ahead in business is often about being the first to spot a new opportunity or trend, and using a marketing analysis to stay on top of industry trends is a great way to position yourself to take advantage of this information.
• Revenue projections: A market forecast is a key component of most marketing analyses, as it projects the future numbers, characteristics and trends in your target market. This gives you an idea of the profits you can expect, allowing you to adjust your business plan and budget accordingly.
• Evaluation benchmarks: It can be difficult to gauge your business’s success outside of pure numbers. A market analysis provides benchmarks or key performance indicators (KPIs) against which you can judge your company and how well you are doing compared to others in your industry.
• Context for past mistakes: Marketing analytics can explain your business’s past mistakes or industry anomalies. For example, in-depth analytics can explain what impacted the sale of a specific product, or why a certain metric performed the way it did. This can help you avoid making those mistakes again or experiencing similar anomalies, because you’ll be able to analyze and describe what went wrong and why.
• Marketing optimization: This is where an annual marketing analysis comes in handy – regular analysis can inform your ongoing marketing efforts and show you which aspects of your marketing need work, and which are performing well in comparison to the other companies in your industry.

What are the drawbacks of running a marketing analysis?

The below drawbacks of running a market analysis pertain less to the method itself than the resources it requires.

• Market analysis can be expensive. If you’re not as familiar with marketing concepts such as market volume and customer segmentation, you might want to outsource your market analysis. Doing so can be great for your analysis’s quality, but it can also leave a big dent in your budget. Narrow your market analysis to a certain group – perhaps current customers – to lower your costs.
• Market analysis can be time-consuming. Market analysis can take precious time away from more directly business-related tasks. You can analyze one area at a time – say, buying patterns or competition – to free up your day-to-day schedule.
• Market analysis can require extra staff. Some larger companies retain in-house market analysis staff, and you can follow their lead. Doing so, though, comes with all the usual costs of hiring a new employee . The question then becomes: Do you conduct your market analysis yourself, outsource it, or hire in-house? The more expensive options can often yield more meaningful insights.
• Market analysis can be narrow. The most successful market analyses use actual customer feedback, which analysts often get through customer surveys. These surveys may reach only a portion of your entire customer base, leading to an inaccurate sample size. The result is that market analysis may not fully detail your customers and what you should know about them.

Market analysis vs. conjoint analysis vs. sentiment analysis

Where market analysis is broad and comprehensive, conjoint analysis focuses on how customers value what you offer. Surveys are often the backbone of conjoint analysis – they’re a great way for customers to share what drives their purchases. Product testing is an especially common application of conjoint analysis. This method can yield insights into pricing and product features and configurations.

Sentiment analysis goes beyond number-driven market and conjoint analysis to identify how customers qualitatively feel about your offerings. It can show you what customers are happy and unhappy about with your offerings or buying process. You can also wade into deeper emotional territory such as anger, urgency and intention, or you can dig up descriptive feedback. It’s a great tool to use alongside market analysis, whereas conjoint analysis is all but included in market analysis.

How to conduct a market analysis

While conducting a marketing analysis is not a complicated process, it does take a lot of dedicated research, so be prepared to devote significant time to the process.

These are the seven steps of conducting a market analysis:

1. Determine your purpose.

There are many reasons you may be conducting a market analysis, such as to gauge your competition or to understand a new market. Whatever your reason, it’s important to define it right away to keep you on track throughout the process. Start by deciding whether your purpose is internal – like improving your cash flow or business operations – or external, like seeking a business loan. Your purpose will dictate the type and amount of research you will do.

2. Research the state of the industry.

Map a detailed outline of the current state of your industry. Include where the industry seems to be heading, using metrics such as size, trends and projected growth, with plenty of data to support your findings. You can also conduct a comparative market analysis to help you find your competitive advantage within your specific market.

3. Identify your target customer.

Not everyone in the world will be your customer , and it would be a waste of your time to try to get everyone interested in your product. Instead, use a target market analysis to decide who is most likely to want your product and focus your efforts there. You want to understand your market size, who your customers are, where they come from, and what might influence their buying decisions. To do so, look at demographic factors like these:

During your research, you might consider creating a customer profile or persona that reflects your ideal customer to serve as a model for your marketing efforts.

4. Understand your competition.

To be successful, you need a good understanding of your competitors, including their market saturation, what they do differently than you, and their strengths, weaknesses and advantages in the market. Start by listing all your main competitors, then go through that list and conduct a SWOT analysis of each competitor. What does that business have that you don’t? What would lead a customer to choose that business over yours? Put yourself in the customer’s shoes.

Then, rank your list of competitors from most to least threatening, and decide on a timeline to conduct regular SWOT analyses on your most threatening competitors.

5. Gather additional data.

When conducting marketing analyses, information is your friend – you can never have too much data. It is important that the data you use is credible and factual, so be cautious of where you get your numbers. These are some reputable business data resources:

• U.S. Bureau of Labor Statistics
• U.S. Census Bureau
• State and local commerce sites
• Trade journals
• Your own SWOT analyses
• Market surveys or questionnaires

6. Analyze your data.

After you collect all the information you can and verify that it is accurate, you need to analyze the data to make it useful to you. Organize your research into sections that make sense to you, but try to include ones for your purpose, target market and competition.

These are the main elements your research should include:

• An overview of your industry’s size and growth rate
• Your business’s projected market share percentage
• An industry outlook
• Customer buying trends
• Your forecasted growth
• How much customers are willing to pay for your product or service

7. Put your analysis to work.

Once you’ve created a market analysis, it’s time to actually make it work for you. Internally, look for where you can use your research and findings to improve your business. Have you seen other businesses doing things that you’d like to implement in your own organization? Are there ways to make your marketing strategies more effective?

If you conducted your analysis for external purposes, organize your research and data into an easily readable and digestible document to make it easier to share with lenders.

Retain all of your information and research for your next analysis, and consider making a calendar reminder each year so that you stay on top of your market.

Making market analysis easy

If you have the time to conduct a market analysis yourself, go for it – this guide will help. If you don’t have the time, hiring an in-house expert or outsourcing your analysis is often worth the cost. Your analysis will help you figure out who to target and how – and that’s a huge part of business success.

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How to Do a Market Analysis for Your Business in 6 Steps

Written by Kate Starr

Market analysis is the process of collecting and analyzing information about your specific market.

It involves speaking to your customers, analyzing competitors, and identifying industry trends.

The result?

You’re able to:

• Make better business decisions
• Save time (and money)
• Create a better experience for your customers

In this article, we’ll go through the exact steps to perform your market analysis. You’ll also learn how to overcome the challenges that come with it.

Step 1: Define Your Purpose

Giving your research a purpose helps you focus on gathering crucial information for your business with fewer distractions.

Think of it like setting off on a road trip.

Without a destination in mind, you’re likely to end up driving aimlessly.

When you’re unclear about why you’re doing a market analysis or what you want to find out, you risk collecting irrelevant information.

And you might miss what really matters for your business.

So, how do you define the purpose of your market analysis?

First, identify the information you want to learn. Then, use this information to set a SMART goal.

Identify Key Focus Areas

Here are some common key focus areas of market analysis:

Market Size

You’ll need to consider the overall size and potential of the market.

Especially when launching new products or developing strategies.

Target Audience

Aim to get as much information about your audience as possible.

Go beyond age, gender, and location. Understand lifestyle, interests, behaviors, and needs.

This will help you craft messages that appeal to your audience and ensure that you offer products or services they need.

For example, subreddits like r/technology or r/smarthome feature interesting discussions about technology.

If you’re running a tech blog, you could use these to understand what people are saying about specific products, brands, or trends.

Pay attention to common complaints or frustrations people express about certain gadgets. Consider how you can use these insights to improve your own products and/or messaging.

Competitors

Identify your main competitors and their strengths and weaknesses.

Analyzing competitors will help you craft your own offerings and strategy. Or find gaps in your competitors’ offerings where you can add value to your audience.

Also consider how they acquire new customers. Is it through social media, SEO , email, or ads?

(Jump to Step 4 to find this data.)

This information gives you an insight into which channels you should focus on.

Further reading: Competitor Analysis: Core Principles and How to Conduct One

Pricing Strategy

How you price your products or services will obviously affect your revenue potential.

But it will also affect how your audience perceives your products.

Is there room for another budget-friendly option in your industry? Or would it be better to introduce a high-end version to meet the needs of an underserved portion of the market?

Look at the pricing strategies of your competitors to understand which options could be best for your business.

Set a SMART Goal

Once you know what information you need to find out and analyze, you need to set more specific goals.

The SMART framework helps you set goals that are:

• Specific: Be as precise as possible about what you want to do
• Measurable: Make sure you can track your progress and know when you’ve hit your target
• Achievable: Set goals that are challenging but realistic, given your resources and timeframe
• Relevant: Ensure your goal connects to your broader business objectives
• Time-bound: Set a deadline for your goal to create a sense of urgency and help you stay on track

But what does a SMART goal look like in real life?

Imagine you run a small bakery specializing in gluten-free treats.

You’ve seen a rise in interest in healthy eating. You want to analyze the market potential for expanding your product line.

Vague goal: “I want to understand the gluten-free market better.”

SMART goal: “I want to identify the top three most popular gluten-free baked goods among people aged 25-40 in my city within the next two weeks, so I can adjust my products and attract more people to my shop.”

Do you see the difference?

The SMART goal provides a clear focus for your research and makes it easier to gather the right data.

Helping you draw actionable conclusions that can lead to results for your business.

Now it’s time to actually gather that data.

Step 2: Gather Relevant Data About the Industry

There are various ways to collect relevant market analysis data.

Industry publications and statistics are good sources of information about your industry.

A quick search for terms like “[your industry] publications” and “[your industry] statistics” can serve as a good starting point for finding these sources.

Market research reports provide in-depth analysis of specific markets or industries.

Research firms often publish reports. They offer details about market size, customer behavior, and what competitors are doing.

In other words: valuable information for your market analysis.

You can find these reports on research firm websites, government sites, Google Scholar, or in libraries.

Surveys, interviews, and focus groups let you talk to your potential customers and industry experts.

It’s a great way to get firsthand information and understand people’s motivations.

For example, survey your customers when you launch a new product asking for their feedback:

Regardless of your information source, ensure that the data you collect is valid.

Do this by checking how the data was collected and studied. Any reliable report should have a section describing the research methodology.

Similar to this:

If possible, also compare information from different sources to make sure it’s consistent.

The specific data you’ll need to collect will vary based on your goals.

But you can use the following two areas as a start:

Knowing the size of your market gives you an idea of the opportunity you have.

Simply put:

How many potential customers are out there for your product or service?

But how do you find the market size?

Based on your competitors’ data, Semrush’s Market Explorer shows you how many people are interested in your product.

You can enter several competitors into the tool, find competitors to analyze, or analyze an entire category.

The tool breaks down the market size into two categories:

Total Addressable Market (TAM) and Serviceable Available Market (SAM).

TAM reflects your business’s potential to scale.

It includes all customers. Even those who don’t need or can’t afford the product at the moment. But might need it in the future.

For example, a pregnant woman who will buy diapers in the future.

And SAM tells you how much demand there is for your product at the moment.

This is the number of people who are ready to purchase your product or service.

Industry Trends

Keeping an eye on industry trends can help you identify potential threats and opportunities.

For example, you’ll need to know whether your audience’s interest in your product or service is increasing or decreasing. Or if there are new entrants to your industry that could disrupt your current approach.

You can monitor shifts in your industry or compare demand for specific search terms with Google Trends .

Let’s say you want to decide which product to prioritize as part of your smart home tech website: smart doorbells or smart LED lights.

You can use the tool’s compare function to see how interest in these two search terms has changed over time:

In this case, interest for smart doorbell slightly exceeds the interest for smart LED lights.

But interest for smart LED lights seems to peak around the holiday season each year. This makes sense as that’s when people are decorating their houses for Christmas.

So, it would make sense to prioritize smart doorbells year-round but consider a seasonal push for smart LED lights.

Step 3: Identify Your Target Audience

The better you are at solving people’s problems, the more successful your business will be.

But first, you need to pinpoint WHO these people are.

And we’re not just talking about their age and location.

Dig deeper for an intimate understanding of:

• What specific problems they face in their daily life or within your industry
• What goals or ambitions your product or service could help them achieve
• Which social media platforms they prefer and why
• What types of content they most frequently engage with and share
• How they typically spend their time and what activities they enjoy
• What core values guide their purchasing decisions

With this information, you can craft marketing messages, design product features, and provide customer service interactions that speak directly to them.

This helps build trust and loyalty. Which can lead to sustainable growth for your business.

For example, let’s say you own a local yoga studio. Your ideal student might look something like this:

Understanding your audience deeply like this lets you tailor your marketing and yoga class offerings precisely to their needs.

In this case, you’d be appealing directly to Sarah and other busy moms like her.

This is exactly what Erica, a yoga teacher, does in the Instagram caption below:

She acknowledges the challenges and emotional rollercoaster that motherhood brings.

She also highlights how yoga has supported her through various life stages.

This resonates with moms like Sarah—seeking stress relief, self-care, and community.

You may also have multiple target personas. Especially if you offer various products or services. Or if your offering can benefit more than one group of people.

In our yoga studio example, you might also target:

• Felix, a young professional (25-35) seeking a challenging physical practice to improve their flexibility and mindfulness
• Maria, a retiree (60+) looking for gentle yoga and meditation classes to support her physical and mental well-being

Identifying and understanding these diverse personas can help you prepare a tailored yoga class schedule.

And craft different messages to attract each group of people more effectively to those classes.

But how do you identify your target audience?

And all their needs, characteristics, and preferences?

You can manually observe your existing customers or those of your competitors. Then, note their common traits.

Or, you could gather feedback from your existing audience (like blog readers or social media followers) using a tool like SurveyMonkey .

You could ask your readers about their lifestyles and struggles. Or simply what kind of yoga classes they’d like to see in your studio.

Use SurveyMonkey’s templates to build your survey questionnaire. Even build one with AI.

You can also create your own questionnaire from scratch.

Once you build your questionnaire, send it to your email subscribers, share it on social media, or promote it to your blog audience.

You can also use a marketing tool like Semrush’s One2Target to instantly access data about your target audience.

Here’s how to do it:

In the tool, enter up to five competitors’ websites in the search bar.

(Because if they’re a close competitor, you probably share the same target audience.)

Then click “ Analyze .”

You’ll see details about your audience’s demographics. Including age, sex, and distribution by location.

This helps you understand how to speak your audience’s language.

Move to the “ Socioeconomics ” tab to view your target audience’s household size, income level, employment status, and education level.

Understanding your audience’s socioeconomic situation gives you a sense of their lifestyle and budget.

If they have lower incomes, like in the example below, you may need to emphasize the value and affordability of your product.

Education level can also influence how your audience makes decisions.

A highly educated group might appreciate in-depth technical details. While others might prefer a simpler approach.

Move to the “ Behavior ” tab to understand what social media platforms they’re using.

This shows you where your audience hangs out online.

Focus your efforts on the platforms they use most. Instead of overwhelming yourself with publishing content on multiple platforms at once.

This will help you make more efficient use of your marketing budget.

Step 4: Analyze Your Competitors

Analyzing your competitors can reveal their strengths and weaknesses. This can help you find ways to stand out in the market.

But how do you do competitor analysis?

A great starting point is to review their websites and social media profiles and observe what they do.

Then, you can use tools like Semrush’s Traffic Analytics for deeper insights. You can enter up to five competitors in the tool to analyze them in bulk.

The Traffic Journey tab will reveal which marketing channels send the most visitors to your competitor’s website.

In IGK Hair’s case, we see that their primary traffic source is email. Followed by direct and then organic search.

What does this mean?

Almost 58% of traffic comes from email, which suggests that IGK is likely successful in using email marketing to get more repeat website visitors.

And 19% of website visitors directly access IGK Hair’s website. Likely through typing their URL in the browser’s search bar:

And clicking on bookmarks:

Both of these numbers mean that customers know and like IGK Hair. As they keep choosing to come back.

Around 18.6% of traffic comes from organic search—meaning their SEO strategy is working well, too.

The percentage might not sound high. But that’s 42,500 users landing on IGK Hair’s website through Google search every month .

They’re also ranking high for relevant keywords:

And attracting visitors who are actively searching for tips or services related to hair style or care.

Finally, while not a major source of traffic, IGK Hair is also investing in targeted ads to reach potential customers.

As we can see from the Google Ads Transparency Center , they have a few active ads:

When you know what channels work for your competitors, you can prioritize your marketing efforts accordingly.

Note: A free Semrush account gives you 10 searches in this tool per day. Or you can use this link to access a 14-day trial on a Semrush Pro subscription .

Step 5: Do a SWOT Analysis

A SWOT analysis helps you pinpoint what sets you apart from others. And where you might need to level up.

To do a SWOT analysis, ask yourself the following questions:

• Strengths: What are you good at? What do you do well that sets you apart from competitors?
• Weaknesses: Where could you do better? What are some things you struggle with?
• Opportunities: What trends or changes in the market could benefit you?
• Threats: What external challenges or risks could hurt your business?

Imagine you run a small, local coffee shop.

Here’s what your SWOT analysis might look like:

Step 6: Develop a Marketing Strategy

You’ve gathered lots of useful information from your market analysis.

Now you need to transform those insights into a defined marketing strategy .

This is where you map out your plan of action to reach your target audience, differentiate yourself from competitors, and achieve your business goals.

As Wesley van der Hoop , International SEO Expert and Author of To the Moon , a goal setting book, aptly puts it:

“If you can’t market it, don’t build it”

A comprehensive marketing strategy involves:

• Crafting brand messaging and tone of voice
• Selecting the right marketing channels and tactics to reach your target audience
• Establishing a budget and distributing it across your chosen channels and tactics based on priority
• Tracking your progress and optimizing your strategy

There are clearly a lot of steps here. And each step requires a lot of work on its own.

But you can learn how to do it all with this free Semrush course: How to Create an Effective Marketing Strategy .

How to Deal with Market Analysis Challenges

Doing market analysis often comes with a number of challenges.

Let’s discuss how you can overcome some of the most common ones:

Data Overload

The amount of data available across the internet can be intimidating.

Social media, market research reports, and industry publications are all great sources of information.

But it can also be challenging to deal with so much data.

Collecting reliable information is a time-consuming task, and it can be draining to try to consume all of the information in your industry.

It might even distract you from finding the data you really need.

What to Do About It

Look back at your market analysis goals, and prioritize the information you need to collect to meet them.

What are the specific questions you need to answer?

Use this question as a filter to weed out irrelevant data. Zero in on the most critical information.

Inaccurate or Biased Data

Unfortunately, not all data is reliable.

Some might be outdated. Some sources might be biased.

Some might even be incomplete or intentionally misleading.

Here’s how to differentiate good data from bad:

Various factors can influence the accuracy of your data.

For example, sampling bias. Which means the data isn’t collected from a representative sample of your target market.

Confusing questions in surveys can also skew responses. This can lead to inaccurate conclusions.

And researchers can have their own preconceptions or expectations that subconsciously influence how they collect and interpret data.

There are a few ways you can avoid relying on inaccurate or biased data.

First, look for information from well-established market research firms, industry publications, or government agencies.

• Forrester Research
• IDC (International Data Corporation)
• U.S. Bureau of Labor Statistics (BLS)
• U.S. Census Bureau

Avoid data that lacks clear sourcing or comes from biased organizations.

Pro tip: Reliable and reputable sources are transparent about their data collection and analysis methods. So, be careful if a source is vague about how they gathered their data.

Next, check the publishing date of any information you find. Since markets evolve quickly, aim for data no older than three years.

Most reports and statistics will clearly show their publication dates. Like this:

Finally, if possible, gather data from at least two sources and compare the findings.

If you find conflicting information across different sources, dig deeper to find the most reliable data. Or look elsewhere if you can’t confirm its accuracy.

Limited Resources

As a small business or a startup owner, you might have a limited budget. Or not enough people to do the analysis.

Which can make your market research seem daunting. As it can be tough to allocate enough resources to gather the right data.

While some reports may be costly, there are still free or low-cost resources to use.

So, when you start your research, check the free research reports first.

To filter your initial searches, use a Google search operator.

Let’s say you’re running a local bakery.

Since many free reports are uploaded as PDF files, you’d search something like: bakery industry statistics “PDF”

Other reports may mention they’re free. So, search: bakery industry statistics “free”

Little Information About Competitors

Small or private companies tend to have a limited online presence. Or less publicly available information.

Which makes it challenging to do competitor analysis.

Do a Google search with your competitor’s business name and see if they have some media coverage. Or any public information available on a reputable website.

Imagine IGK Hair is one of your competitors again.

Doing a simple Google search leads us to their website and social media profiles.

Go through their website, social media channels, and any online reviews.

While you’re at it, read their “About Us” pages, homepage copy, and product offerings.

Notice how they engage with customers through social media.

And what kind of posts they are publishing.

You can also use competitor intelligence tools like Semrush to understand their online strategies.

Like the Traffic Analytics tool’s traffic channels report we discussed earlier:

These data sources can help you piece together a picture of their overall online marketing strategy.

Lack of Objectivity

We all have biased opinions. Even if we don’t notice them.

These opinions can influence how we see and understand information.

This is true in market analysis too.

In market analysis, bias can lead to distorted conclusions and wrong decisions.

Try to separate your personal feelings and assumptions from the data you find.

Acknowledge your biases and ask yourself frequently: is this a fact or my perception? Then, seek additional data to ensure its objectivity. You can do this by comparing data from multiple tools.

Let’s say you want to create content about vegan brownies to attract more vegans to your bakery.

And because you’ve tried some in the past and heard your friends talk about them a lot, you think that “vegan brownies” is clearly going to be a popular search term.

However, a simple Google Trends report shows that it’s not as popular as you thought it would be. And “vegan cookies” is actually more popular:

And data from Semrush’s Keyword Overview tool confirms this. As “vegan cookies” has almost doubled the monthly search volume:

By confirming this data, and ignoring your initial biases, you can save time and resources by focusing on the tasks likely to yield the highest returns.

What to Do with Your Market Analysis

It’s true that market analysis can boost your business growth.

But data alone won’t achieve that.

You need to turn those insights into action through your wider marketing strategy.

If you’re ready to turn your market knowledge into tangible results, our small business marketing guide will show you exactly how to do it.

It’s packed with actionable tips and proven strategies to help you reach your target audience and grow your business.

🎧 Real entrepreneurs. Real stories.

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How to Write and Conduct a Market Analysis

3 min. read

Updated January 3, 2024

A market is the total sum of prospective buyers, individuals, or organizations that are willing and able to purchase a business’s potential offering. A market analysis is a detailed assessment of the market you intend to enter. It provides insight into the size and value of the market, potential customer segments, and their buying patterns.

In this section, we’ll be covering what information to include in your business plan after completing your research. If you’re struggling with the research itself, you should check out our market research resources for step-by-step guidance.

• How to write your market analysis

The information featured in your market analysis should focus on firmly defining who your customers are. Here are the two steps you need to take:

Define your target market

Finding your target market requires segmentation based on demographic and psychographic information until you reach the ideal customer. You need to address who they are and how you identified them.

Target market examples

A target market analysis is a key part of any business plan. Let’s walk you through some examples.

Determine your market size

Identifying your potential customers isn’t enough. You also need to prove that the size of the market can support your business. To do this, it’s helpful to define what’s available, serviceable, and can be obtained.

Optional information to include

The main purpose of the market analysis is to show who your customers are. While defining your target market may be enough, it can be helpful to include some of the following supporting details.

Show that you know your industry

Before starting a business, you should know the state of your industry and where it’s headed. This includes industry metrics you’ve collected, any barriers to entry, emerging trends, or common success factors.

Write a customer analysis

Conducting a customer analysis provides additional depth to your target audience. You’ll know them better and go beyond just segmentation.

Use a customer persona to describe your customers

It can be difficult for you, your employees, and potential investors to visualize who your customers are based solely on data. Creating a customer persona can bring them to life and support your target market choice.

• Why conduct a market analysis?

Conducting any sort of in-depth research can be a time-intensive process. However, the benefits far outweigh the investment—so much so that it’s recommended that you revisit your market analysis at least once a year in order to stay on top of emerging trends or changes in the market.

As part of your business plan, it demonstrates that you have a firm understanding of your customers. Here are the other benefits gained by completing a market analysis:

Reduce risk

If you really understand your potential customers and market conditions, you’ll have a better chance of developing a viable product or service. It also helps you explore if your idea will work or not. If you determine that the market size can’t sustain your business, there are too many barriers, high starting costs, intense competition, or some other factor that would lead to a higher chance of failure—you can pivot and avoid wasting your hard-earned time and money.

Better position your business

Researching the market landscape will help you strategically position your business. This may be done through pricing, specific features, production/distribution, or any other method to differentiate your business and make it more attractive to your target audience.

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Verify product/market fit

Part of positioning your business is determining if there is a sustainable market for your business. This starts with segmenting and identifying your ideal customers. It then involves a process of gathering feedback, gauging interest, and finding any sort of demonstrable traction. To learn more about finding product market fit, check out the market research section of our Starting a Business Guide.

Inform investors

Research is not only valuable for informing you as a business owner but in convincing investors and lenders that your idea is worth funding. In many ways, the fact that you spent time pulling together viable information is just as important as the information itself. It shows that you care about finding success as a business owner and are willing to put in the work, even at this early stage.

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

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