How to Write a Business Plan: Target Market Analysis

The Importance of a Business Plan and Identifying the Target Market

A business plan and target market analysis are essential parts of your business strategy. They serve as a comprehensive examination of the ideal individuals you intend to sell your products or services to.

Even if you plan to sell a product or service only in your community, you won’t be selling that service to everyone who lives there. Understanding the type of people who may be interested in purchasing your product or service and how many there are in the expected area or region is crucial in creating your market analysis.

Once you identify the target market data, you will also work on sales forecasts within a specific timeframe and how the potential sales can be influenced by trends and policies.

Conducting Market Analysis

Research is key and foundational to any strong business plan. Do not skip this step!

Use these general terms as key tools in the research data for the market analysis section of your business plan and for identifying your target market:

Age: What age range do you target with your products/services? Children? Adults? Seniors? Millennials?
Gender: Are you targeting men, women, or both genders?
Marital Status: Are your targeted customers married, single, or divorced?
Family: What is their family structure (number of children, extended family, etc.)?
Location: Where do they live? Are you selling locally? Regionally? Nationally or internationally?
Education: What is their education level?
Income: What is their income?
Occupation: What is their job?
Religion: Are they members of a specific religious group?
Language: Are they members of a specific language group?
Lifestyle: What is their lifestyle like?
Motivation: What drives them?
Size: What is the size of the target market?

But don’t stop here. To succinctly define your target market, survey potential customer members and ask them specific questions related to your products or services. For example, if you plan to sell computer-related services, ask how many computers potential customers own and how often they need repairs. If you plan to sell garden furniture and accessories, ask what types of furniture and accessories potential customers have bought in the past and how often, what they expect to buy in the coming year, over the next three years, and over the next five years.

The answers to these and other questions related to your market will help you understand the prospects of your market.

Surveying Your Target Market

The goal of the information you collect is to help you forecast the quantity of product or service you can sell. Review these important questions that you need to attempt to answer using the data you collect:

What percentage of the target market has used a product similar to yours before?
How much of your product or service can the target market buy? (Estimate that in total sales and/or in units of the product/service sold.)
What percentage of the target market may be repeat customers?
How might the target market be affected by demographic changes?
How might the target market be affected by economic events (such as a local factory closure or the opening of a big store in the local area)?
How might the target market be affected by larger social and economic trends?
How might the target market be affected by government policies (such as new laws or tax changes)?

Writing the Market Analysis

The purpose of the market analysis is to ensure that you have a viable business idea. Use your market research to ensure that people not only like your business idea but are also willing to pay for it.

If you have information suggesting that you have a large enough market to achieve your business goals, write the market analysis in short paragraphs using suitable headings for each paragraph. If you have several target markets, you may want to number each one.

Your market analysis sections should include:

Description of the industry and future outlook
Market
Target
Market Research Results
Competitive Analysis

Remember to cite your information sources within the body of the market analysis as you write it. You and other readers of your business plan, such as potential investors, will need to know the sources of the statistics or opinions you gathered.

Online Market Research Tools

There are many online resources to determine if your business idea is worth pursuing, including:

Keyword searches can give you a general idea of the potential demand for your product or service based on the number of searches.
Google Trends can inform you about how the number of searches has changed over time.
Social media campaigns can give you an idea of potential customer interest in your business idea.

Online Market Research Sources in the United States

The Small Business Administration (SBA) provides information on conducting market research and analysis, as well as a list of free data and trend resources for small businesses that you can use to conduct your research. Consider these resources to gather data:

Small Business Administration (SBA) business data and statistics
The U.S. Census Bureau maintains a vast database of demographic information that can be searched by state, county, city, or zip code using its census data tool. Community, housing, economic, and population surveys are also available.
The Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce has comprehensive statistics on the economy including income, spending, consumer and business consumption, GDP, and much more, which can be searched by location.

Online Market Research Sources in Canada

The Government of Canada provides a guide on conducting market research and tips for understanding the data you collect. Canadian data sources include:

Statistics Canada provides demographic and economic data.
The Business Development Bank of Canada (BDC) offers market research and consulting with industry experts.
The Business Network in Canada provides business information for entrepreneurs by province/territory, including market research data.

Local Market Research Sources

There are also many local sources for building targeted market information, including:

Local library
Local chamber of commerce
Trade council
City municipality
Economic development center
Local government agent’s office
Local business department
Local phone directory

All of these sources will contain useful information to define your target market and provide insights into trends.

Conducting Your Market Research

The resources mentioned above are secondary sources of information, as others have gathered and compiled the data. For specific information about your business, you may want to conduct your own market research. For example, you might consider designing a survey and polling your target market to learn more about their habits and preferences regarding your product or service.

Market research can be time-consuming but is an essential step to validate your business plan. If you lack the time or research skills to precisely define your target market, hiring someone or a company to conduct the research on your behalf may be a wise investment.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we fact-check and maintain the accuracy, reliability, and quality of our content.

Small Business Administration. “Market Research and Competitive Analysis.” Accessed January 13, 2020.

Source: https://www.thebalancemoney.com/how-to-write-a-business-plan-section-3-2947029