When writing your business plan, the market analysis section comes after you have provided information about your company structure, objectives and products or services. As with every other part of the document, you need to make sure it presents the information investors want to know and showcases the potential of your business.
The market analysis focuses on the market you are looking to target, as well as the opportunities there and the barriers that may prevent you from positioning yourself in it. Your aim should be to prove you are entering a market where there is room for your business to succeed.
The market analysis section matters as it dictates the capacity to generate demand. This links to your revenue and profit – which will affect the return on investment your shareholders receive. It will also show the competitors you might have to ‘beat’ to grow your market share and help to outline the tactics you will use.
Below, we have explained what to include in your market analysis and our top tips for writing it.
What to include in the market analysis section
Your primary focus in the market analysis should be to explore the market you are looking to target with your products and services. You need to know this audience well to effectively engage them and convert them into customers, so be sure to provide in-depth information about them to prove your understanding to investors.
When discussing your target market, explain the people who may be in it, their challenges, and the gaps that need to be filled. Use demographic data to offer insight into what your customers will look like – this will come in handy later when you discuss how you will approach them. You might also want to look at the typical spending of customers in your market, as this will show the revenue potential and shape your pricing model.
Next, you need to explore the obstacles to the market. This could include competitors that already saturate the area or, if you are pursuing a new market, the risks and considerations to consider when serving that niche. Your ultimate aim should be to highlight how you will overcome the barriers and establish a strong position.
List your key competitors and analyse their place in the market, including the size of their customer base, sales, successes and failures. You will also need to identify any gaps they have left, which will help you gain an edge and improve on their offering.
You’ll also want to discuss seasonality if that affects your market. Make it clear if sales tend to increase at a certain point of the year (such as Christmas) but fall at another, but emphasise how you will handle this. This could mean employing new strategies to increase sales at off-peak times or efficiently managing cash flow throughout the year.
Next, you will want to include any industry trends that may impact the long-term running of your business. This includes contemplating how the market may change over time as new competitors enter it or customer behaviour changes and how you will adapt your operations to remain resilient. This will prove the longevity of your business, which investors will be looking for.
Finally, include any market research you have undertaken that provides more context to your target audience. This could include surveys, case studies and focus groups where you have heard from would-be customers. By including their thoughts and opinions, you can give investors real-life insight into how customers feel about your brand and its need in the market.
Our top tips
Now that you know what to include in the market analysis section of your business plan, it’s time to focus on writing it in a way that guarantees your chances of success. Below, we have listed our top tips for crafting market analysis that compels investors and proves the worth of your business.
It’s not enough just to make assumptions about your market. You need to substantiate any claim you make, which means carrying out research to back up your thoughts.
Examples of research include market data and statistics, competitor analysis, industry reports and customer research, such as surveys and interviews. Some data may be found online through industry bodies or other businesses, though you may have to do some yourself, particularly if you are looking at a new untouched new area.
Spend time on your research to make sure you are looking at the big picture and that your strategies mirror the realities of the market. This will help you to make a convincing argument to investors and answer any queries they have confidently.
Take a customer perspective
As we’ve already mentioned, you need to know your target buyers well to effectively tailor your approach to their needs and convert them into loyal customers. Once you have gained insight about them and what they want, you need always to consider their perspective.
By looking through the eyes of a customer, you will be able to determine what they want from the market and what’s missing. You’ll also focus on the products and services they need and how they want to be offered them.
This will help you refine your value proposition and align strategies to ensure you meet and exceed their expectations, allowing you to secure revenue through repeat sales and word-of-mouth.
Use visual representation
If you are discussing data, whether it’s about your competitors, customers, trends or market in general, it can help to include visuals to better represent the argument you are trying to make. This could consist of graphs, charts or infographics that demonstrate key points about the market.
Including visuals can also be welcome as it’s likely your business plan comprises large sections of text. So, including imagery or graphs can help break up the document and make it more engaging for the investors reading it.
Although the market analysis is dedicated to exploring your market, everything in your plan should boil down to it. Your value proposition should generate demand for your market. Your operational strategies should align with the needs and preferences of the customers in the market. Your finances will also be dictated by the economic potential of your chosen market, including how much customers want to spend and who is available to provide you revenue.
As such, you must ensure that everything marries up across your plan. This will connect all sections and allow investors to see that you have a solid understanding of how the market affects your entire business.
Due to its ability to drive your demand, sales, profit, and your longevity, the market behind your business idea is significant. Investors will want to see promise in the market, with plenty of potential customers to target. This indicates room for profit and growth, resulting in a great return on investment. They’ll also want to understand the barriers and competitors there and how your business can overcome them.
By providing complete insight into the state of the market, you can inform investors of the opportunities available and showcase the value your business can offer. It can also provide the rhyme and reason for the rest of your business plan, enabling you to refine your ideas and tactics to carve out your position in the market effectively. This, in turn, will convince investors of your future success.
If you need help in crafting your business plan, we can help. Our advisors have worked with several SMEs to get them ready for investment, including preparing documentation, and we can assist you in your journey.
Get in touch today to find out more.