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How to Write a Market Description
Last Updated: August 20, 2020 References
This article was co-authored by Michael R. Lewis . Michael R. Lewis is a retired corporate executive, entrepreneur, and investment advisor in Texas. He has over 40 years of experience in business and finance, including as a Vice President for Blue Cross Blue Shield of Texas. He has a BBA in Industrial Management from the University of Texas at Austin. There are 9 references cited in this article, which can be found at the bottom of the page. This article has been viewed 153,775 times.
When starting a company, it is important to determine who your potential customers are and what their needs look like. You must get a handle on the market. Who are your main competitors and what could you do better or differently? Writing a market description is a good way to place your product appropriately. Potential investors and customers will garner a better sense of how your product fits into its target market. Although you may have other instances where you need to write a market description, the most common is as part of a general business plan .
Doing Market Research
- Before writing a market description, be aware of the “iceberg principle.” The majority of the iceberg is underwater. This represents your research time and spent energy. Only the tip is visible. The small tip is your output, e.g., website, advertising, brochures, and business cards.  X Research source
- Your market description forms part of your business plan overall. For tips on writing a thorough business plan, see Write a Business Plan .
- For example, let's say you are starting a high-end laundering service. Your customers could be professional workers with high amounts of disposable income. They are both men and women, some with children and some without children. Your customers like to spend their time with their families and working out or taking cooking lessons. What they lack is free time.
- Your potential customers would probably not include families with low amounts of disposable income, individuals who work at jobs that don’t require high-end laundering of their wardrobe, etc.
- Do some demographic research on your area. The SBA is a good place to start, but chambers of commerce and other offices in your community can also help. How many people matching the description of your target market live in your area? Do they tend to live in one area, or spread out?
- For instance, your competitor could offer laundry services with delivery. Customers are annoyed, though, that they have to drop off their laundry. Could you create a profitable model that combines pick-up and drop-off delivery services?
Writing your Description
- For example, "Petra’s Pick Up and Drop Off Laundry offers a full range of laundry services, e.g., washing, drying, ironing, dry cleaning. Our business prides itself on being the only business in the Luxesville area that offers both pick up and drop off delivery services."
- For example: “Our market research has shown that there are too few laundry services available to Luxesville’s highly professional population. Only two businesses exist for a population of 125,000 people and they are both located in the same neighborhood. We would like to offer our services in the up-and-coming south end of the city where young, busy professionals are flocking. Because of market trends, we anticipate demand for our services will increase by 20% in the next two years."
- For example, you might write: “Because 80% of Luxesville’s residents work over sixty hours per week and thus have limited free time, laundry services are particularly attractive. Additionally, as the median income in Luxesville is $175,000, we ascertain that residents have enough disposable income to afford our services. 60% of those workers earning above the median income are women, meaning that this area has a large number of professional women. In fact, only 14% of households have a stay-at-home spouse. This means the traditional relegation of laundry to an at-home partner is less likely to occur. We plan to target professional households with high disposable income between the ages of 25-55.”
- For example, “Luxesville’s professional population is highly educated, overworked, and extraordinarily stressed. Many of these people value any free moment of time they have to exercise, spend time with their children, or visit restaurants. They do not want to waste time on mundane tasks like grocery shopping or laundry. They are frustrated that the only laundry services available require customers to drop off their laundry during business hours of 8 a.m. to 6 p.m. Many of these professionals are not home until 8, 9, or 10 p.m. Thus, having the ability to have their laundry picked up and dropped off and to order such services online is a huge attraction.”
- You can also use surveys to ask your competitors' customers about their perceptions, ask suppliers in your industry about orders, and use online tools to do market research.  X Research source Provide any details about your competitors that can make your entry into the market stronger.
- For example, you might write, “Our competing launderers, “Drop and Sop” and “Clarity is Wearity,” are serving their maximum amount of customers. As previously noted, they both operate in the Hedgefund Forest neighborhood. Because they are family-owned enterprises, which is a positive point to some customers, they offer restricted hours and both close at 6 p.m. This does not serve the professional community. Their decision not to offer pick up services also has left many customers disgruntled. Thus, by beginning our business in the south end of the city, we hope to build a strong base and eventually expand towards Hedgefund Forest to pick up the slack of other launders.”
- Examine the larger context of your products or services. You might offer information on pricing, other consumer metrics, or any other information that strengthens your point.
You might also like.
- ↑ https://www.sba.gov/content/do-your-market-research
- ↑ http://www.dynamicbusinessplan.com/market-description
- ↑ http://ced.uaa.alaska.edu/publications/manuals/FINALBBHandbook.pdf
- ↑ http://engineering.vanderbilt.edu/ge/engineering-management/ProspectiveSponsors/ENGM3200.php
- ↑ http://www.knowthis.com/preparing-a-market-study/part-2-description-of-the-market
- ↑ http://www.gartproperties.com/wp-content/uploads/2011/07/health-club-business-plan1.pdf
- ↑ academic.uprm.edu/jacruz/admi3125/Sample_Business_Plan.doc
- ↑ http://www.forbes.com/sites/rebeccabagley/2013/10/02/how-to-identify-your-market-size-up-competitors/2/
- ↑ http://www.inc.com/guides/201105/10-tips-on-how-to-research-your-competition.html
About This Article
To write a market description, start by crafting a 1-2 sentence overview of what your business does. Then, in the next 2-3 sentences, explain your reasoning for choosing this market, whether that be lower business taxes, a lack of other businesses in the market, or positive market trends. Next, describe your ideal customer demographic, such as age, income, sex, and marital status, and outline how your product or service will appeal to that demographic. Finally, make sure to review other competitors in the market to assess what they’re doing right or wrong and how your business will provide something they don’t. For advice on how to use the Small Business Association to do market research, read more from our Financial co-author. Did this summary help you? Yes No
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How to do a market analysis for your business plan
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A business plan is the blueprint for your business. It takes an idea for a product or service and turns it into a commercially viable reality. The market analysis section of your plan provides evidence that there is a niche in the market that your company can exploit. This analysis also provides the foundation on which your marketing and sales plan will rest.
What is a market analysis?
A market analysis provides insights into potential customers and your competition.
The core components of the market analysis are:
- Industry analysis: Assesses the general industry environment in which you compete
- Target market analysis: Identifies and quantifies the customers that you will be targeting for sales
- Competitive analysis: Identifies your competitors and analyzes their strengths and weaknesses
The exact way in which you choose to organize this information is up to you. As long as you include all the basic facts, there are a number of outline forms that can work well. Just keep the purpose of your plan in mind and highlight or expand the sections that have the greatest application to what you're trying to accomplish.
It's also important to realize that, as you go about planning a business startup or expansion, you should be doing a lot of research and learning an enormous amount about the marketing environment of your business.
Your business plan is not intended to include everything you've learned. It will just summarize the highlights in a way that shows the reader that you understand your industry, the place in which goods and services are sold, and how you will be a successful business.
The industry analysis is the section of your business plan where you demonstrate your knowledge about the general characteristics of the type of business you're in.
You should be able to present statistics about the size of the industry, such as total U.S. sales in the last year and industry growth rate over the last few years. Is the industry expanding, contracting, or holding steady? Why? Who are the major industry participants?
While you might not compete directly against these companies (they are likely to be large national or international corporations), it's important that you can identify them, and have a good understanding of their market share and why they are or aren't successful.
You should also be able to discuss the important trends that may affect your industry. For example, significant changes in the target market, in technology, or in other related industries may affect the market's perception of your product or your profitability.
This kind of information is often available for free from the following sources:
- Trade associations and industry publications
- Government databases: e.g., Census Bureau , Bureau of Economic Analysis , Bureau of Labor Statistics , state trade measurements
- Data and analysts' opinions about the largest players in the industry (e.g., Standard & Poor's reports, quotes from reputable news sources)
- Industry reports from such publishers or from aggregators such as Marketresearch.com
- Research company filings: Look at your competitors’ filings with the Securities & Exchange Commission and other regulators
Target market analysis
How do you determine if there are enough people in your market who are willing to purchase what you have to offer and at the price you need to charge to make a profit? The best way is to conduct a methodical analysis of the market you plan to reach.
Understand your customers
You need to know precisely who your customers are or will be.
For example, if you sell to consumers, do you have demographic and other information that paints a picture of who they are?
- Age, generation/life stage, gender
- Average income ranges
- Typical education and occupations
- Geographic location
- Family makeup
- Lifestyle information (e.g., hobbies, interests, recreational/entertainment activities, political beliefs, cultural practices, etc.)
Additionally, consider the market size and your target consumers’ motivations and purchasing potential.
You may very well sell to several types of customers. For example, you may sell at both retail and wholesale, and you may have some government or nonprofit customers as well. If so, you'll want to describe the most important characteristics of each group separately.
It’s likely that your product has appeal outside your target demographic, but a market analysis can help you focus your sales and marketing efforts on the audience segments that matter most so that you earn a higher return.
Use industry data
Directly surveying your current customers can be expensive. For planning purposes, it's acceptable to substitute published industry-wide information; for example, "the average U.S. electric vehicle owner is between the ages of 40 and 55, has graduated from college, and earns more than $100,000 per year".
Once obtained, this type of information can help you in two very important ways. It can help you develop or make changes to your product or service to better match what your customers are likely to want. It can also tell you how to reach your customers through advertising, promotions, etc.
Gathering competitive intelligence is the practice of discovering and analyzing useful information about your competitor’s business. Competitive intelligence is important because it helps businesses understand their competitive environment and the opportunities and challenges it presents.
Basic information every company should know about their competitors includes
- Each competitor's size and market share, as compared to your own
- How target buyers perceive or judge your competitors’ products and services
- Your competitors' financial strength, which affects their ability to spend money on advertising and promotions, among other things
- Each competitor's ability and speed of innovation for new products and services
There may be a wealth of other facts that you need to know, depending on the type of business you have. For example, if you're in ecommerce, you'll want to know how fast your competitors can fulfill a typical customer's order, what they charge for shipping and handling, and so on.
Company data from competitors may be available by interviewing competitor company executives, attending industry trade shows, and asking the right questions from industry "experts". They may be unaffordable as consultants, but willing to direct you to free databases that you would not ordinarily know of or have access to.
And don't overlook your competitor's suppliers. They can be excellent sources of information to aid your research.
Be very focused in your competitive research
In the industry overview section of your business plan, you may have identified the largest players in your industry. Not all these businesses will be directly competing with you, however. Some may be in geographically distant locations, and others may have pricing or distribution systems that are very different from those of a small business.
Therefore, in your competition analysis, focus on those businesses that directly compete with you for sales — the specific companies or brands that are solving the same problem as you and targeting the same customer base.
You may also want to include in your analysis some competitors who offer similar products in a different business category or who are more geographically remote. Study their ads, brochures, and promotional materials. Drive past their location. And if it's a retail business, make some purchases there, incognito if necessary.
Analyze your competitors' online presence
What type of content do they publish online and on social media?
Also, check out their online reviews — both product reviews on their website and independent reviews on Google, Yelp, Bing, and other online review listings.
Continuously monitor your competitors
Keeping an eye on how your competitors adapt to market conditions, develop their products, and evolve their brand can help you stay competitive.
Putting it all together: Tips for writing your market analysis
- Include a summary.
- Add graphics. Charts and graphs are great ways to show metrics and statistics.
- Be concise. Get to the point early, and avoid repetition and fluff. Plan several rounds of edits or have someone else review it.
- Keep everything in the context of your business. Make sure all the statistics and data you use in your market analysis relate back to your business. Your focus should be on how you are uniquely positioned to meet the needs of the target market.
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How to Write the Market Analysis Section of a Business Plan
Alyssa Gregory is an entrepreneur, writer, and marketer with 20 years of experience in the business world. She is the founder of the Small Business Bonfire, a community for entrepreneurs, and has authored more than 2,500 articles for The Balance and other popular small business websites.
The market analysis section of your business plan comes after the products or services section and should provide a detailed overview of the industry you intend to sell your product or service in, including statistics to support your claims.
In general, the market analysis section should include information about the industry, your target market, your competition, and how you intend to make a place for your own product and service. Extensive data for this section should be added to the end of the business plan as appendices, with only the most important statistics included in the market analysis section itself.
What Should a Market Analysis Include?
The market analysis section of your small business plan should include the following:
- Industry Description and Outlook : Describe your industry both qualitatively and quantitatively by laying out the factors that make your industry an attractive place to start and grow a business. Be sure to include detailed statistics that define the industry including size, growth rate , trends, and outlook.
- Target Market : Who is your ideal client/customer? This data should include demographics on the group you are targeting including age, gender, income level, and lifestyle preferences. This section should also include data on the size of the target market, the purchase potential and motivations of the audience, and how you intend to reach the market.
- Market Test Results : This is where you include the results of the market research you conducted as part of your initial investigation into the market. Details about your testing process and supporting statistics should be included in the appendix.
- Lead Time : Lead time is the amount of time it takes for an order to be fulfilled once a customer makes a purchase. This is where you provide information on the research you've completed on how long it will take to handle individual orders and large volume purchases, if applicable.
- Competitive Analysis : Who is your competition? What are the strengths and weaknesses of the competition? What are the potential roadblocks preventing you from entering the market?
7 Tips for Writing a Market Analysis
Here is a collection of tips to help you write an effective and well-rounded market analysis for your small business plan.
- Use the Internet : Since much of the market analysis section relies on raw data, the Internet is a great place to start. Demographic data can be gathered from the U.S. Census Bureau. A series of searches can uncover information on your competition, and you can conduct a portion of your market research online.
- Be the Customer : One of the most effective ways to gauge opportunity among your target market is to look at your products and services through the eyes of a purchaser. What is the problem that needs to be solved? How does the competition solve that problem? How will you solve the problem better or differently?
- Cut to the Chase : It can be helpful to your business plan audience if you include a summary of the market analysis section before diving into the details. This gives the reader an idea about what's to come and helps them zero in on the most important details quickly.
- Conduct Thorough Market Research : Put in the necessary time during the initial exploration phase to research the market and gather as much information as you can. Send out surveys, conduct focus groups, and ask for feedback when you have an opportunity. Then use the data gathered as supporting materials for your market analysis.
- Use Visual Aids : Information that is highly number-driven, such as statistics and metrics included in the market analysis, is typically easier to grasp when it's presented visually. Use charts and graphs to illustrate the most important numbers.
- Be Concise : In most cases, those reading your business plan already have some understanding of the market. Include the most important data and results in the market analysis section and move the support documentation and statistics to the appendix.
- Relate Back to Your Business : All of the statistics and data you incorporate in your market analysis should be related back to your company and your products and services. When you outline the target market's needs, put the focus on how you are uniquely positioned to fulfill those needs.
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Before you start any sales and marketing activities you should establish a solid knowledge of the market by making a market description..
If you don´t have a feeling of whom your customers are it becomes difficult to choose the right way to approach them.
Who are the customers
There are a lot of questions that could be asked in order to establish a picture of your customer.
- How many customers can there potentially be?
- Do they live in the neighborhood or in the urban area, in the province, in the country, in Asia or all over the world?
- Are they men, women, old people or children?
- What do they do in the spare time?
- What is the limit they are willing to pay for the product?
Know your competitors in the market
In the market you also find competitors. You have to find out what you are up against. On what level is the quality of the competitor’s product? What is the price? How big is their turnover? How is their marketing and web site? How is their product development? Where are their weak points?
If you look at an iceberg, 90% of it will be under water with just 10% visible to the human eye. This you can compare with the description of the market and the marketing material. You need to spend a lot of time researching the market and thinking about the best way to approach the customers.
How to do a market analysis for a business plan
A key part of any business plan is market analysis. This section needs to demonstrate both your expertise in your particular market and the attractiveness of the market from a financial standpoint.
This article first looks at what we mean exactly by market analysis before looking at how to make a good one for your business plan.
What is a market analysis?
A market analysis is a quantitative and qualitative assessment of a market. It looks into the size of the market both in volume and in value, the various customer segments and buying patterns, the competition, and the economic environment in terms of barriers to entry and regulation.
How to do a market analysis?
The objectives of the market analysis section of a business plan are to show to investors that:
- you know your market
- the market is large enough to build a sustainable business
In order to do that I recommend the following plan:
Demographics and Segmentation
Target market, market need, competition, barriers to entry.
The first step of the analysis consists in assessing the size of the market.
When assessing the size of the market, your approach will depend on the type of business you are selling to investors. If your business plan is for a small shop or a restaurant then you need to take a local approach and try to assess the market around your shop. If you are writing a business plan for a restaurant chain then you need to assess the market a national level.
Depending on your market you might also want to slice it into different segments. This is especially relevant if you or your competitors focus only on certain segments.
Volume & Value
There are two factors you need to look at when assessing the size of a market: the number of potential customers and the value of the market. It is very important to look at both numbers separately, let's take an example to understand why.
Imagine that you have the opportunity to open a shop either in Town A or in Town B:
Although Town B looks more competitive (10 competitors vs. 2 in Town A) and a smaller opportunity (market size of £100m vs. £200 in Town A), with 1,000 potential customers it is actually a more accessible market than Town A where you have only 2 potential customers.
The definition of a potential customer will depend on your type of business. For example, if you are opening a small shop selling office furniture then your market will be all the companies within your delivery range. As in the example above it is likely that most companies would have only one person in charge of purchasing furniture hence you wouldn't take the size of these businesses in consideration when assessing the number of potential customers. You would however factor it when assessing the value of the market.
Estimating the market value is often more difficult than assessing the number of potential customers. The first thing to do is to see if the figure is publicly available as either published by a consultancy firm or by a state body. It is very likely that you will find at least a number on a national level.
If not then you can either buy some market research or try to estimate it yourself.
Methods for building an estimate
There are 2 methods that can be used to build estimates: the bottom-up approach or the top-down approach.
The bottom-up approach consists in building a global number starting with unitary values. In our case the number of potential clients multiplied by an average transaction value.
Let's keep our office furniture example and try to estimate the value of the 'desk' segment. We would first factor in the size of the businesses in our delivery range in order to come up with the size of the desks park. Then we would try to estimate the renewal rate of the park to get the volume of annual transactions. Finally, we would apply an average price to the annual volume of transactions to get to the estimated market value.
Here is a summary of the steps including where to find the information:
- Size of desks park = number of businesses in delivery area x number of employees (you might want to refine this number based on the sector as not all employees have desks)
- Renewal rate = 1 / useful life of a desk
- The volume of transactions = size of desks park x renewal rate
- Value of 1 transaction = average price of a desk
- Market value = volume of transactions x value of 1 transaction
You should be able to find most of the information for free in this example. You can get the number and size of businesses in your delivery area from the national statistics. Your accountant should be able to give you the useful life of a desk (but you should know it since it is your market!). You can compare the desk prices of other furniture stores in your area. As a side note here: it is always a good idea to ask your competitors for market data (just don't say you are going to compete with them).
That was the bottom-up approach, now let's look into the top-down approach.
The top-down approach consists of starting with a global number and reducing it pro-rata. In our case, we would start with the value of the UK office furniture market which AMA Research estimates to be around £650m and then do a pro-rata on this number using the number of businesses in our delivery area x their number of employees / total number of people employed in the UK. Once again the number of employees would only be a rough proxy given all business don't have the same furniture requirements.
When coming up with an estimate yourself it is always a good practice to test both the bottom up and top-down approaches and to compare the results. If the numbers are too far away then you probably missed something or used the wrong proxy.
Once you have estimated the market size you need to explain to your reader which segment(s) of the market you view as your target market.
The target market is the type of customers you target within the market. For example, if you are selling jewellery you can either be a generalist or decide to focus on the high end or the lower end of the market. This section is relevant when your market has clear segments with different drivers of demand. In my example of jewels, value for money would be one of the drivers of the lower end market whereas exclusivity and prestige would drive the high end.
Now it is time to focus on the more qualitative side of the market analysis by looking at what drives the demand.
This section is very important as it is where you show your potential investor that you have an intimate knowledge of your market. You know why they buy!
Here you need to get into the details of the drivers of demand for your product or services. One way to look at what a driver is to look at takeaway coffee. One of the drivers for coffee is consistency. The coffee one buys in a chain is not necessarily better than the one from the independent coffee shop next door. But if you are not from the area then you don't know what the independent coffee shop's coffee is worth it. Whereas you know that the coffee from the chain will taste just like in every other shop of this chain. Hence most people on the move buy coffee from chains rather than independent coffee shops.
From a tactical point of view, this section is also where you need to place your competitive edge without mentioning it explicitly. In the following sections of your business plan, you are going to talk about your competition and their strengths, weaknesses and market positioning before reaching the Strategy section in which you'll explain your own market positioning. What you want to do is prepare the reader to embrace your positioning and invest in your company.
To do so you need to highlight in this section some of the drivers that your competition has not been focussing on. A quick example for an independent coffee shop surrounded by coffee chains would be to say that on top of consistency, which is relevant for people on the move, another driver for coffee shop demand is the place itself as what coffee shops sell before most is a place for people to meet. You would then present your competition. And in the Strategy section explain that you will focus on locals looking for a place to meet rather than takeaway coffee and that your differentiating factor will be the authenticity and atmosphere of your local shop.
The aim of this section is to give a fair view of who you are competing against. You need to explain your competitors' positioning and describe their strengths and weaknesses. You should write this part in parallel with the Competitive Edge part of the Strategy section.
The idea here is to analyse your competitor's angle to the market in order to find a weakness that your company will be able to use in its own market positioning.
One way to carry the analysis is to benchmark your competitor against each of the key drivers of demand for your market (price, quality, add-on services, etc.) and present the results in a table.
Below is an example of a furniture shop in France. As you can see from the table all the actors on the market are currently focused on the low medium range of the market leaving the space free for a high end focused new player.
This section is all about answering two questions from your investors:
- what prevents someone from opening a shop in front of yours and take 50% of your business?
- having answered the previous question what makes you think you will be successful in trying to enter this market? (start-up only)
As you would have guess barriers to entry are great. Investors love them and there is one reason for this: it protects your business from new competition!
Here are a few examples of barriers to entry:
- Investment (a project that requires a substantial investment)
- Technology (sophisticated technology a website is not one, knowing how to process uranium is)
- Brand (the huge marketing costs required to get to a certain level of recognition)
- Regulation (licences and concessions in particular)
- Access to resources (exclusivity with suppliers, proprietary resources)
- Access to distribution channels (exclusivity with distributors, proprietary network)
- Location (a shop on Regent's Street)
The answer to the questions above will be highly dependent on your type of business, your management team and any relations it might have. Therefore it is hard for me to give any general tips about it.
If regulation is a barrier at entry in your sector then I would advise you to merge this section with the previous one. Otherwise, this section should be just a tick the box exercise where you explain the main regulations applicable to your business and which steps you are going to take to remain compliant.
Now you know how to do a market analysis for a business plan! I hope you found this article useful. If so please share it, and if not let us know what we need to improve.
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Market description – describes the targeted segments in detail and provides context for the marketing strategies and detailed action programs.
Before you begin any sales and marketing functions you should develop a strong knowledge of the market by preparing a market description . It is your opportunity to get particular about the following:
- Who actually will be interested in your service or product?
- What is the size of the market?
- What are their ages?
- Where do they live?
- What gender are they?
The more details you get, the better will be your result. A market description can be broken down in the following way:
- Demographics : It includes the demographic features of your market such as age, race, gender, family structure, educational level, occupation, and income level. Companies do online research by considering Census and other numbers for adding specific figures here.
- Geographical location : You should consider where the target markets live. Are they in the suburbs or cities, a specific state, city, or region? You can enrich this portion by adding detailed statistics regarding the number of probable customers in a rural community or geographic market or can be all of the mentioned above. Is the service or product available only to the individuals living in a specific state, region, or city?
- Psychographics : Here you will describe the personality traits or psychology of your market, like what are their initial attitudes and beliefs? What do they require more? Understanding your customers from a psychographic viewpoint will be definitely fruitful because here you begin finding out the way to best market your concept.
- Consumer Nature: You should understand the nature or characteristics of the consumers such as how does the target market purchase or use services or products? Do they shop physically or online? Are they concerned about brand loyalty? How often do they shop for the services or products you are offering?
- Market Needs: Finally, the market description needs to clearly mention WHY the target market needs the service or product you have decided to sell. Here you can clearly figure out a need among your potential customer, a gap in the present business climate, and describe how your idea or product will meet that need among the target market.
- Money market accounts
- Market value
- Marketing intermediary
- Marketing research process
- Market segmentation approach
Cite the term
Proper citation formating styles of this definition for your bibliography.
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Business Plan Section 5: Market Analysis
Find out the 9 components to include in the market analysis portion of your business plan, plus 6 sources for market analysis information.
This is the part of your business plan where you really get to shine and show off that awesome idea you have. Of course, your product or service is the best! Now, let’s talk about how you know it’s a hit. Be prepared to show you know your market AND that it’s big enough for you to build a sustainable, successful business .
In writing up your market analysis, you’ll get to demonstrate the knowledge you’ve gained about the industry, the target market you’re planning to sell to, your competition, and how you plan to make yourself stand out.
A market analysis is just that: a look at what the relevant business environment is and where you fit in. It should give a potential lender, investor, or employee no doubt that there is a solid niche for what you’re offering, and you are definitely the person to fill it. It’s both quantitative, spelling out sales projections and other pertinent figures, and qualitative, giving a thoughtful overview of how you fit in with the competition. It needs to look into the potential size of the market, the possible customers you’ll target, and what kind of difficulties you might face as you try to become successful. Let’s break down how to do that.
What Goes Into A Business Plan Market Analysis?
Industry description and outlook.
Describe the industry with enough background so that someone who isn’t familiar with it can understand what it’s like, what the challenges are, and what the outlook is. Talk about its size, how it’s growing, and what the outlook is for the future.
Who have you identified as your ideal client or customer ? Include demographic information on the group you’re targeting, including age, gender and income level. This is the place to talk about the size of your potential market, how much it might spend, and how you’ll reach potential customers. For example, if women aged 18 to 54 are your target market, you need to know how many of them there are in your market. Are there 500 or 500,000? It’s imperative to know. Similarly, if your product or service is geared toward a high-end clientele, you need to make sure you’re located in an area that can support it.
What factors influence the need for your product or service? Did the need exist before or are you trying to create it? Why will customers want to do business with you, possibly choosing you over someone else? This is where you can briefly introduce the competitive edge you have, although you’ll get into that in more depth in following sections. Focus on how the product or service you’re offering satisfies what’s needed in the market.
While no one can predict the future, it’s important to get a possible idea of what business may be like down the road and make sales projections. Have the number of people in your target market been increasing or decreasing over the last several years? By how much per year? To make an intelligent forecast, you have to start with current conditions, then project changes over the next three to five years.
You need to take a look at trends the same way you look at population and demographics. Is there a shift to more natural or organic ingredients that might impact your business? How might energy prices figure in? The easy availability of the internet and smartphone technology? The questions will be different for every type of business, but it’s important to think about the types of changes that could affect your specific market. In this section, you can cite experts from the research you’ve done-a market expert, market research firm, trade association, or credible journalist.
Market Research Testing
Talk about what kind of testing and information gathering you’ve done to figure out where you stand in the market. Who have you spoken to about the viability of your product? Why are you confident of its success? Again, if you can, cite experts to back up your information.
There’s no way to succeed unless you’ve examined your competition. It might be helpful to try analyzing your position in the market by performing a SWOT analysis. You need to figure out their strengths and the weaknesses you can exploit as you work to build your own business. You do need to be brutally honest here, and also look at what the potential roadblocks are-anything that might potentially stand in your way as you try to meet your goals and grow your business.
Barriers to Entry
Lenders and investors need to have a reasonable assurance they’ll be paid back, so they’ll want to know what would stop someone else from swooping in, doing what you do, and grabbing half the available business. Do you have technical knowledge that’s difficult to get? A specialized product no one else can manufacture? A service that takes years to perfect? It’s possible your industry has strict regulations and licensing requirements. All of these help protect you from new competition, and they’re all selling points for you.
As we touched on above, you should cover regulations as a barrier to entry. If your field is covered by regulations, you do need to talk about how they apply to your business and how you’ll comply with them.
Six Sources for Market Analysis Information
The Market Analysis section of your business plan is far more than a theoretical exercise. Doing an analysis of the market really gives YOU the information you need to figure out whether your plans are viable, and tweak them in the early stages before you go wrong.
So, where do you start? Research is the key here, and there are several sources available.
1. The Internet
Some of the first information you need is about population and demographics: who your potential customers are, how many there are, and where they live or work. The U.S. Census Bureau has an impressive amount of these statistics available. USA.gov’s small business site is another good source for links to the U.S. Departments of Labor and Commerce, among others.
2. Local Chamber of Commerce
A lot of local information can be gotten from the chamber of commerce in the area where you plan to operate. Often, they can provide details into what the general business climate is like, and get even more specific about how many and what type of businesses are operating in their jurisdiction.
3. Other Resources
When actual statistical information isn’t available, you’ll often be able to put together a good picture of the market from a variety of other sources. Real estate agents can be a source of information on demographics and population trends in an area. Catalogs and marketing materials from your competition are useful. Many industry associations have a great amount of relevant information to use in putting your analysis together. Trade publications and annual reports from public corporations in your industry also contain a wealth of relevant information.
4. Customer Mindset
Take yourself out of the equation as the owner and stand in your customer’s shoes when you look at the business. As a customer, what problems do you have that need to be solved? What would you like to be able to do better, faster, or cheaper that you can’t do now? How does the competition work to solve those issues? How could this business solve them better?
5. the Competition
If you have a clothing store, visit others in your area. If you’d like to open a pizzeria, try pies from surrounding restaurants. If you’re a salon owner, park across the street and see what the store traffic is like and how customers look when they come out. Check out websites for pricing and other marketing information. Follow their Facebook pages. If you can’t be a customer of the competition, ask your customers and suppliers about them. Always be aware of what’s going on in the market.
6. Traditional Market Research
While you can gather a lot of data online, your best information will come from potential customers themselves. Send out surveys, ask for input and feedback, and conduct focus groups. You can do this yourself or hire a market research firm to do it for you.
What to Do With All That Data
Now that you’ve gathered the statistics and information and you’ve done the math to know there’s a need and customer base for your product or service, you have to show it off to your best advantage. You can start the market analysis section with a simple summary that describes your target customers and explains why you have chosen this as your market. You can also summarize how you see the market growing, and highlight one or two projections for the future.
If your information is dense with numbers and statistics, someone who reads your business plan will probably find it easier to understand if you present it as a chart or graph. You can generate them fairly easily with tools built into Google docs and free infographic apps and software .
Don’t assume that your readers have an understanding of your market, but don’t belabor simple points, either. You want to include pertinent, important information, but you don’t want to drown the reader in facts. Be concise and compelling with the market analysis, and remember that a good graphic can cover a lot of text, and help you make your point. It’s great to say you project sales to increase by 250% over the next five years, but it makes an even bigger wow when you show it in a graphic.
Always relate the data back to your business. Statistics about the market don’t mean much unless you describe how and where you fit in. As you talk about the needs of your target market, remember to focus on how you are uniquely positioned to fill them.
Don’t hesitate to break down your target market into smaller segments, especially if each is likely to respond to a different message about your product or service. You may have one market that consists of homes and another of small businesses. Perhaps you sell to both wholesale and retail customers. Talk about this in the market analysis, and describe briefly how you’ll approach each. (You will have more of an opportunity to do this in detail later in the plan.) Segmentation can help you target specific messages to specific areas, focusing in on the existing needs and how you fill them.
Remember to tailor your information to the purpose at hand. If your business plan is for internal use, you may not have to go into as much detail about the market since you and your team may already know it well. Remember, however, that the very act of doing the research may help you learn things you didn’t know, so don’t skimp on doing the work. This is a great opportunity to get information from outside that might affect your business.
It’s not about your ability to do professional-level market research; a plan intended for a bank or other lender needs to show your understanding of where your business fits into the grand scheme of things. Yes, you need to detail the information, but your main goal is to show how you’ve incorporated that knowledge into making solid decisions about the direction of your company. Use this section of your business plan to explain your understanding of your industry, your market and your individual business so that lenders and investors feel comfortable with your possibility for success.
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How to Conduct a Market Analysis for Your Business
A market analysis can help you identify how to better position your business to be competitive and serve your customers.
- A market analysis is a thorough assessment of a market within a specific industry.
- A market analysis has many benefits, such as reducing risk for your business and better informing your business decisions.
- There are seven steps in conducting a market analysis.
- This article is for business owners who want to know why they should conduct a market analysis and how to do it.
Understanding your customer base is one of the first key steps to success in business. Without knowing who your customers are, what they want, and how they want to get it from you, your business could struggle to come up with an effective marketing strategy. This is where a market analysis comes in. A market analysis can be a time-intensive process, but it is straightforward and easy to do on your own in seven steps.
What is a market analysis?
A market analysis is a thorough assessment of a market within a specific industry. 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.
A market analysis can benefit your business in many ways, especially if you conduct regular analyses to make sure you have current information for your marketing efforts.
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.
Use our guide to choosing a business loan to make the right decision after conducting a market analysis. Visit our business loan reviews page to find options and learn all about easy-approval options.
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 Write a Market Analysis for a Business Plan
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A lot of preparation goes into starting a business before you can open your doors to the public or launch your online store. One of your first steps should be to write a business plan . A business plan will serve as your roadmap when building your business.
Within your business plan, there’s an important section you should pay careful attention to: your market analysis. Your market analysis helps you understand your target market and how you can thrive within it.
Simply put, your market analysis shows that you’ve done your research. It also contributes to your marketing strategy by defining your target customer and researching their buying habits. Overall, a market analysis will yield invaluable data if you have limited knowledge about your market, the market has fierce competition, and if you require a business loan. In this guide, we'll explore how to conduct your own market analysis.
How to conduct a market analysis: A step-by-step guide
In your market analysis, you can expect to cover the following:
Barriers to entry
Let’s dive into an in-depth look into each section:
Step 1: Define your objective
Before you begin your market analysis, it’s important to define your objective for writing a market analysis. Are you writing it for internal purposes or for external purposes?
If you were doing a market analysis for internal purposes, you might be brainstorming new products to launch or adjusting your marketing tactics. An example of an external purpose might be that you need a market analysis to get approved for a business loan .
The comprehensiveness of your market analysis will depend on your objective. If you’re preparing for a new product launch, you might focus more heavily on researching the competition. A market analysis for a loan approval would require heavy data and research into market size and growth, share potential, and pricing.
Step 2: Provide an industry outlook
An industry outlook is a general direction of where your industry is heading. Lenders want to know whether you’re targeting a growing industry or declining industry. For example, if you’re looking to sell VCRs in 2020, it’s unlikely that your business will succeed.
Starting your market analysis with an industry outlook offers a preliminary view of the market and what to expect in your market analysis. When writing this section, you'll want to include:
Are you chasing big markets or are you targeting very niche markets? If you’re targeting a niche market, are there enough customers to support your business and buy your product?
Product life cycle
If you develop a product, what will its life cycle look like? Lenders want an overview of how your product will come into fruition after it’s developed and launched. In this section, you can discuss your product’s:
Research and development
How do you see your company performing over time? Calculating your year-over-year growth will help you and lenders see how your business has grown thus far. Calculating your projected growth shows how your business will fare in future projected market conditions.
Step 3: Determine your target market
This section of your market analysis is dedicated to your potential customer. Who is your ideal target customer? How can you cater your product to serve them specifically?
Don’t make the mistake of wanting to sell your product to everybody. Your target customer should be specific. For example, if you’re selling mittens, you wouldn’t want to market to warmer climates like Hawaii. You should target customers who live in colder regions. The more nuanced your target market is, the more information you’ll have to inform your business and marketing strategy.
With that in mind, your target market section should include the following points:
This is where you leave nothing to mystery about your ideal customer. You want to know every aspect of your customer so you can best serve them. Dedicate time to researching the following demographics:
Create a customer persona
Creating a customer persona can help you better understand your customer. It can be easier to market to a person than data on paper. You can give this persona a name, background, and job. Mold this persona into your target customer.
What are your customer’s pain points? How do these pain points influence how they buy products? What matters most to them? Why do they choose one brand over another?
Research and supporting material
Information without data are just claims. To add credibility to your market analysis, you need to include data. Some methods for collecting data include:
Target group surveys
You can also consult resources online. For example, the U.S. Census Bureau can help you find demographics in calculating your market share. The U.S. Department of Commerce and the U.S. Small Business Administration also offer general data that can help you research your target industry.
Step 4: Calculate market value
You can use either top-down analysis or bottom-up analysis to calculate an estimate of your market value.
A top-down analysis tends to be the easier option of the two. It requires for you to calculate the entire market and then estimate how much of a share you expect your business to get. For example, let’s assume your target market consists of 100,000 people. If you’re optimistic and manage to get 1% of that market, you can expect to make 1,000 sales.
A bottom-up analysis is more data-driven and requires more research. You calculate the individual factors of your business and then estimate how high you can scale them to arrive at a projected market share. Some factors to consider when doing a bottom-up analysis include:
Where products are sold
Who your competition is
The price per unit
How many consumers you expect to reach
The average amount a customer would buy over time
While a bottom-up analysis requires more data than a top-down analysis, you can usually arrive at a more accurate calculation.
Step 5: Get to know your competition
Before you start a business, you need to research the level of competition within your market. Are there certain companies getting the lion’s share of the market? How can you position yourself to stand out from the competition?
There are two types of competitors that you should be aware of: direct competitors and indirect competitors.
Direct competitors are other businesses who sell the same product as you. If you and the company across town both sell apples, you are direct competitors.
An indirect competitor sells a different but similar product to yours. If that company across town sells oranges instead, they are an indirect competitor. Apples and oranges are different but they still target a similar market: people who eat fruits.
Also, here are some questions you want to answer when writing this section of your market analysis:
What are your competitor’s strengths?
What are your competitor’s weaknesses?
How can you cover your competitor’s weaknesses in your own business?
How can you solve the same problems better or differently than your competitors?
How can you leverage technology to better serve your customers?
How big of a threat are your competitors if you open your business?
Step 6: Identify your barriers
Writing a market analysis can help you identify some glaring barriers to starting your business. Researching these barriers will help you avoid any costly legal or business mistakes down the line. Some entry barriers to address in your marketing analysis include:
Technology: How rapid is technology advancing and can it render your product obsolete within the next five years?
Branding: You need to establish your brand identity to stand out in a saturated market.
Cost of entry: Startup costs, like renting a space and hiring employees, are expensive. Also, specialty equipment often comes with hefty price tags. (Consider researching equipment financing to help finance these purchases.)
Location: You need to secure a prime location if you’re opening a physical store.
Competition: A market with fierce competition can be a steep uphill battle (like attempting to go toe-to-toe with Apple or Amazon).
Step 7: Know the regulations
When starting a business, it’s your responsibility to research governmental and state business regulations within your market. Some regulations to keep in mind include (but aren’t limited to):
Employment and labor laws
If you’re a newer entrepreneur and this is your first business, this part can be daunting so you might want to consult with a business attorney. A legal professional will help you identify the legal requirements specific to your business. You can also check online legal help sites like LegalZoom or Rocket Lawyer.
Tips when writing your market analysis
We wouldn’t be surprised if you feel overwhelmed by the sheer volume of information needed in a market analysis. Keep in mind, though, this research is key to launching a successful business. You don’t want to cut corners, but here are a few tips to help you out when writing your market analysis:
Use visual aids
Nobody likes 30 pages of nothing but text. Using visual aids can break up those text blocks, making your market analysis more visually appealing. When discussing statistics and metrics, charts and graphs will help you better communicate your data.
Include a summary
If you’ve ever read an article from an academic journal, you’ll notice that writers include an abstract that offers the reader a preview.
Use this same tactic when writing your market analysis. It will prime the reader of your market highlights before they dive into the hard data.
Get to the point
It’s better to keep your market analysis concise than to stuff it with fluff and repetition. You’ll want to present your data, analyze it, and then tie it back into how your business can thrive within your target market.
Revisit your market analysis regularly
Markets are always changing and it's important that your business changes with your target market. Revisiting your market analysis ensures that your business operations align with changing market conditions. The best businesses are the ones that can adapt.
Why should you write a market analysis?
Your market analysis helps you look at factors within your market to determine if it’s a good fit for your business model. A market analysis will help you:
1. Learn how to analyze the market need
Markets are always shifting and it’s a good idea to identify current and projected market conditions. These trends will help you understand the size of your market and whether there are paying customers waiting for you. Doing a market analysis helps you confirm that your target market is a lucrative market.
2. Learn about your customers
The best way to serve your customer is to understand them. A market analysis will examine your customer’s buying habits, pain points, and desires. This information will aid you in developing a business that addresses those points.
3. Get approved for a business loan
Starting a business, especially if it’s your first one, requires startup funding. A good first step is to apply for a business loan with your bank or other financial institution.
A thorough market analysis shows that you’re professional, prepared, and worth the investment from lenders. This preparation inspires confidence within the lender that you can build a business and repay the loan.
4. Beat the competition
Your research will offer valuable insight and certain advantages that the competition might not have. For example, thoroughly understanding your customer’s pain points and desires will help you develop a superior product or service than your competitors. If your business is already up and running, an updated market analysis can upgrade your marketing strategy or help you launch a new product.
There is a saying that the first step to cutting down a tree is to sharpen an axe. In other words, preparation is the key to success. In business, preparation increases the chances that your business will succeed, even in a competitive market.
The market analysis section of your business plan separates the entrepreneurs who have done their homework from those who haven’t. Now that you’ve learned how to write a market analysis, it’s time for you to sharpen your axe and grow a successful business. And keep in mind, if you need help crafting your business plan, you can always turn to business plan software or a free template to help you stay organized.
This article originally appeared on JustBusiness, a subsidiary of NerdWallet.
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