what is market size and trends in business plan

What are market trends in a business plan?

Table of Contents

What are market trends?

Why do i need market trends in my business plan, how to keep up with market trends, what market trends to monitor frequently, customer behaviours, technological advances, industry regulations, how to write the market trends in your business plan, using countingup to streamline your business.

Market trends in a business plan are key pieces of information that share where your company sits in the wider picture of your industry. Your business plan should prove why your business is viable, show where you fit in the market and what customers you serve. Examining what the market looks like is a smart business move when starting out.

This article on market trends in a business plan will cover:

• What are market trends
• Why market trends are necessary in my business plan

Market trends are the direction changes of a specific industry and can be influenced by customer behaviours or developing technology. 

Take the mobile phone industry for example, as technology has improved over the last twenty years consumers have moved from bulky handsets to slimmer smartphones, that can do everything a computer can and more. Consumers have even gone back to the fashion of flip phones now that technology has allowed a bigger screen that can be folded to save space. This is a good example where both technology and customer demand has influenced the direction of the industry,

Acknowledging these trends when running a business ensures that you stay on the same path as the industry itself, moving with customer needs and adapting your business as the sector and technology evolve. Ignoring market trends in the long term could mean you are left behind by customers, as they may move to businesses that meet their needs more. 

Your market trend research should be part of wider market analysis in your business plan. Understanding where you fit in a sector and what separates your company from competitors will help you shape everything from your product to pricing and marketing plans.

It’s important to focus on trends in this process so you can understand what appeals to your target audience. By analysing the market landscape and trends, you will be able to serve your customers better. It will also feed into your marketing messaging and content creation strategy later on.

A market and trend analysis should be both quantitative (using numbers and statistics such as projections and financial forecasts) and qualitative (based on experience or observation). Trends will fit into both categories of research and you should be able to find data and non-numerical information to support your examination of trends when writing your business plan. 

It’s important to remember that a business plan is not set in stone. It can be a document that you regularly update to reflect changes in your industry and company.

Keeping pace in a fast-changing market is not easy – after all, you’ve got a business to run. Using social media and subscribing to relevant industry emails make it simpler to get the information you need. Doing this will allow you to stay on top of market trends to include in your initial business plan and for more long-term future planning. 

Follow influencers in your industry to see what they talk about and how they create content for the audience that you serve. This will give you an idea of what resonates with your target customers when it comes to content and the form of content the influencer tends to use (video, written blogs, imagery etc.).

Read relevant publications in your sector to find out what is making headlines. Magazines or online blogs that share up-to-date opinions and thought leadership (influential content) will help you stay on the pulse of what is currently important to the industry.

Reading detailed reports and research can be time-consuming but will give you a good overview of the industry’s current state and any new developments. You can then update your business plan to follow the trends that arise from any data you’ve seen. 

Some common areas will affect the running of your business, the trends in your business plan and the whole market landscape. Keeping on top of the following aspects and regularly checking in on them will ensure your business develops as the market does.

Your customer can make or break your business. If you don’t cater to their needs and wants, your business will not be on the radar of your target audience. 

Let’s take an example – if your target customer is under 45, and you primarily do business online, you will need to ensure your website is optimised for mobile. This is because consumer behaviours have changed in recent years, and most searches are now conducted via mobile . If you don’t pick up on this development, your business risks being left behind when competitors optimise for mobile and you don’t.

Like our previous example, customer behaviour often changes with advances in technology. As mobile phones, and then smartphones, have become more able to operate as a computer, consumers have moved to using their phones out of convenience. 

Keep on top of developments that are relevant to your business and make sure you can move with, and not against, the technology changes.

Every now and again, there will be a law change or new regulation that rocks many industries – such as GDPR in 2018. Staying up to date with regulations that could affect the way you run and market your business will save you weighty fines (especially in the case of data protection).

There may be more frequent regulation updates if you operate in an industry that requires you to follow safety guidelines or best practices, such as those that an electrician or builder will have to follow. 

Ensuring that you are up to date on precautions and rules, as well as renewing any professional certifications you need to operate, will ensure your business plan reflects the changing face of your industry.

Using your research on your target customers and the sector,  use the following steps to write up the market trends section of your business plan:

• Current market overview, including which company has the biggest share or most influence
• Where you fit in that market, what gives your business a competitive edge.
• Current trends that impact your business operation
• Any upcoming trends that may impact your business or the products/services you offer
• Outline any plans on how you will keep up with trends
• Upcoming regulatory changes

You can then follow this with your competitor research in your business plan, to give a full picture of your industry and where you fit in.

Now that you have the answers to questions like ‘what are market trends in a business plan’, you will be able to prepare a thorough market analysis to set up your new venture for success. 

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Home > Business Plan > Market Size in a Business Plan

Market Size in a Business Plan

… the market size looks like this …

What is Market Size?

To the investor, the solution in itself has no value unless it can be realized in the market place. Ultimately, it will be the industry market size that decides the value of your business to an investor and, as a rule of thumb, the bigger the available market, the better.

How to Calculate Market Sizes

TAM (Total Available Market) is the total market size (people, revenues, units etc.) who have the problem you are seeking to solve today.

SAM (Served Available Market) is the part of the TAM who are able to use your solution to the problem. This is your target market .

Available Market Size Estimation

The total available market or TAM is based on the number of properties in the region which use lawn care treatments. Using a top down approach, Government statistics might show that there are six million properties with gardens and industry analysis reveals that 3% of properties use lawn care treatments, and spend an average of 150 per year. The TAM is calculated as follows:

TAM = 6 million x 3% x 150 = 27 million per year

This means that if your business operated throughout the entire region with no competition its revenues would be 27 million per year. TAM defines the maximum size for the market the business operates in.

However, at the moment not all of the TAM are able to use your lawn care service as you only have one lawn care outlet in one town in the region. The market which is able to use your solution is limited to the town, so the serviceable available market or SAM is based on the number of properties with gardens within the town. Again, Government statistics might show that there are one million properties with gardens in the region, so the SAM is given as follows:

SAM = 1 million x 3% x 150 = 4.5 million (16.7% of TAM)

If there was no competition within the town and you had the resources to provide the service , then the revenue from the business would be 4.5 million per year. The SAM represents 16.7% of the TAM.

Market Size and Growth

The investor will also want to know whether this is a growing or declining market. The market size section of the business plan should also give an indication of the potential for growth over the next five years. We might be able to find additional market size data which shows that the number of properties with gardens will grow to 20.5 million, and the number using lawn care treatments is expected to increase to 4%, with an average spend of 165. the TAM is calculated as follows:

TAM = 6.5 million x 4% x 165 = 42.9 million per year in five years time

Like wise for the town the number of properties with gardens might be expected to increase to 1.15 million, and the SAM is given as follows:

SAM = 1.15 million x 4% x 165 = 7.59 million (17.7% of TAM)

Market Estimate Presentation in the Business Plan

The business plan market size section can be presented in a number of formats, but a simple column format setting out the TAM and SAM now and in five years time, will allow the investor to quickly ascertain how big the market for the product could be and it prospects for growth over the duration of the business plan.

Market sizing is an important part of the business plan process. But this is planning not accounting. The market size section is an educated guess at how big the available market for the product is and aims to show that a successful launch and continued growth for the product is possible. It is based on available statistics and trade association data.

A few key points should be remembered when trying to determine market size

• Start from verifiable and accurate base data. In the above example, the starting point was a government statistic based on the number of properties with gardens.
• Double check any information with an alternative source if possible.
• Check the results make sense.
• Check the results using a bottom up calculation. For example, if you know a lawn care business in the region has revenue of 500,000 and estimated 2% of the market, then the TAM should be in the order of 500,000 / 2% = 25 million compared to the 27 million calculated above.
• Keep the industry definition narrow, in this case lawn care treatments.
• Be specific, don’t try and say for example, there are millions of properties in the world with gardens and if we can take a very small percentage of that our plan will work.
• The analysis will differ depending on whether you are dealing with an existing market or a completely new market. For an existing product there will be market and industry data available, for a new product you may need to carry out market size research with potential customers and work upwards from there.

This is part of the financial projections and Contents of a Business Plan Guide , a series of posts on what each section of a simple business plan should include. The next post in this series is about the analysis of the target market for the business plan product.

About the Author

Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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Market Size: The Two Best Methods for Market Sizing Your Business, Plus Expert Tips

Published: September 20, 2024

When considering a new venture, you must understand: “What is market size?” More specifically, you need to know your venture’s potential market size. But “Why?” I hear you ask.

Picture this: You’ve put in months of hard work only to realize that 100 people in the U.S. will potentially buy your product.

The potential revenue from that population size may be worth your product's manufacturing, production, and distribution costs — or it may not.

But even if you’ve got 10,000 potential customers, you still need to go deeper in your market sizing to understand whether there’s a viable market.

Below, I’ll share methods to calculate your market size and accurately measure your business’ revenue potential.

I will also share first-hand experiences from founders, CEOs, entrepreneurs, and more who spoke to me about their market sizing journeys.

Keep reading, or jump to the section you’re looking for:

What is market sizing?

Why is market size important, market size vs. market value, market sizing terms to know, how to calculate market size, market sizing methods, market size: faqs.

Market sizing is the process of finding how big your product's audience or revenue could be. So, market size is the total number of potential buyers for a product or service and the potential revenue reach based on that population size.

When market sizing, you're calculating customer numbers to measure the growth potential of your business.

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There are several reasons why every business should spend time sizing its market:

• Market sizing helps you determine whether your product is a worthy investment. The latest data from the U.S. Bureau of Labor Statistics (BLS) finds that 23.2% of private sector businesses in the U.S. fail within the first year. Businesses fail for many reasons — however, miscalculating product demand (or not calculating it at all) is one of them.
• Market sizing helps you estimate profit and potential for growth. If you know how many people your business has the potential to reach, you can estimate how much revenue you can generate. This is valuable for both business owners and investors.

Real-world example:

“We first identified who fits into our target market so we could figure out an ideal market size,” says Michael Nemeroff , CEO and co-founder of apparel eCommerce brand Rush Order Tees .

Nemeroff says the brand considered business leaders, schools, sports teams, and event organizers their primary targets because they create customized apparel and other products. Because the team operates virtually, that market can extend as far as shipping is availability.

“The biggest challenge was accounting for differences across regions because of population density, event frequency, business hubs, etc.,” Nemeroff adds: “It’s a bit of a guessing game, but you’re making educated guesses that help you understand the viability of your idea and start planning your budget.”

According to Nemeroff, “it would be terrible to overshoot your market size considerably then overspend on a market where the juice isn’t worth the squeeze.”

• Market size defines who you’re marketing to and what their needs are. No business can succeed without marketing. Knowing your market size is the first step in understanding your target market and its needs.
• Market sizing helps your business make better decisions. Understanding your market landscape, gaps, and opportunities will inform your decision-making. It can also help you set realistic goals, assign resources, and refine your strategies.

“Skipping market sizing can lead to costly mistakes,” says Logan Mallory , vice president of marketing at Motivosity , an employee recognition and rewards platform.

“Early in my career, I was a part of a startup that did not prioritize market sizing. We anticipated that our product would appeal to a large number of people, so we spread our marketing efforts excessively thin.”

Mallory continues, “As a result, we wasted resources on low-conversion areas while passing up more lucrative prospects. If we had done comprehensive market sizing, we could have identified and targeted high-potential sectors from the outset, maximizing our budget and generating faster growth . ”

• Market sizing helps your business minimize risk. Starting or expanding a business is inherently risky. Understanding your market can help you anticipate and prepare for challenges.

Market size is the total potential demand for a product or service. This number usually calculates the number of potential customers, units sold, or revenue generated. So, market size is an estimate of the overall market reach.

Market value refers to a company or industry's financial worth or estimated market capitalization. It’s a measure of perceived value. It can give you an idea of how much a company could sell for in a given market.

In summary, market size focuses on the potential market opportunity, while market value is the financial value of an individual company or an entire market.

Before figuring out your market size, there are a few helpful terms you should get to know.

Total Addressable Market (TAM)

TAM stands for Total Addressable Market. This number is the maximum potential revenue or customer base a company could achieve if it captures 100% of its market share.

Serviceable Addressable Market (SAM)

SAM stands for Serviceable Addressable Market. SAM is a part of the TAM that aligns with the company's resources, capabilities, and target customers.

Serviceable Obtainable Market (SOM)

SOM stands for Serviceable Obtainable Market. SOM is the part of the SAM that a company can get at its current scale. This figure may consider marketing and sales strategies, competitive positioning, and product demand.

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How to Write the Market Analysis Section of a Business Plan

Written by Dave Lavinsky

What is the Market Analysis in a Business Plan?

The market analysis section of your business plan is where you discuss the size of the market in which you’re competing and market trends that might affect your future potential such as economic, political, social and/or technological shifts.

This helps you and readers understand if your market is big enough to support your business’ growth, and whether future conditions will help or hurt your business. For example, stating that your market size is $56 billion, has been growing by 10% for the last 10 years, and that trends are expected to further increase the market size bodes well for your company’s success.

Download our Ultimate Business Plan Template here

What Should a Market Analysis Include?

You’ll want to address these issues in your market analysis:

• Size of Industry – How big is the overall industry?
• Projected Growth Rate of Industry – Is the industry growing or shrinking? How fast?
• Target Market – Who are you targeting with this product or service?
• Competition – How many businesses are currently in the same industry?

Learn how to write the full market analysis below.

How to Write a Market Analysis

Here’s how to write the market analysis section of a business plan.

• Describe each industry that you are competing in or will be targeting.
• Identify direct competition, but don’t forget about indirect competition – this may include companies selling different products to the same potential customer segments.
• Highlight strengths and weaknesses for both direct and indirect competitors, along with how your company stacks up against them based on what makes your company uniquely positioned to succeed.
• Include specific data, statistics, graphs, or charts if possible to make the market analysis more convincing to investors or lenders.

    Finish Your Business Plan Today!

Industry overview.

In your industry overview, you will define the market in which you are competing (e.g., restaurant, medical devices, etc.).

You will then detail the sub-segment or niche of that market if applicable (e.g., within restaurants there are fast food restaurants, fine dining, etc.).

Next, you will describe the key characteristics of your industry. For example, discuss how big the market is in terms of units and revenues. Let the reader know if the market is growing or declining (and at what rate), and what key industry trends are facing your market.

Use third-party market research as much as possible to validate the discussion of your industry.

Here is a list of additional items you may analyze for a complete industry overview:

• An overview of the current state of the industry . How big is it, how much does it produce or sell? What are its key differentiators from competitors? What is its target customer base like – demographic information and psychographics? How has the industry performed over time (global, domestic)?
• Analyze the macro-economic factors impacting your industry . This includes items such as economic growth opportunities, inflation, exchange rates, interest rates, labor market trends, and technological improvements. You want to make sure that all of these are trending in a positive direction for you while also being realistic about them. For example, if the economy is in shambles you might want to wait before entering the particular market.
• Analyze the political factors impacting your industry . This is an often-overlooked section of any business plan, but it can be important depending on what type of company you are starting. If you’re in a highly regulated industry (such as medical devices), this is something that you’ll want to include.
• Analyze the social factors impacting your industry . This includes analyzing society’s interest in your product or service, historical trends in buying patterns in your industry, and any effects on the industry due to changes in culture. For example, if there is a growing counter-culture trend against big oil companies you might want to position yourself differently than a company in this industry.
• Analyze the technological factors impacting your industry . This includes analyzing new technologies being developed in software, hardware, or applications that can be used to improve your product or service. It also includes emerging consumer trends and will be highly dependent on your business type. In a technology-related venture, you would analyze how these changes are impacting consumers. For an educational-related venture, you would analyze how these changes are impacting students, teachers, and/or administrators.

For each of these items, you want to provide some detail about them including their current state as well as what external factors have played a role in the recent past. You can also include many other important factors if they apply to your business including demographic trends, legal issues, environmental concerns, and sustainability issues.

When you are done analyzing all of these factors, wrap it up by summing them up in a statement that includes your view on the future of the industry. This should be positive to attract investors, potential customers, and partners.

If you’re having trouble thinking about all of these factors then it might be helpful to first develop a SWOT analysis for your business.

Once you have an understanding of the market, you’ll need to think about how you will position yourself within that potential market.

Picking Your Niche

You want to think about how large your market is for this venture. You also want to consider whether you’d like to pick a niche within the overall industry or launch yourself into the mainstream.

If you have an innovative product it can be easier to enter the mainstream market – but at the same time, you might face some additional competition if there are similar products available.

You can choose to specialize in a niche market where you’ll face less competition – but might be able to sell your services at a higher price point (this could make it easier for you to get potential customers).

Of course, if your product or service is unique then there should be no competition. But, what happens if it isn’t unique? Will you be able to differentiate yourself enough to create a competitive advantage or edge?

If you are planning on entering the mainstream market, think about whether there are different sub-niches within your specific market. For example, within the technology industry, you can choose to specialize in laptops or smartphones or tablets, or other categories. While it will be more difficult to be unique in a mainstream market, you will still be able to focus on one type or category of products.

How Will You Stand Out?

Many companies are able to stand out – whether by offering a product that is unique or by marketing their products in a way that consumers notice. For example, Steve Jobs was able to take a business idea like the iPhone and make it into something that people talked about (while competitors struggled to play catch up).

You want your venture to stand out – whether with an innovative product or service or through marketing strategies. This might include a unique brand, name, or logo. It might also include packaging that stands out from competitors.

Write down how you will achieve this goal of standing out in the marketplace. If it’s a product, then what features do you have that other products don’t? If it’s a service, then what is it about this service that will make people want to use your company rather than your competition?

You also need to think about marketing. How are you going to promote yourself or sell your product or service? You’ll need a marketing plan for this – which might include writing copy, creating an advertisement, setting up a website, and several other activities. This should include a description of each of these strategies.

If you’re struggling with the details of any of these sections, it might be helpful to research what other companies in your market are doing and how they’ve been successful. You can use this business information to inform your own strategies and plans.

Relevant Market Size & Competition

In the second stage of your analysis, you must determine the size and competition in your specific market.

Target Market Section

Your company’s relevant market size is the amount of money it could make each year if it owned a complete market share.

It’s simple.

To begin, estimate how many consumers you expect to be interested in purchasing your products or services each year.

To generate a more precise estimate, enter the monetary amount these potential customers may be ready to spend on your goods or services each year.

The size of your market is the product of these two figures. Calculate this market value here so that your readers can see how big your market opportunity is (particularly if you are seeking debt or equity funding).

You’ll also want to include an analysis of your market conditions. Is this a growing or declining market? How fast is it growing (or declining)? What are the general trends in the market? How has your market shifted over time?

Include all of this information in your own business plan to give your readers a clear understanding of the market landscape you’re competing in.

The Competition

Next, you’ll need to create a comprehensive list of the competitors in your market. This competitive analysis includes:

• Direct Competitors – Companies that offer a similar product or service
• Indirect Competitors – Companies that sell products or services that are complementary to yours but not directly related

To show how large each competitor is, you can use metrics such as revenue, employees, number of locations, etc. If you have limited information about the company on hand then you may want to do some additional research or contact them directly for more information. You should also include their website so readers can learn more if they desire (along with social media profiles).

Once you complete this list, take a step back and try to determine how much market share each competitor has. You can use different methods to do this such as market research, surveys, or conduct focus groups or interviews with target customers.

You should also take into account the barriers to entry that exist in your market. What would it take for a new company to enter the market and start competing with you? This could be anything from capital requirements to licensing and permits.

When you have all of this information, you’ll want to create a table like the one below:

Once you have this data, you can start developing strategies to compete with the other companies which will be used again later to help you develop your marketing strategy and plan. 

Writing a Market Analysis Tips

• Include an explanation of how you determined the size of the market and how much share competitors have.
• Include tables like the one above that show competitor size, barriers to entry, etc.
• Decide where you’re going to place this section in your business plan – before or after your SWOT analysis. You can use other sections as well such as your company summary or product/service description. Make sure you consider which information should come first for the reader to make the most sense.
• Brainstorm how you’re going to stand out in this competitive market.

Formatting the Market Analysis Section of Your Business Plan

Now that you understand the different components of the market analysis, let’s take a look at how you should structure this section in your business plan.

Your market analysis should be divided into two sections: the industry overview and market size & competition.

Each section should include detailed information about the topic and supporting evidence to back up your claims.

You’ll also want to make sure that all of your data is up-to-date. Be sure to include the date of the analysis in your business plan so readers know when it was conducted and if there have been any major changes since then.

In addition, you should also provide a short summary of what this section covers at the beginning of each paragraph or page. You can do this by using a title such as “Industry Overview” or another descriptive phrase that is easy to follow.

As with all sections in a business plan, make sure your market analysis is concise and includes only the most relevant information to keep your audience engaged until they reach your conclusion.

A strong market analysis can give your company a competitive edge over other businesses in its industry, which is why it’s essential to include this section in your business plan. By providing detailed information about the market you’re competing in, you can show your readers that you understand the industry and know how to capitalize on current and future trends.

Business Plan Market Analysis Examples

The following are examples of how to write the market analysis section of a business plan:

Business Plan Market Analysis Example #1 – Hosmer Sunglasses, a sunglasses manufacturer based in California

According to the Sunglass Association of America, the retail sales volume of Plano (non-prescription) sunglasses, clip-on sunglasses, and children’s sunglasses (hereinafter collectively referred to as “Sunwear”) totaled $2.9 billion last year. Premium-priced sunglasses are driving the Plano Sunwear market. Plano sunglasses priced at $100 or more accounted for more than 49% of all Sunwear sales among independent retail locations last year. 

The Sunglass Association of America has projected that the dollar volume for retail sales of Plano Sunwear will grow 1.7% next year. Plano sunglass vendors are also bullish about sales in this year and beyond as a result of the growth of technology, particularly the growth of laser surgery and e-commerce.

Business Plan Market Analysis Example #2 – Nailed It!, a family-owned restaurant in Omaha, NE

According to the Nebraska Restaurant Association, last year total restaurant sales in Nebraska grew by 4.3%, reaching a record high of $2.8 billion. Sales at full-service restaurants were particularly strong, growing 7% over 2012 figures. This steady increase is being driven by population growth throughout the state. The Average Annual Growth Rate (AGR) since 2009 is 2.89%.

This fast growth has also encouraged the opening of new restaurants, with 3,035 operating statewide as of this year. The restaurant industry employs more than 41,000 workers in Nebraska and contributes nearly $3 billion to the state economy every year.

Nebraska’s population continues to increase – reaching 1.9 million in 2012, a 1.5% growth rate. In addition to population, the state has experienced record low unemployment every year since 2009 – with an average of 4.7% in 2013 and 2014.

Business Plan Market Analysis Example #3 – American Insurance Company (AIC), a chain of insurance agencies in Maine

American Insurance Company (AIC) offers high-quality insurance at low prices through its chain of retail outlets in the state of Maine. Since its inception, AIC has created an extensive network of agents and brokers across the country with expanding online, call center and retail business operations.

AIC is entering a market that will more than double in size over the next 50 years according to some industry forecasts. The insurance industry is enjoying low inflation rates, steady income growth, and improving standards of living for most Americans during what has been a difficult period for much of American business. This makes this a good time to enter the insurance industry as it enjoys higher margins because customers are purchasing more coverage due to increased costs from medical care and higher liability claims.

American Insurance Company provides affordable homeowners, auto, and business insurance through high-quality fulfillment centers across America that have earned a reputation for top-notch customer service.

AIC will face significant competition from both direct and indirect competitors. The indirect competition will come from a variety of businesses, including banks, other insurance companies, and online retailers. The direct competition will come from other well-funded start-ups as well as incumbents in the industry. AIC’s competitive advantages include its low prices, high quality, and excellent customer service.

AIC plans to grow at a rate that is above average for the industry as a whole. The company has identified a market that is expected to grow by more than 100% in the next decade. This growth is due to several factors: the increase in the number of two-income households, the aging population, and the impending retirement of many baby boomers will lead to an increase in the number of people who are purchasing insurance.

AIC projects revenues of $20M in year one, which is equivalent to 100% growth over the previous year. AIC forecasts revenue growth of 40%-60% each year on average for 10 years. After that, revenue growth is expected to slow down significantly due to market saturation.

The following table illustrates these projections:

Competitive Landscape

Direct Competition: P&C Insurance Market Leaders

Indirect Competition: Banks, Other Insurance Companies, Retailers

Market Analysis Conclusion

When writing the market analysis section, it is important to provide specific data and forecasts about the industry that your company operates in. This information can help make your business plan more convincing to potential investors.

If it’s helpful, you should also discuss how your company stacks up against its competitors based on what makes it unique. In addition, you can identify any strengths or weaknesses that your company has compared to its competitors.

Based on this data, provide projections for how much revenue your company expects to generate over the next few years. Providing this information early on in the business plan will help convince investors that you know what you are talking about and your company is well-positioned to succeed.  

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Other Resources for Writing Your Business Plan

How to Write a Great Business Plan Executive Summary How to Expertly Write the Company Description in Your Business Plan The Customer Analysis Section of Your Business Plan Completing the Competitive Analysis Section of Your Business Plan The Management Team Section of Your Business Plan Financial Assumptions and Your Business Plan How to Create Financial Projections for Your Business Plan Everything You Need to Know about the Business Plan Appendix Best Business Plan Software Business Plan Conclusion: Summary & Recap  

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Learn from the business planning experts, resources to help you get ahead, market analysis, table of contents.

The Market Analysis section of a business plan is crucial, providing detailed insights into the business environment. It helps entrepreneurs understand their industry, target markets , competition, and the broader economic landscape. This analysis is essential for informed decision-making, strategic planning, risk mitigation, and building investor or banker confidence.

However, before diving into the details of market analysis, it’s imperative for entrepreneurs to have a profound understanding of their target customer.

This foundational step is crucial as it shapes the entire market analysis process, ensuring that the insights gained are relevant and actionable for your specific business idea.

Divergent Paths to Understanding Your Customer

• Model-Based Planning®:  Ideal for experienced entrepreneurs in well-defined industries, Model-Based Planning® offers a structured, model-specific framework. It includes pre-developed customer profiles that guide focused market analysis.
• Pre-Vision Interviews:  Suited for entrepreneurs at the idea phase or those entering new markets, Pre-Vision Interviews establish deep customer understanding. This approach is crucial for businesses that aim to be first-movers or fast-followers and is often vital for those seeking investor capital. For entrepreneurs at the idea stage or entering new markets, delve into the detailed customer insights with Pre-Vision Interviews by   clicking here .

With a clear understanding of your customers, through either Model-Based Planning® or Pre-Vision Interviews , you’re now ready to delve into the various components of Market Analysis, as detailed in the following sections of this webpage.

Components of Market Analysis

Market analysis summary.

• Role as a Synthesis of Findings:  The Market Analysis Summary encapsulates the key findings from your market research . It serves as an executive overview, providing a snapshot of the market’s health, potential, and challenges. This summary should highlight significant points such as market size, growth projections, key trends, and competitive landscape.
• Writing it Last:  It’s recommended to write the summary after completing all other sections of the market analysis. This approach ensures that the summary accurately reflects the comprehensive understanding gained from detailed research.

Detailed Market Analysis

• Understanding Market Size, Growth Rate, and Trends:  Assess the size of the market, its growth rate over time, and key trends affecting it. This includes demographic shifts, technological advancements, and changes in consumer behavior. Use reliable data sources and forecasting methods to provide a well-rounded view of the market.
• Identifying Target Market Segments:  Define the specific customer segments within the market that your business will target. Consider factors like demographics , psychographics, geographic location, and buying behaviors. Tailor your marketing strategies to these segments to maximize impact and efficiency.

Industry Analysis

• Current State of the Industry:  Provide an overview of the industry, including its history, current status, and major players. Discuss the industry’s regulatory environment and any recent changes that might affect the business.
• Industry Structure and Dynamics:  Analyze the industry’s structure, including its supply chain , distribution channels , and major competitors. Evaluate the industry’s competitive dynamics, market entry barriers, and typical profit margins.

Trends Analysis

• Identifying and Evaluating Trends:  Identify current and emerging trends within the industry and market. These could be technological advancements, changes in consumer preferences, or shifts in regulatory policies. Analyze how these trends will impact the industry and your business specifically.
• Impact of Trends on Industry and Target Market:  Discuss the potential opportunities and threats these trends present. Plan strategies to leverage opportunities and mitigate risks associated with these trends.

Competitor Analysis

• Identifying Key Competitors:  List the major competitors in your market, focusing on those directly competing with your business. Assess their market share, strengths, weaknesses, and strategic positioning.
• Assessing Competitors’ Strengths, Weaknesses, and Strategies:  Conduct a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) for each key competitor. Understand their strategies and how they have been successful or fallen short in the market.

Utilizing Research Tools in Market Analysis

Role of ibis world, esri, and statista in market research.

• IBIS World:  IBIS World is renowned for its comprehensive collection of industry reports and business environment profiles. It offers detailed insights into market conditions, industry trends, and competitive landscapes. These reports are pivotal for understanding industry dynamics and forecasting future market developments.
• ESRI:   ESRI , particularly through its ArcGIS platform, provides a wealth of location-based data and analytics. ESRI’s Market Potential data, for example, offers insights into consumer behavior and demand across various product and service categories. This data is instrumental in understanding geographical market trends and potential customer bases, making it invaluable for businesses seeking to target specific locations or demographics​​​​​​.
• Statista:   Statista is a leading statistics portal, offering access to data from market and opinion research institutions, as well as from business entities and government institutions. It’s a versatile tool for market analysis, providing up-to-date data on various industries, including market sizes, trends, and forecasts.

Leverage These Tools for Quality Research

• Deep Dive into Industry Reports:  Utilize IBIS World for in-depth industry reports to understand your market’s size, trends, and competitive landscape.
• Geographical and Demographic Analysis:  Use ESRI’s tools to analyze market potential based on location and demographics, helping to identify where your customers are and their spending behaviors.
• Statistical Data for Market Trends:  Leverage Statista for comprehensive statistical data to support your market size estimates, trend analysis, and forecasting.

Identifying Industry-Specific Resources

• Look for sources that provide up-to-date, comprehensive, and accurate data.
• Ensure the sources are recognized and respected within the industry.
• Consider the depth of information provided; more detailed reports often offer better insights.
• Trade associations often publish detailed reports on industry trends.
• Government databases can provide reliable statistics on various industries.
• Academic journals and publications can offer in-depth analysis and forecasts.

Incorporating these tools into your market analysis process will enhance the quality of your research, providing a solid foundation for your business plan.

Conducting Competitor Analysis

Importance of personal involvement in competitor research.

Engaging in competitor research personally offers invaluable insights. It allows you to observe and understand your competitors’ strengths and weaknesses from a customer’s perspective. This direct engagement is crucial for developing strategies to differentiate and compete effectively.

Techniques for Effective Competitive Analysis

• Talk to Competitors’ Customers:  Engaging with the customers of your competitors can provide candid insights into what they value and their experiences. This feedback is often more unfiltered and honest than promotional materials or sales pitches.
• Experience Competitors’ Offerings:  Purchase and use the products or services of your competitors. This firsthand experience can reveal strengths to emulate and weaknesses to exploit in your own offerings.
• Visit Competitor Locations:  If applicable, visit their physical establishments. Observe their customer service, store layout, product presentation, and overall customer experience.
• Analyze Competitor Websites:  Review their online presence, noting their branding, communication style, customer engagement, and online services. Look for areas where they excel or lack, providing opportunities for your business to stand out.
• Examine Online Reviews:  While being cautious of potentially manipulated reviews, pay special attention to less-than-perfect ratings. Trends in these reviews can highlight areas that customers feel need improvement.
• Market Positioning:  Understand how your competitors position themselves in the market. Analyze their marketing materials, advertising strategies, and any unique selling propositions they highlight.
• Pricing Strategies:  Observe their pricing models. Are they competing on price, quality, service, or innovation? Understanding their approach can guide your own pricing strategy.
• Supplier and Partner Relationships:  Investigate their supply chain and partnerships. This might give insights into their operational efficiencies or dependencies.
• Customer Service Analysis:  Evaluate their customer service approach. Are there gaps in their customer support that your business could fill?
• Social Media Engagement:  Analyze their social media presence. How do they interact with customers online? What kind of content generates the most engagement?
• Employee Feedback:  If possible, gain insights from current or former employees about the internal workings of the competitor’s business. This can provide a unique perspective on their operations, culture, and challenges.

Outsourcing Market Analysis

When to consider outsourcing.

Outsourcing market analysis can be a strategic decision for businesses, especially when internal resources are limited or when specialized expertise is required. Consider outsourcing when:

• Lack of In-House Expertise:  If your team lacks the skills or experience in conducting in-depth market research.
• Time Constraints:  When you’re under tight timelines to develop a business plan and need to expedite the research process.
• Need for Specialized Knowledge:  Certain industries or markets may require specialized knowledge that an external expert or agency can provide.
• Objective Perspective:  Sometimes, an external perspective can provide unbiased and fresh insights that internal teams might overlook.

Business Plan Writer Reviews

For guidance on choosing the right professional or agency for outsourcing your market analysis, check out our Business Plan Writer Reviews .

Essential Qualifications of Professional Business Plan Writers

When hiring a professional for market analysis, ensure they possess the following qualifications:

• Active Subscriptions to Key Research Organizations:  Verify that they have access to essential market research tools like IBIS World, ESRI, Statista, and others relevant to your industry. Active subscriptions indicate that they can provide current and comprehensive data.
• Experience and Expertise in Diverse Industry Research:  Look for professionals with a proven track record in conducting market analysis across various industries. This experience demonstrates their ability to adapt research methods to different business models and market conditions.
• Understanding of Different Business Models:  The consultant should understand various business models, especially if your business falls into a niche or emerging market. Their ability to adapt their research methodology to fit different models is crucial.
• Analytical Skills:  They should possess strong analytical skills to interpret data effectively and provide actionable insights.
• Communication Skills:  Good communication skills are essential for them to convey complex information in an understandable manner, aligning with your business needs.
• References and Past Work Samples:  Ask for references or samples of their past work to assess the quality and relevance of their research.

Market Analysis in Your Business Plan

Conducting a thorough market analysis is an indispensable part of developing a robust business plan. It provides critical insights into the market size, growth potential, industry trends, competitive landscape, and customer preferences. This analysis forms the foundation upon which strategic decisions are made, risks are assessed, and opportunities are identified.

The insights gained from the market analysis should be seamlessly integrated into your business plan.

A well-executed market analysis can significantly enhance the effectiveness and persuasiveness of your business plan, especially in the eyes of stakeholders, bankers, or potential investors.

Up Next: Developing the Organizational Structure

Having completed the market analysis, the next step in your business planning journey is to develop the organizational structure of your business. This involves outlining the management team, defining roles and responsibilities, and establishing the operational framework of your organization. A clear and efficient organizational structure is crucial for effective management and smooth operation.

Proceed to Organizational Structure

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What Is Market Sizing And Why It Matters In Business

Market sizing is the estimation of the potential of a market. Incorporating market research, market sizing is useful for businesses looking to introduce a new product or service to evaluate the business opportunity. Market sizing also helps investors to understand the value of the potential opportunity within the target company’s business plan.

Table of Contents

Understanding market sizing

For businesses wishing to enter a new market, the research that goes into market analysis is daunting in its complexity. 

Market sizing seeks to remove that complexity by breaking the analysis into smaller sets of assumptions.

These assumptions can then be extrapolated to form an overall market size estimate.

Once a business has successfully undertaken market sizing, it can determine the level of investment required and also potential growth strategies.

It can also gauge the value of a market and its profitability – factors that ultimately determine whether the business enters said market.

The three basic steps to market sizing

To be effective, market sizing should be a bottom-up approach. Although time-consuming, this approach to market research gives more realistic and accurate market potential.

Using the bottom-up approach, market size can be calculated by multiplying the number of units sold by the price of each unit. 

In other words, businesses using this approach start with the smallest known pieces of data and then use these data to build up a realistic representation of their market.

This approach differs from the top-down approach, which is based on generalized and trend-inflated market valuation whose data accuracy is often questionable.

Here is how the bottom-up approach works.

1. Define the target market

The first step is perhaps the most important, and it involves understanding a target audience. In other words, who is the type of person a product or service is best suited to?

A buyer persona can help because it allows businesses to be ultra-specific on the type of people they want to attract. 

Then, the business must determine the size of their target market . This can be done in several ways and may involve contacting business organizations or governmental and commerce agencies.

For example, a high-end baby food company may contact its local commerce board to determine that there are 550 high-end supermarkets in their state.

2. Assess product interest

Then, the business should determine the number of consumers who may be interested in buying their product.

This can be done by looking at competitors and their annual sales data.

However, sometimes this information is hard to obtain. If competitor data cannot be found, then focus groups and surveys can be used to gauge the likely level of interest in a new product.

While the baby-food company may have identified 550 stores, they find that only 250 are interested in stocking the product on their shelves.

3. Calculate the potential sales

Calculating potential sales can be tricky, but an accurate approximation can be obtained by competitor analysis or by referring to cash flow forecasting or other finance based models.

In the case of the baby-food company, it estimates a roll-out cost of $20 million across 250 stores compared to potential annual revenue of $60 million.

Although the investment is 33% of forecasted annual revenue, profits in the second year sans roll-out costs are significantly higher. Therefore, the company decides to enter the market.

Market sizing example

Now that we’ve provided an overview of market sizing and how it works, let’s take a look at the hypothetical example of a LED manufacturer.

The manufacturer wants to know the size of the residential LED market size in the United States. 

Step 1 – Defining the target market

In first defining a target market , the manufacturer may find there are several audiences worth quantifying. These include:

• Environmentally-conscious consumers who want to switch out their incandescent bulbs for LEDs.
• First-home owners who want to incorporate LED lighting as part of a new build.
• Existing homeowners who want to upgrade or improve the lighting in older homes that are dimly lit.
• Homeowners living in states where incandescent bulbs have been banned by authorities.

The company can then perform detailed research and determine how many LED units are sold in each market and add them together to determine the total market size.

Alternatively and upon further research, it is found that the  total US LED market was valued at $9.89 billion in 2020  and is expected to be worth $17.22 billion by 2028.

However, these data account for LED sales across the residential, commercial, industrial, retail, hospitality, and healthcare sectors. 

Step 2 – Assess product interest

To determine what percentage of total LED sales are residential, the company learns that  47% of all United States households use LEDs for all or most of their lighting . 

If there are approximately  142.2 million houses in the United States , this equates to around 66.8 million potential customers.

Step 3 – Calculate the potential sales

As we noted earlier, calculating the potential sales for any product or service can be one of the most difficult parts of market sizing.

Below we have listed some assumptions for both existing and new homes in the United States.

Existing homes

• Approximately 66.8 million homes use LED illumination.
• The average US home has seven rooms with three LED units in each. Hence, the total number of LED units in all American homes is approximately 66.8 million x 7 x 3 = 1.4028 billion units.
• Considering the  average LED unit lasts 14 years , we can assume that 1.4028 billion units are purchased/replaced every 14 years. As a result, the company calculates that around 100 million units are purchased every year in existing homes.
• According to the US Census Bureau,  912,000 family homes were built in 2021 .
• For the sake of this article, let’s assume that every one of these new builds incorporates LED units with none using incandescent bulbs. Let’s also assume that these homes have an average of 7 rooms and 4 LED units in each. 
• The market size for LED units in new homes in the United States is therefore 912,000 x 7 x 4 = 25.536 million.

The company then adds the number of LED units sold in existing homes and new homes on an annual basis and arrives at a number of 125.53 million. 

If we assume that the average cost of an LED unit (including standard bulbs and more expensive downlights) is $15, the residential market for LED lighting as it stands today is worth around $1.88 billion annually.

Key takeaways:

• Market sizing is the estimate of the size of a market using insights gleaned from a target audience and existing or potential sales volume.
• Market sizing is a bottom-up approach that utilizes known data to give a representative view of the larger market. It is more accurate than the top-down approach that relies on generalized or assumption based market data from competitors.
• At its core, market sizing is an iterative process that is based on an accurate and detailed view of the target audience a business hopes to serve.

Key Highlights:

• Definition of Market Sizing: Market sizing is the process of estimating the potential size of a market for a specific product or service. It involves breaking down market analysis into smaller assumptions to arrive at an overall estimate of the market’s potential.
• Helps businesses assess business opportunities for introducing new products or services.
• Assists investors in understanding the value of potential opportunities in a company’s business plan.
• Define Target Market: Understand the target audience and determine the size of the market segment. Utilize buyer personas to be specific about the intended customers.
• Assess Product Interest: Determine the number of potential consumers interested in buying the product. Look at competitor data or conduct focus groups and surveys.
• Calculate Potential Sales: Calculate potential sales by multiplying the number of units sold by the price of each unit.
• Bottom-Up Approach: Market sizing should be a bottom-up approach, starting with known data and building up a realistic view of the market. This approach is more accurate than the top-down approach that relies on generalized data.
• Defining Target Market: Define different segments interested in LED lighting, such as environmentally-conscious consumers, first-home owners, existing homeowners, and those living in areas where incandescent bulbs are banned.
• Assessing Product Interest: Determine the percentage of households using LEDs and apply it to the total number of households in the target area.
• Calculating Potential Sales: Calculate potential sales for existing and new homes separately, considering the number of LED units per home, lifespan of LEDs, and market size for each segment.
• Market sizing assists businesses in understanding the potential of a market before entering with a new product or service.
• The process involves defining the target market , assessing product interest, and calculating potential sales.
• A bottom-up approach based on detailed data is more accurate than a top-down approach based on generalized market data.
• Market sizing is an iterative process that requires a detailed understanding of the target audience and potential sales volume.

Case Studies

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How to Identify Market Trends in Your Business Plan Where is your industry now, and where's it going? Here's the best way to track industry movements.

By Eric Butow Oct 27, 2023

Opinions expressed by Entrepreneur contributors are their own.

This is part 5 / 9 of Write Your Business Plan: Section 4: Marketing Your Business Plan series.

Timing in business is everything.

And the best time to address a trend is before it is even beginning and certainly before it is widely recognized. If you can prepare a business that satisfies a soon-to-be popular need, you can generate growth that is practically off the scale. (This is, by the way, the combination that venture capitalists favor most.) The problem, of course, is spotting the trends first and acting quickly before others jump in line ahead of you.

Marc Andreessen, founder of Netscape Communications, had the good fortune to develop software for browsing the web just as the internet, which had been around for twenty years, was coming to widespread popular attention. The timing of his move made him hundreds of millions of dollars, but some browser developers who came later fell by the wayside.

Related: Your Guide to Gaining a Competitive Edge and Succeeding as an Entrepreneur Over the Next 5 Years

How to Identify Trends

What is a trend ? Loosely defined, it is a series of occurrences that indicates a pattern. You can use a couple of techniques to identify trends and present your identifications in your plan. Some trend analysts look at past events (usually trends themselves) and project them forward. For example, trend analysts in recent years have looked at the huge numbers of baby boomers, people born in the years between 1946 and 1964. They then projected forward to see that these baby boomers would be retiring in the near future and saw a defined market for that segment of the population.

Another good way to forecast trends is by test marketing. You try to sell something in a single store and see how it does before you roll it out in your whole chain. The key to this technique is trying it in a well-selected test market that closely resembles the market you'll try to sell to later.

Related: Profit From Current Fads

Focus groups and surveys try to catch hold of trends by asking people what's hot. You can ask open-ended questions: What type of apps or new mobile phone features would you like to see? Or show them product samples and see how they react. This is also tricky because you are dealing with a small group of, you hope, representative people and extrapolating to a larger group. If your group isn't representative, your results may be misleading.

Related: 5 Must-Haves for Entrepreneurs and Their Startups to be Successful

Some other ways you can try to nail a trend in advance: Talk to salespeople who are in touch with customer needs, quiz executives whose jobs are to watch the big picture, read a wide variety of periodicals and try to spot connections, or hire think tanks of experts to brainstorm over what the future might hold.

In most of these trend-forecasting techniques, statistics play a big role. Mathematicians assign numerical values to variables such as loyalty to existing brands, then build a model that can indicate invisible trends to intuitive analysis. Providing some statistics in the trends section of your plan can make it more convincing.

Related: How to Identify and Research Your Competition

More in Write Your Business Plan

Section 1: the foundation of a business plan, section 2: putting your business plan to work, section 3: selling your product and team, section 4: marketing your business plan, section 5: organizing operations and finances, section 6: getting your business plan to investors.

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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:

Industry outlook

Target market

Market value

Competition

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:

Market size

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

Projected growth

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:

Demographics

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:

Income level

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

Focus groups

Reading reviews

Feedback 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

Advertising

Environmental regulations

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.

Final thoughts

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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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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What Is a Market Analysis? 3 Steps Every Business Should Follow

Your market analysis validates demand and helps you understand where you fit in the competitive landscape.

Wouldn’t it be great if you could launch a business knowing, without a doubt, that you’d succeed? While literally seeing into the future isn’t plausible, savvy ecommerce entrepreneurs know there are a few steps you can take to validate your business ideas and make sure there’s a customer base and target market ready to spend their money on your offer.

One of those business planning steps is conducting a market analysis, and it's critical for winning over the hearts and minds of potential customers in your target market.

In this guide, we'll cover the market analysis process, and how to utilize your findings into your own marketing efforts using market data.

What is a market analysis?

Market analysis is the process of evaluating various factors that impact a specific market, such as industry trends, customer preferences, and competitor behavior. It involves gathering and analyzing data to understand market size, growth potential, target audience, and competitive landscape. Market analysis helps businesses make informed decisions, identify opportunities, and develop effective marketing strategies.

At minimum, your market analysis should identify the following:

• Who your target customer is
• Where, why, and how they shop
• The size of your target market
• The price people are willing to pay for what you sell
• Your competitors and their strengths and weaknesses

Keep in mind that the market changes, so conducting a market analysis isn’t just for new businesses—established businesses can also use market analysis to validate new product ideas or address challenges.

Here’s a quick market analysis example to demonstrate exactly that: iHeartRaves analyzed the market when the COVID-19 pandemic first hit. The clothing brand sells apparel people wear at music festivals and gatherings—events that slowed down or even halted during the pandemic.

As such, the brand needed to pivot . So, it changed promotional tactics and added face masks to its product lineup after conducting a quick analysis to see what opportunities it could pursue.

Free competitor research template

Find a strategic angle to achieve sales success, uncover your product-market fit, and stand out from the competition with our free template.

How to do a market analysis

There are three main steps to completing a market analysis for your ecommerce business:

• Research the industry
• Understand your audience
• Know how you stack up against competitors

1. Research the industry

Now it’s time to understand the industry as a whole. Researching your chosen industry helps you get a bird’s-eye view of the market landscape.

When researching your particular industry for your market analysis, consider the following:

• Market size. Estimate how many businesses and customers are in your potential industry. A big market could be saturated and require you to niche down more specifically, whereas a smaller market could mean there’s lots of opportunity for new businesses.
• Market value. Get insight into how much money the industry generates each year. Lots of consumer spending means there’s plenty of opportunity for you to claim your slice of the pie.
• Market demand . As many as 42% of new business startups fail because of insufficient demand, so it’s essential to validate that people want what you offer before you pursue your idea.
• Market need. Identify gaps in the market and how the existing landscape falls short in those areas.

Here are some reputable places to check for this data:

• US Bureau of Labor Statistics
• North American Industry Classification System
• USAGov data and statistics about the US
• US Census Bureau Census Business Builder
• US Bureau of Labor Statistics consumer price index
• US Department of Commerce Bureau of Economic Analysis
• US Federal Reserve daily interest rates
• Federal Reserve financial data
• Bureau of Economic Analysis gross domestic product
• US Census Bureau Statistics of US Businesses

You may also find industry-specific resources. For example, if you’re looking to start a pet business , check out the American Pet Products Association and the American Veterinary Medical Association .

2. Understand your audience

Now it’s time to drill deeper into your research and understand your target market —the people behind the demand in your industry. This step involves customer research and segmenting your audience based on shared characteristics.

When researching your potential audience, you want to know the following:

• How old they are
• Where they live
• Where they work, what they do, and how much they make
• Where and how they shop
• What they buy, and how much money they spend
• What technology they use
• How they interact with brands
• Their current market perceptions
• Their pain points and challenges

Audience research involves both internal and external sources. If you have an existing audience, you can tap them for valuable insights. Run surveys and questionnaires to get their thoughts, and pursue more thorough and in-depth interviews with individuals who exemplify your target customer. If you don’t already have an audience you can leverage, you might invest in focus groups for your own research purposes.

External data is equally valuable. You’ll want to understand things like where your audience lives, works, and hangs out, as well as how much they make and spend. You’ll also want to gain an understanding of their current perceptions about your industry or product(s). Here are some places to get external data about your customer:

• Bureau of Economic Analysis consumer spending
• US Federal Reserve consumer credit data
• US Consumer Product Safety Commission research and reports
• US Census Bureau
• US Bureau of Labor Statistics demographic data
• US Bureau of Labor Statistics employment (and unemployment) data
• US Bureau of Labor Statistics earnings data
• US Bureau of Labour Statistics employment data

You can also do social listening to see what people are saying online, conduct SEO research to see what people are searching for, and check customer reviews to find out how people like or don’t like products that are already in the market.

3. Know how you stack up against competitors

Much like you want to know about your audience when you’re conducting a market analysis, you also want to understand the competitive landscape. Knowing who your competitors are helps you pin how your brand is different and how you can differentiate yourself from other players in the market.

It’s important to differentiate yourself from competitors because this will increase perceived value and push customers to purchase your options instead of the same or similar options from other brands or businesses. When Albert Matheny launched his natural protein brand Promix  he has relied on market research and analysis to remain competitive as the market evolves. “Identify some unique propositions that you have for customers or unique values that your brand has and then make those really, really clear and simple. Don’t try to highlight too many different things,” he said in an episode of Shopify Masters . “Constantly evolve and say, ‘How can I make this product better?’”

The first part of understanding how to differentiate involves understanding your brand and your business and what you bring to the table. You can conduct a SWOT analysis —which identifies your unique strengths, weaknesses, opportunities, and threats—to understand your position in the market.

Here’s a hypothetical SWOT analysis for an online t-shirt business:

You’ll also want to go ahead and conduct a  competitive analysis . Generally speaking, you want to pick seven to 10 competitors to include in your competitive analysis. Include a variety of competitors, such as those who sell a similar product to the same customer as you, as well as those who sell a slightly different product to a slightly different customer in the same industry. This means going for a variety of direct, indirect, and tertiary competitors.

When analyzing your competitors, you want to understand what they offer, how they position themselves, and how people perceive them. To help with your competitive analysis, we’ve created a free template you can use. It has rows for each competitor’s pricing, offering, marketing, shipping, and more, so you can cover all the bases.

How to write a market analysis for a business plan

While you might have a comprehensive market analysis documented for internal purposes—this is especially helpful for marketing and business development teams—you may create a shortened version for your business plan .

Your business plan is another comprehensive document that outlines all areas of your business, including your market analysis and other elements such as business structure , operations and logistics, and financials. So when you prepare the market analysis section for your business plan, you’ll want to summarize the findings from your full in-depth analysis.

Narrow your analysis down to the most important information that most convincingly validates your idea and likelihood of success. Remember what type of business plan you’re writing and who you’re writing it for. Feel free to use bullet points, tables, and charts to make the information presentable.

If you’re drafting a business plan for your business, you can start with our free business plan template to guide you through each section.

Moving forward with your business plan

Though an important component, your market analysis is just one piece to your overarching business strategy and plan. Careful business planning across all areas of your entrepreneurial endeavor will set you up for success and ultimately help improve the chances of your marketing strategies paying off down the road.

Market analysis FAQ

What is market analysis.

Market analysis is the process of assessing a specific industry, niche, or market segment with the goal of understanding a target audience and competitive landscape.

What is the purpose of market analysis?

Market analysis helps brands better understand how to promote their products to a specific target audience. It can also help to demonstrate the viability of a business idea for the purpose of securing investments.

What are the steps to performing a market analysis?

• Research the industry. Consider market size, value, demands and needs. 
• Understand your audience. Research age, location, and how they interact with brands. 
• Know how you stack up against competitors. Examine your strengths and weaknesses, and identify opportunities and threats.

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Analyze your market like a pro with this step-by-step guide + insider tips

Don’t fall into the trap of assuming that you already know enough about your market.

No matter how fantastic your product or service is, your business cannot succeed without sufficient market demand .

You need a clear understanding of who will buy your product or service and why .

You want to know if there is a clear market gap and a market large enough to support the survival and growth of your business.

Industry research and market analysis will help make sure that you are on the right track .

It takes time , but it is time well spent . Thank me later.

WHAT is Market Analysis?

The Market Analysis section of a business plan is also sometimes called:

• Market Demand, Market Trends, Target Market, The Market
• Industry Analysis & Trends, Industry & Market Analysis, Industry and Market Research

WHY Should You Do Market Analysis?

First and foremost, you need to demonstrate beyond any reasonable doubt that there is real need and sufficient demand for your product or service in the market, now and going forward.

• What makes you think that people will buy your products or services?
• Can you prove it?

Your due diligence on the market opportunity and validating the problem and solution described in the Product and Service section of your business plan are crucial for the success of your venture.

Also, no company operates in a vacuum. Every business is part of a larger overall industry, the forces that affect your industry as a whole will inevitably affect your business as well.

Evaluating your industry and market increases your own knowledge of the factors that contribute to your company’s success and shows the readers of your business plan that you understand the external business conditions.

External Support

In fact, if you are seeking outside financing, potential backers will most definitely be interested in industry and market conditions and trends.

You will make a positive impression and have a better chance of getting their support if you show market analysis that strengthens your business case, combining relevant and reliable data with sound judgement.

Let’s break down how to do exactly that, step by step:

HOW To Do Market Analysis: Step-by-Step

So, let’s break up how market analysis is done into three steps:

• Industry:  the total market
• Target Market: specific segments of the industry that you will target
• Target Customer: characteristics of the customers that you will focus on

Step 1: Industry Analysis

How do you define an industry.

For example, the fashion industry includes fabric suppliers, designers, companies making finished clothing, distributors, sales representatives, trade publications, retail outlets online and on the high street.

How Do You Analyze an Industry?

Briefly describe your industry, including the following considerations:

1.1. Economic Conditions

Outline the current and projected economic conditions that influence the industry your business operates in, such as:

• Official economic indicators like GDP or inflation
• Labour market statistics
• Foreign trade (e.g., import and export statistics)

1.2. Industry Description

Highlight the distinct characteristic of your industry, including:

• Market leaders , major customer groups and customer loyalty
• Supply chain and distribution channels
• Profitability (e.g., pricing, cost structure, margins), financials
• Key success factors
• Barriers to entry preventing new companies from competing in the industry

1.3. Industry Size and Growth

Estimate the size of your industry and analyze how industry growth affects your company’s prospects:

• Current size (e.g., revenues, units sold, employment)
• Historic and projected industry growth rate (low/medium/high)
• Life-cycle stage /maturity (emerging/expanding/ mature/declining)

1.4. Industry Trends

• Industry Trends: Describe the key industry trends and evaluate the potential impact of PESTEL (political / economic / social / technological / environmental / legal) changes on the industry, including the level of sensitivity to:
• Seasonality
• Economic cycles
• Government regulation (e.g. environment, health and safety, international trade, performance standards, licensing/certification/fair trade/deregulation, product claims) Technological change
• Global Trends: Outline global trends affecting your industry
• Identify global industry concerns and opportunities
• International markets that could help to grow your business
• Strategic Opportunity: Highlight the strategic opportunities that exist in your industry

Step 2: Target Customer Identification

Who is a target customer.

One business can have–and often does have–more than one target customer group.

The success of your business depends on your ability to meet the needs and wants of your customers. So, in a business plan, your aim is to assure readers that:

• Your customers actually exist
• You know exactly who they are and what they want
• They are ready for what you have to offer and are likely to actually buy

How Do You Identify an Ideal Target Customer?

2.1. target customer.

• Identify the customer, remembering that the decision-maker who makes the purchase can be a different person or entity than the end-user.

2.2. Demographics

• For consumers ( demographics ): Age, gender, income, occupation, education, family status, home ownership, lifestyle (e.g., work and leisure activities)
• For businesses ( firmographic ): Industry, sector, years in business, ownership, size (e.g., sales, revenues, budget, employees, branches, sq footage)

2.3. Geographic Location

• Where are your customers based, where do they buy their products/services and where do they actually use them

2.4 Purchasing Patterns

• Identify customer behaviors, i.e., what actions they take
• how frequently
• and how quickly they buy

2.5. Psychographics

• Identify customer attitudes, i.e., how they think or feel
• Urgency, price, quality, reputation, image, convenience, availability, features, brand, customer service, return policy, sustainability, eco-friendliness, supporting local business
• Necessity/luxury, high involvement bit ticket item / low involvement consumable

Step 3: Target Market Analysis

What is a target market.

Target market, or 'target audience', is a group of people that a business has identified as the most likely to purchase its offering, defined by demographic, psychographic, geographic and other characteristics. Target market may be broken down to target customers to customize marketing efforts.

How Do You Analyze a Target Market?

So, how many people are likely to become your customers?

To get an answer to this questions, narrow the industry into your target market with a manageable size, and identify its key characteristics, size and trends:

3.1. Target Market Description

Define your target market by:

• Type: B2C, B2B, government, non-profits
• Geographic reach: Specify the geographic location and reach of your target market

3.2. Market Size and Share

Estimate how large is the market for your product or service (e.g., number of customers, annual purchases in sales units and $ revenues). Explain the logic behind your calculation:

• TAM (Total Available/Addressable/Attainable Market) is the total maximum demand for a product or service that could theoretically be generated by selling to everyone in the world who could possibly buy from you, regardless of competition and any other considerations and restrictions.
• SAM (Serviceable Available Market) is the portion of the TAM that you could potentially address in a specific market. For example, if your product/service is only available in one country or language.
• SOM (Service Obtainable Market / Share of Market) is the share of the SAM that you can realistically carve out for your product or service. This the target market that you will be going after and can reasonably expect to convert into a customer base.

3.3. Market Trends

Illustrate the most important themes, changes and developments happening in your market. Explain the reasons behind these trends and how they will favor your business.

3.4. Demand Growth Opportunity

Estimate future demand for your offering by translating past, current and future market demand trends and drivers into forecasts:

• Historic growth: Check how your target market has grown in the past.
• Drivers past: Identify what has been driving that growth in the past.
• Drivers future: Assess whether there will be any change in influence of these and other drivers in the future.

How Big Should My Target Market Be?

Well, if the market opportunity is small, it will limit how big and successful your business can become. In fact, it may even be too small to support a successful business at all.

On the other hand, many businesses make the mistake of trying to appeal to too many target markets, which also limits their success by distracting their focus.

What If My Stats Look Bad?

Large and growing market suggests promising demand for your offering now and into the future. Nevertheless, your business can still thrive in a smaller or contracting market.

Instead of hiding from unfavorable stats, acknowledge that you are swimming against the tide and devise strategies to cope with whatever lies ahead.

Step 4: Industry and Market Analysis Research

The market analysis section of your business plan should illustrate your own industry and market knowledge as well as the key findings and conclusions from your research.

Back up your findings with external research sources (= secondary research) and results of internal market research and testing (= primary research).

What is Primary and Secondary Market Research?

Yes, there are two main types of market research – primary and secondary – and you should do both to adequately cover the market analysis section of your business plan:

• Primary market research is original data you gather yourself, for example in the form of active fieldwork collecting specific information in your market.
• Secondary market research involves collating information from existing data, which has been researched and shared by reliable outside sources . This is essentially passive desk research of information already published .

Unless you are working for a corporation, this exercise is not about your ability to do professional-level market research.

Instead, you just need to demonstrate fundamental understanding of your business environment and where you fit in within the market and broader industry.

Why Do You Need To Do Primary & Secondary Market Research?

There are countless ways you could go collecting industry and market research data, depending on the type of your business, what your business plan is for, and what your needs, resources and circumstances are.

For tried and tested tips on how to properly conduct your market research, read the next section of this guide that is dedicated to primary and secondary market research methods.

In any case, tell the reader how you carried out your market research. Prove what the facts are and where you got your data. Be as specific as possible. Provide statistics, numbers, and sources.

When doing secondary research, always make sure that all stats, facts and figures are from reputable sources and properly referenced in both the main text and the Appendix of your business plan. This gives more credibility to your business case as the reader has more confidence in the information provided.

Go to the Primary and Secondary Market Research post for my best tips on industry, market and competitor research.

7 TOP TIPS For Writing Market Analysis

1. realistic projections.

Above all, make sure that you are realistic in your projections about how your product or service is going to be accepted in the market, otherwise you are going to seriously undermine the credibility of your entire business case.

2. Laser Focus

Discuss only characteristic of your target market and customers that are observable, factual and meaningful, i.e. directly relate to your customers’ decision to purchase.

Always relate the data back to your business. Market statistics are meaningless until you explain where and how your company fits in.

For example, as you write about the market gap and the needs of your target customers, highlight how you are uniquely positioned to fill them.

In other words, your goal is to:

• Present your data
• Analyze the data
• Tie the data back to how your business can thrive within your target market

3. Target Audience

On a similar note, tailor the market analysis to your target audience and the specific purpose at hand.

For example, if your business plan is for internal use, you may not have to go into as much detail about the market as you would have for external financiers, since your team is likely already very familiar with the business environment your company operates in.

4. Story Time

Make sure that there is a compelling storyline and logical flow to the market information presented.

The saying “a picture is worth a thousand words” certainly applies here. Industry and market statistics are easier to understand and more impactful if presented as a chart or graph.

6. Information Overload

Keep your market analysis concise by only including pertinent information. No fluff, no repetition, no drowning the reader in a sea of redundant facts.

While you should not assume that the reader knows anything about your market, do not elaborate on unnecessary basic facts either.

Do not overload the reader in the main body of the business plan. Move everything that is not essential to telling the story into the Appendix. For example, summarize the results of market testing survey in the main body of the business plan document, but move the list of the actual survey questions into the appendix.

7. Marketing Plan

Note that market analysis and marketing plan are two different things, with two distinct chapters in a business plan.

As the name suggests, market analysis examines where you fit in within your desired industry and market. As you work thorugh this section, jot down your ideas for the marketing and strategy section of your business plan.

Final Thoughts

Remember that the very act of doing the research and analysis is a great opportunity to learn things that affect your business that you did not know before, so take your time doing the work.

Related Questions

What is the purpose of industry & market research and analysis.

The purpose of industry and market research and analysis is to qualitatively and quantitatively assess the environment of a business and to confirm that the market opportunity is sufficient for sustainable success of that business.

Why are Industry & Market Research and Analysis IMPORTANT?

Industry and market research and analysis are important because they allow you to gain knowledge of the industry, the target market you are planning to sell to, and your competition, so you can make informed strategic decisions on how to make your business succeed.

How Can Industry & Market Research and Analysis BENEFIT a Business?

Industry and market research and analysis benefit a business by uncovering opportunities and threats within its environment, including attainable market size, ideal target customers, competition and any potential difficulties on the company’s journey to success.

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Market size: TAM, SAM, & SOM

• Market size: TAM, SAM, & SOM

What is market size?

• How to calculate market size: TAM, SAM, & SOM

Total addressable market (TAM)

Serviceable addressable market (sam), serviceable obtainable market (som), top-down vs. bottom-up market sizing, why do vcs care about tam, sam, som calculations.

When you’re ready to raise funding for your startup , ”What’s the size of the market?” is one of the first questions potential investors will ask. Investors like to see a clear path to profitability and knowing your product or service’s market size helps them gauge the potential return they could make by investing in your company.

Market size is the total revenue potential in a given market based on the total number of customers and historical sales or spending trends in that market or industry. It is a proxy for the upper limit of your own company’s total revenue potential and an important metric to assess whether there is enough potential demand for your product or service to warrant venture capital investment (that is, whether your company is “venture scale”).

Investors use the size of the market to assess the potential return on investment (ROI) based on the relative ownership they would purchase in your company and the potential value of your company at exit .

Looking to calculate your own market size? Carta’s Market Sizing Guide walks you through different scenarios and provides helpful tips.

How to calculate market size: TAM, SAM, & SOM

To calculate market size, consider the number of potential customers, the average revenue per customer, the percentage of the market you can realistically capture, and the growth rate of the market. 

There are three types of markets you need to know before you can get started: total addressable market, serviceable addressable market, and serviceable obtainable market. 

TAM is the total demand for your product across all potential customers. To calculate TAM, follow these steps:

Define the target market. This can be anything from the total population in a city to the total number of businesses in a country.

Estimate the total potential customer base using data about prospective and existing customers in your industry.

Estimate potential spend per customer. For example, at Carta we use the average annual contract value (AACV).

TAM = [total potential customers] x AACV

For example, if you have a product that is for public schools in the United States, you’d use the total number of schools in the country ( approximately 100,000 ) as your base number. If you then determined that 10% of schools would be interested in your product, your TAM would be 10% of the base or 10,000.

To calculate your SAM, determine what percentage of your TAM you can reasonably expect to reach with marketing and sales efforts. The percentage of the market you can realistically capture depends on many factors, including your competitive advantage, brand recognition, and pricing.

Continuing with the example above, if there are 1,000 schools in your TAM and you’ve determined only 10% would be interested in your product, that leaves you with 100 schools. But given the county-by-county tax rates, you may assume only 1% of those schools would have the budget to purchase your product, so your SOM would be 0.1% or 10 schools.  

SOM is the portion of your SAM you can currently capture with available resources. So if you’ve determined that 10% of public schools in the U.S. would be interested in your product but can only reasonably expect to capture 0.1% with available resources, then the SOM would be 0.1%

Looking at industry trends and projections can help you estimate the growth rate of your market and future market size. 

There are two common ways to size a market: top-down and bottom-up. The best approach for you depends on your business needs and the data available.

Top-down market sizing starts with the industry and drills down to specific niches you can service and capture.

Identify the industry you’re serving or want to serve (TAM).

Identify the niche or geographic area you are serving in that industry (SAM).

Identify the percentage of your SAM you can realistically capture (SOM).

A top-down approach is often quicker, but it can be less accurate because it relies on estimates. It’s best when there’s little data available and you need to make quick assumptions.

Bottom-up market sizing begins with your current customer base and estimates how much revenue can be generated from each customer. To calculate the average revenue per customer, you need to estimate how much each customer will spend. This can be determined by historical sales data, surveys, or competitor pricing.

Identify the number of customers you can currently serve or are currently serving (SOM). 

Determine the percentage of total customers in the SOM segment (SAM).

Calculate the potential revenue you’ll earn if every possible customer in the target market segment uses your product (TAM). 

The bottom-up method can be more time-consuming, but it often provides more accurate results.

Venture capitalists want the largest possible upside given the risk involved in their investment, especially at the pre-seed and seed stages . While VCs do not have a specific number, a good thumb-rule is a TAM over $1B.

Targeting a large market alone is not enough, though—investors  also want to see that you have a realistic plan for capturing a significant portion of that market. Your SAM shows VCs how well you understand the dynamics of your market.

Your SOM is the market you are going to capture, which is typically your three to five-year revenue projections. VCs use revenue calculations to make an informed investment.

Market size calculations can be as helpful for you as they are for VCs. Knowing the size of your total addressable market can help you set goals and budget realistically. Being aware of how much of the market you can realistically capture can help you focus your efforts in the most effective way possible.

Related Content

How to calculate market size potential in 3 easy steps

Got an awesome product you’re ready to bring to market? You’ll need to do your homework, and that means learning how to calculate your market size potential.

Conducting an in-depth market segmentation or sizing study can cost a lot of money and often requires research expertise. Here’s how to get a solid steer on your potential market size without saying goodbye to your (entire!) marketing budget. Hint: we can help!

How to quickly calculate market size potential

Calculating market size can help you create better marketing, sales, and development strategies for that specific market. How can you quickly calculate it though?

TL;DR—You’ll need to follow these simple three steps:

• Step 1: Define your audience and total addressable market (TAM)
• Step 2: Gather wider market size intel
• Step 3: Use the market size calculation formula

We’ll get down to what each of these steps entails, but first let’s find out what market size actually is .

What is market size?

Market size is the number of individuals in a certain market who are potential customers of your product or service. Depending on your distribution strategy, you’ll probably also want to look at the number of potential sellers of your product or service . 

When measuring market size there are two ways to approach it: top down and bottom up. 

Let’s look at each:

Top down market sizing

The top down market sizing approach focuses on seeing what the current market is like and applying what you find to your business.

For example, let’s say you sell your services to creative agencies and there are 100 creative agencies across the UK, however you currently only sell to eight of these agencies. You can calculate that your average sale among the eight creative agencies that you work with is £5,000. This would mean that your top down market size is £500,000.

However, this number is likely unrealistic and it won’t really tell you much. After all, not all the agencies will decide to work with you, nor will you sustain the same selling average.

Bottom up market sizing

For the bottom up approach you look at your own segment data, and then you look at secondary research to understand what’s expected to happen to those segments.

Although the bottom up approach can be more time consuming and will require you to better study and analyse your market, at the end it results in a more realistic and trustworthy number.

For example, let’s say 60% of your marketing agency business goes to big corporations, and 40% goes to small and medium-sized companies. If secondary research of your market says that big corporations are relying less on agency work because they’re hiring in-house teams and you know there’s an increase in the number of new startups entering your market, then you can act accordingly and focus on providing better solutions to SMBs.

These two ways to calculate market size help you understand the size of the opportunity in any given market . That said, it’s also important to consider other factors such as the indirect competition – we’ll address this in a bit. 

Find out how big your market really is

Calculate your market size, its pain points, attitudes and price sensitivity with quality consumer insights from Attest.

Let’s understand why market size is important.

Why is market size important?

If you create a business plan that doesn’t cover market size, you’re likely to be sent packing by any potential investor. Without market size data you can’t create a viable business plan, it’s the only thing that gives you an idea of the potential value of your product or service. Market size is essential even if you’re not seeking third-party funding.

Let’s say you have the patent to a revolutionary new software tool; it’s easy to assume everyone will want it. So you might say: “my market is all American adults,” but this is naive and not backed with evidence. You’ll never sell your product to all American adults, no matter how great the product is! 

There will be a certain type of person who really does want to buy your tool and your job is to nail down who that person is—and then work out how many of those individuals like them there are in the market. This might sound difficult, but thanks to the wealth of data tools available nowadays, it’s easier than you think.

How to use your estimated market size

Before we cover how to calculate your market size, it’s important to know how you’ll be able to use this number.

Market size helps business owners answer the following questions: 

• What’s the potential revenue from this particular market?
• Is the market big enough? Will it be worth it to invest time and money in? 
• Is this a growing market? Will there be opportunities after three, five, or ten years?

These are key questions when trying to start or maintain any business. Now, without further ado, let’s take a look at how to calculate market size.

How to calculate your market size

Calculating your market size shouldn’t be complicated. In fact, it can be done in three simple steps:

1. Define your target audience and Total Addressable Market (TAM)

Your target customers are the people for whom your product or service solves a specific problem.

Identifying who these people are is a lot easier if you’re already active in one market. There are three ways to group your target audience’s market: TAM, SAM, and SOM – worry not, we’ll go through what each of these mean.

Total addressable market (TAM) TAM is the total demand there is for a product like yours. If you’re creating an energy drink, your TAM will be estimating everyone that might consume your product: students, drivers, athletes, the lot.

Serviceable available market (SAM) SAM is the people in the TAM that could feasibly reach your product. Let’s say you’ll only sell it at a specific supermarket that’s only available in the southern cities of England, those within your TAM that are also in the southern cities of England will be your SAM.

Serviceable obtainable market (SOM) SOM is the smallest subset of the available market that you’ll want to capture through your marketing and sales efforts. These are those customers that are in your SAM, but are currently not being served, or are unhappy with the existing market offerings, or those that would actually be willing to try a new version of the product they already use.

If you can use existing data

Examine the profiles of your existing customers – what do you know about them? In addition to looking at demographic information like age, gender, geographical location and socio-economic background, engage in a conversation with your customers to find out why they buy your product and why they buy your brand specifically.

If you need to start from scratch

If you’re starting from scratch with a new product or service, you’ll need to come up with some hypotheses to test. 

For example, let’s say you’ve invented a wearable device that automatically tracks how many calories you’ve consumed. You can probably assume it will be of interest to men and women trying to live a healthier lifestyle, as well as sportspeople who need control over their diets and workout routine. There could be further demand from employers or health insurance providers who want to incentivise people to maintain a healthy diet.   

You can gather initial data from a bit of desk research – for example, this government-published statistic tells us that 62% of adults in the UK are overweight . But don’t stop there, now’s the time to delve a bit further by carrying out some consumer research.

Through a market research and brand tracking tool like Attest, you can access more 125 million people in 59 countries, which means you can test real demand with a subset of your target audience.

For example, you could find out:

• How many people are actively trying to live a healthier lifestyle? 
• Why is a healthier lifestyle important to them?
• What are their pain points when trying to do this?
• What products do they currently use to help them improve their health?
• Would they be interested in your product?
• How likely would they be to buy it?
• How much would they be willing to spend if they are interested?

To further define your target customer, you can then analyse their demographics (these are built-in to the Attest platform) and look for trends. Perhaps you see that professional women, living in London and the south east, aged between 30 to 50 are showing the highest purchase intent. You can then create profiles of your prime potential customers.

Once you’ve got a good indication of who your product or service is relevant to, a larger market segmentation exercise makes sense – it’ll help you prioritise your efforts and understand the true potential size of the market. 

2. Gather wider market size intel

To get the full picture, you’ll want to enhance your findings by gathering further information on your industry. 

Most industries have formal associations which compile and track industry size data. You can find out, for example, how much the industry is worth, how much is spent annually on specific product types and average retail prices. 

It’s worth spending some time working out which industry your product or service actually sits in. Knowing your industry helps you understand who your competition is.

To get more clarity on who your competitors are, try drawing up a market map. Market mapping involves arranging competing products on an axis according to their positioning. For example, whether they are high or low-cost or whether they are complex or basic (see the below example.) 

In an ideal world, market mapping will highlight that your product falls into a unique niche. For example, your product could be the highest quality product being offered at a low price point. This immediately gives you a point of difference, giving investors a compelling reason to believe you’ll be able to steal market share.

Use consumer research

You can use your consumer research to back up your market positioning, like social enterprise Divine Chocolate did. The chocolate bar maker identified that some consumers were prepared to pay a premium price for very high-quality chocolate made from Fairtrade cocoa. It saw that there was little competition in this space and successfully claimed the position. 

If you do find a gap in the market, it’s important to be sure why others aren’t filling it. It may be that the demand from consumers just isn’t there, so be sure to combine your study of the market with actual feedback from consumers.

Discover the potential value of your product or service

Get the market size data you need to carry out your marketing strategies with confidence.

Run brand perception research

Brand perception is about what your consumers think and feel about your brand. Not just as an opinion, but as a deeper subconscious sentiment that they have developed after interacting with your brand, your products, your international marketing and messaging, and yes, even your competition.

Brand perception is not what you want customers to feel towards your brand. It’s about what the customers believe you stand for. Ideally, these two would be the same, but in reality it’s hard to influence your customers so directly; that’s why you need to research your brand perception – and also that of your competitors.

Brand perception can affect the type of customers you attract, your price point, and the partnerships you can build with other brands. So, make sure you measure your brand’s reputation and perception .

Use market research surveys

The best way to gather market-wide information is through market research surveys using market research services . These tools will help you collect important information from various demographics, and types of customers.

Market research used to be done face-to-face or through lengthy, cumbersome calls. Today  you can have great insights, data ready for reporting, and a global reach with online market research surveys . They help you take the guesswork out of market research while keeping your process scalable and inclusive.

Once you’ve narrowed down your target market size and customers, and you’ve studied the market at length, you’re ready to calculate market size.

3. Use the market size calculation formula

Your market research will give you a lot of information that you’ll need to analyse and understand. Let’s look at how to plug this information in a formula for estimating market size.

For example, let’s say you produce chocolate. If you plan to be stocked in independent food stores, but you find there are few of these types of outlets in the Midlands – a location where you see high purchase intent– this will affect these consumers’ ability to buy and will reduce your potential sales. 

You have to take factors like this into consideration and look at the ‘ available market. ’ The available market is those who have both interest and the ability to buy – this is your number of target customers.

Once you have this figure, you need to multiply it by the quantity of your product an average buyer will purchase in a given time period, like a year. In the case of our fictional calorie counting device, this is likely to be a one-off purchase, but if it’s a consumable you’re selling, purchase frequency will be far higher. Use your industry data and consumer brand research to estimate this figure – and be realistic!

Making projections about the size of a market

Market size is the maximum total number of sales or customers your business can see, often measured over the course of a specific period of time – often a year. Knowing what your potential market size is will help you when gauging your next business steps, whether or not an investment in a new product is worth it, or what growth is to be expected.

The next step in calculating market size is to engage in a bit of future-gazing. Is your market likely to grow or shrink in the future? You can look at historical data to analyse the market’s performance – is it on an upward trajectory?

Now, think about your customer base—is that likely to get bigger? If we go back to the example of the calorie tracker, there’s plenty of available data to show that the overweight population is growing . Will there be more prospective customers in your market in the next few years? If you can show your marketplace isn’t static and is instead evolving, there’s greater reason to believe in a successful future for your product.

When presenting market size and market value statistics for your business, try to make one, two and three-year projections. Don’t forget to factor in your anticipated roll-out to other geographic areas over time or improved distribution plan. 

You also need to consider your own impact on the industry. What’s your disruptive potential? Most startups are coming to market with an innovative product or service and this can dramatically change the landscape. Think of the way digital cameras virtually destroyed the market for film cameras – and film developing – or the effect Amazon’s Kindle had on regular bookstores.

On the other hand, are there other companies’ products or services on the horizon that threaten the industry as you know it? Do as much research as possible by looking at patents being filed, reading industry media and setting up Google alerts for relevant keywords to keep abreast of things in development. 

How to calculate market size: an example

Let’s say your product is a face wash for people with acne – you can reasonably expect people to get through one tube of it per month. If there are 500,000 target customers in your market, this means the total volume of market demand for acne face wash is 500,000 x 12 (months a year) = 6 million a year. If the average price of acne face wash is £10 a tube, then market value is 6 million x £10 = £60 million.

Another calculation you can do is estimating the percentage of market share you will be able to command. For example, if you know the face wash and cleanser industry as a whole is worth £1 billion annually, you can realistically expect to capture between 1% to 5%. In terms of value, that equates to between £10 million and £50 million.

Summing up your market sizing exercise

Now you’ve learned how to determine market potential (number of target users x purchases expected in a given period of time = market size or volume). Now, you can add this information into your pitch deck so potential investors can see what the estimated earnings can be. 

Bear in mind that most VCs and angel investors would like to know they’re investing in a market with a large potential size (typically, at least £1 billion). If your numbers are smaller than this, don’t be tempted to over-inflate them. Be honest and explain why you believe in the market’s potential… or why it’s important to bring your product to market. For example, it’s going to make the world a better place. 

Investors’ investment philosophies differ, so there’s every chance you can find your match with the right research in hand.

Understand your market size to ensure success

Make smart decisions for your brand with Attest’s combination of cutting-edge tech, human research expertise and a quality global audience of 125 million in 59 countries.

Market Size FAQ

To calculate market size you need to follow three simple steps: 1. Define your target audience and total addressable market (TAM) 2. Use consumer, brand perception, and market research to gather wide market size intel to find out which gaps in the market there are,  the current and future competitors, and what consumers think of your brand.  3. Use the market size calculation formula (number of target users x purchases expected in a given period of time = market size or volume) to better understand your target market potential.

Here’s an example of a market size calculation: let’s say your product is a face wash for people with acne. You estimate that people will get through one tube per month. If you have 500,000 target customers, this means that the total volume of market demand for acne face wash is 500,000 x 12, because there are 12 months in a year. This is equal to 6 million a year.  Now, to calculate market value you take the 6 million and multiply it by the average price of your product: 6 million x £10 = £60 million. That’s your potential market size and value. 

A good market size will depend on your industry and product. However, investors will normally be looking for a market potential size of at least £1 billion. Don’t get discouraged if you didn’t find that’s your potential market, there are other factors to consider when entering a market.  

Customer Research Lead 

Nick joined Attest in 2021, with more than 10 years' experience in market research and consumer insights on both agency and brand sides. As part of the Customer Research Team team, Nick takes a hands-on role supporting customers uncover insights and opportunities for growth.

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In this guide, we'll delve into the intricacies of raising capital in the US, from identifying and engaging investors to negotiating term sheets and closing the deal so you can fuel your company's growth.

How to estimate market size: Business and marketing planning for startups

Sizing the market is a necessary task for business and marketing planning, and budgeting for all startups, especially those that seek third-party financing such as venture capital (VC). Even though their investment philosophies may differ, most VCs and angel investors would like to know that they are investing in a market with a large potential size (typically, at least $1 billion).

Understanding your market potential

Even if you do not seek external financing, understanding your market potential is essential for a range of different strategic decisions, in areas such as:

• Product development
• Partnering and distribution
• Organizational design and critical employee skills

Starting point for estimating market size: Know the problem you are solving

The starting point for estimating market size is to understand the problem you solve for customers and the potential value your product generates for them. This is an aspect that many startup founders in the innovation community tend to overlook, since they get excited about the product they’ve developed without thinking about how it benefits their audience.

Depending on your technology, you may have to choose which customer problem to solve first. If this is the case, completing the exercise below may help you better grasp the market size for each application. This will make it easier to prioritize which problem to solve first.

Exercise: Estimating market size

This exercise consists of five steps to help you estimate the total market potential for a product. In each step, we build on a health innovation case study that assumes the problem we solve relates to patient safety in hospitals.

Step 1. Define your target customer

All early-stage entrepreneurs and startups must define their target customer .

Your target customer equals the person or company for whom your technology solves a specific problem. To define your target customer you must:

• Determine who your target customer is.
• Create a profile of your typical/expected target customer.

Given the importance of defining your target customer, it is crucial to set aside enough time to do a proper analysis of this first step.

Case study: We have analyzed patient-safety procedures in a few hospitals. We have determined that our innovative technology would generate the most value in the largest hospitals (the top 25%, ranked by size).

Step 2. Estimate the number of target customers

Estimate the total number of target customers in the market—companies who have a profile similar to that of your target customer.

If you’re a startup venture in Ontario or another Canadian province, you can use industry databases such as those offered by Statistics Canada, U.S. Bureau of Economic Analysis or Hoovers to help you quantify your market.

Case study: By studying publicly available sources, we have found out that in our target group there are 1,300 hospitals in Canada and the United States.

Step 3. Determine your penetration rate

Refine your market size by assuming a penetration rate for your category of product. The penetration rate is a function of the nature of your product. Assume a high penetration rate if your category of product is mission-critical or mandated through regulation; assume a low penetration rate for products with a specialized purpose.

Example: penetration rates of computers versus business intelligence systems:

• Computers, word-processing and internet: It is almost impossible today to operate a business in the developed world without a computer that has word-processing capabilities and is connected to the internet. While the penetration of those three technologies has not quite reached 100%, it is close enough to use that assumption for business growth and planning.
• Business intelligence systems: In theory, most companies would benefit from having a business intelligence system – a type of software that is used to manage and analyze data about finance, sales, and marketing activities, in addition to more specialized purposes. In practice, however, few ventures have the combination of the scale, skills and business practices required to make business intelligence systems a worthwhile investment.This limits the penetration rate to very large organizations that make up maybe less than 1% of all businesses in the developed world. Nevertheless, while 1% may not sound like a lot, it still represents a much larger number of target customers than a new startup could effectively pursue.

Case study: We have studied the factors that drive improvement in patient safety across North America, and found that it depends on provincial and state regulations. Based on areas where patient-safety regulations are strict, we can assume a penetration rate of 70% for our technology .

Step 4. Calculate the potential market size: Volume and value

Market volume.

To find the overall market potential (that is, the potential market volume), multiply your number of target customers by the penetration rate (see steps 2 and 3 above).

Case study : Using our fictitious example, where the number of target customers is 1,300 and the penetration rate is assumed to be 70%, the potential market volume would be calculated as follows:

1,300 hospitals × 70% = 910 hospitals

Market value

To calculate the monetary value of the market, multiply the market volume by your average value (that is, price expectations).

Case study: We assume each sale to a hospital will yield an average value of $2.5 million. To find the market value, we calculate the following:

910 hospitals × $ 2.5 million = $ 2.275 billion

5. Apply the market-size data

Following these steps to estimate your market size (value) is by no means an exact science. Still, there are ways to maximize the effectiveness of this exercise:

• At the time you make your first estimate, examine each assumption you make and what would cause it to change. To factor in the risks of change, calculate best-case and worst-case scenarios in addition to your expected scenario.
• Over time, monitor the accuracy of your initial assumptions and whether you need to modify them.

Case study: Our patient-safety technology may appeal to hospitals of a smaller size than initially assumed, especially if new regulations mandate tighter patient-safety procedures from all hospitals. While such a change would more than double the number of hospitals in our target market, smaller hospitals would not be able to pay as much, in turn driving the expected average price per sale down to $2 million.

Note: This exercise aims at estimating the total market potential for a product. It is important for startups to recognize that both early adopters and laggards are included in those numbers. While early adopters will likely be your customers in years 1 and 2, the laggards may not enter the market until year 20 or later. In terms of our case study, this would mean that the size of the market in year 1 would be about $100 million if early adopters comprise 5% of the overall hospital market for patient safety. For a more detailed understanding of how markets develop, read the article Technology adoption lifecycle .

The highlights

• Define your target customer
• Estimate the number of target customers
• Determine your penetration rate
• Calculate the potential market size: Volume and value
• Apply the market-size data
• The starting point? Understand the customer problem you solve and the potential value you generate.

Summary: These five steps outline how to estimate a market size—essential when making strategic decisions (e.g, business and marketing planning) and seeking third-party financing (e.g., venture capital).

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Market Analysis

Connecting the Dots, Quantifying Technology Trends & Measuring Disruption

How to do a market analysis for a business plan

A market analysis is an important part of a business plan because it helps you understand the market in which your business will operate. It involves researching and analyzing the target market, competitors, and industry trends in order to identify opportunities and challenges. Here are the steps you can follow to do a market analysis for a business plan:

Define your target market: The first step in a market analysis is to identify the specific group of customers that you will be targeting with your products or services. This may include demographics (age, gender, income, education level, etc.), geographic location, and other characteristics that are relevant to your business.

Research the market size: Next, you’ll need to determine the size of the market you are targeting. This will help you understand the potential demand for your products or services and determine whether the market is large enough to support your business. You can use various sources of data, such as industry reports and government statistics, to estimate the size of the market.

Analyze competitors: It’s important to understand who your competitors are and what they are offering. This will help you identify unique selling points for your business and determine how you can differentiate yourself from your competitors. You can research your competitors online, ask customers about their preferences, and even visit their stores or websites to get a sense of their product offerings and pricing.

Assess industry trends: Understanding industry trends can help you anticipate changes in the market and position your business to take advantage of them. Look for trends in areas such as technology, consumer behavior, and regulatory changes that may affect your business.

Determine your target market’s needs and preferences: To effectively market your products or services, you need to understand what your target customers need and want. You can gather this information through customer surveys, focus groups, and other market research methods.

Determine your target market’s purchasing power: It’s important to understand how much your target customers are willing and able to pay for your products or services. This will help you determine your pricing strategy and determine whether there is enough demand at your target price point.

Analyze your target market’s attitudes and behaviors: Understanding your target customers’ attitudes and behaviors can help you tailor your marketing efforts to their preferences. For example, if your target market values sustainability, you may want to highlight the eco-friendliness of your products in your marketing materials.

By conducting a thorough market analysis, you can gain a better understanding of the market in which your business will operate and make informed decisions about your marketing, pricing, and product development strategies.

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How to Conduct an Industry Analysis? Steps, Template, Examples

Appinio Research · 16.11.2023 · 41min read

Are you ready to unlock the secrets of Industry Analysis, equipping yourself with the knowledge to navigate markets and make informed strategic decisions? Dive into this guide, where we unravel the significance, objectives, and methods of Industry Analysis.

Whether you're an entrepreneur seeking growth opportunities or a seasoned executive navigating industry shifts, this guide will be your compass in understanding the ever-evolving business terrain.

What is Industry Analysis?

Industry analysis is the process of examining and evaluating the dynamics, trends, and competitive forces within a specific industry or market sector. It involves a comprehensive assessment of the factors that impact the performance and prospects of businesses operating within that industry. Industry analysis serves as a vital tool for businesses and decision-makers to gain a deep understanding of the environment in which they operate.

Key components of industry analysis include:

• Market Size and Growth: Determining the overall size of the market, including factors such as revenue, sales volume, and customer base. Analyzing historical and projected growth rates provides insights into market trends and opportunities.
• Competitive Landscape: Identifying and analyzing competitors within the industry. This includes assessing their market share , strengths, weaknesses, and strategies. Understanding the competitive landscape helps businesses position themselves effectively.
• Customer Behavior and Preferences: Examining consumer behavior , preferences, and purchasing patterns within the industry. This information aids in tailoring products or services to meet customer needs.
• Regulatory and Legal Environment: Assessing the impact of government regulations, policies, and legal requirements on industry operations. Compliance and adaptation to these factors are crucial for business success.
• Technological Trends: Exploring technological advancements and innovations that affect the industry. Staying up-to-date with technology trends can be essential for competitiveness and growth.
• Economic Factors: Considering economic conditions, such as inflation rates, interest rates, and economic cycles, that influence the industry's performance.
• Social and Cultural Trends: Examining societal and cultural shifts, including changing consumer values and lifestyle trends that can impact demand and preferences.
• Environmental and Sustainability Factors: Evaluating environmental concerns and sustainability issues that affect the industry. Industries are increasingly required to address environmental responsibility.
• Supplier and Distribution Networks: Analyzing the availability of suppliers, distribution channels, and supply chain complexities within the industry.
• Risk Factors: Identifying potential risks and uncertainties that could affect industry stability and profitability.

Objectives of Industry Analysis

Industry analysis serves several critical objectives for businesses and decision-makers:

• Understanding Market Dynamics: The primary objective is to gain a comprehensive understanding of the industry's dynamics, including its size, growth prospects, and competitive landscape. This knowledge forms the basis for strategic planning.
• Identifying Growth Opportunities: Industry analysis helps identify growth opportunities within the market. This includes recognizing emerging trends, niche markets, and underserved customer segments.
• Assessing Competitor Strategies: By examining competitors' strengths, weaknesses, and strategies, businesses can formulate effective competitive strategies. This involves positioning the company to capitalize on its strengths and exploit competitors' weaknesses.
• Risk Assessment and Mitigation: Identifying potential risks and vulnerabilities specific to the industry allows businesses to develop risk mitigation strategies and contingency plans. This proactive approach minimizes the impact of adverse events.
• Strategic Decision-Making: Industry analysis provides the data and insights necessary for informed strategic decision-making. It guides decisions related to market entry, product development, pricing strategies, and resource allocation.
• Resource Allocation: By understanding industry dynamics, businesses can allocate resources efficiently. This includes optimizing marketing budgets, supply chain investments, and talent recruitment efforts.
• Innovation and Adaptation: Staying updated on technological trends and shifts in customer preferences enables businesses to innovate and adapt their offerings effectively.

Importance of Industry Analysis in Business

Industry analysis holds immense importance in the business world for several reasons:

• Strategic Planning: It forms the foundation for strategic planning by providing a comprehensive view of the industry's landscape. Businesses can align their goals, objectives, and strategies with industry trends and opportunities.
• Risk Management: Identifying and assessing industry-specific risks allows businesses to manage and mitigate potential threats proactively. This reduces the likelihood of unexpected disruptions.
• Competitive Advantage: In-depth industry analysis helps businesses identify opportunities for gaining a competitive advantage. This could involve product differentiation, cost leadership, or niche market targeting .
• Resource Optimization: Efficient allocation of resources, both financial and human, is possible when businesses have a clear understanding of industry dynamics. It prevents wastage and enhances resource utilization.
• Informed Investment: Industry analysis assists investors in making informed decisions about allocating capital. It provides insights into the growth potential and risk profiles of specific industry sectors.
• Adaptation to Change: As industries evolve, businesses must adapt to changing market conditions. Industry analysis facilitates timely adaptation to new technologies, market shifts, and consumer preferences .
• Market Entry and Expansion: For businesses looking to enter new markets or expand existing operations, industry analysis guides decision-making by evaluating the feasibility and opportunities in target markets.
• Regulatory Compliance: Understanding the regulatory environment is critical for compliance and risk avoidance. Industry analysis helps businesses stay compliant with relevant laws and regulations.

In summary, industry analysis is a fundamental process that empowers businesses to make informed decisions, stay competitive, and navigate the complexities of their respective markets. It is an invaluable tool for strategic planning and long-term success.

How to Prepare for Industry Analysis?

Let's start by going through the crucial preparatory steps for conducting a comprehensive industry analysis.

1. Data Collection and Research

• Primary Research: When embarking on an industry analysis, consider conducting primary research . This involves gathering data directly from industry sources, stakeholders, and potential customers. Methods may include surveys , interviews, focus groups , and observations. Primary research provides firsthand insights and can help validate secondary research findings.
• Secondary Research: Secondary research involves analyzing existing literature, reports, and publications related to your industry. Sources may include academic journals, industry-specific magazines, government publications, and market research reports. Secondary research provides a foundation of knowledge and can help identify gaps in information that require further investigation.
• Data Sources: Explore various data sources to collect valuable industry information. These sources may include industry-specific associations, government agencies, trade publications, and reputable market research firms. Make sure to cross-reference data from multiple sources to ensure accuracy and reliability.

2. Identifying Relevant Industry Metrics

Understanding and identifying the right industry metrics is essential for meaningful analysis. Here, we'll discuss key metrics that can provide valuable insights:

• Market Size: Determining the market's size, whether in terms of revenue, units sold, or customer base, is a fundamental metric. It offers a snapshot of the industry's scale and potential.
• Market Growth Rate: Assessing historical and projected growth rates is crucial for identifying trends and opportunities. Understanding how the market has evolved over time can guide strategic decisions.
• Market Share Analysis: Analyzing market share among industry players can help you identify dominant competitors and their respective positions. This metric also assists in gauging your own company's market presence.
• Market Segmentation : Segmenting the market based on demographics, geography, behavior, or other criteria can provide deeper insights. Understanding the specific needs and preferences of various market segments can inform targeted strategies.

3. Gathering Competitive Intelligence

Competitive intelligence is the cornerstone of effective industry analysis. To gather and utilize information about your competitors:

• Competitor Identification: Begin by creating a comprehensive list of your primary and potential competitors. Consider businesses that offer similar products or services within your target market. It's essential to cast a wide net to capture all relevant competitors.
• SWOT Analysis : Conduct a thorough SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis for each competitor. This analysis helps you identify their internal strengths and weaknesses, as well as external opportunities and threats they face.
• Market Share Analysis: Determine the market share held by each competitor and how it has evolved over time. Analyzing changes in market share can reveal shifts in competitive dynamics.
• Product and Pricing Analysis: Evaluate your competitors' product offerings and pricing strategies . Identify any unique features or innovations they offer and consider how your own products or services compare.
• Marketing and Branding Strategies: Examine the marketing and branding strategies employed by competitors. This includes their messaging, advertising channels, and customer engagement tactics. Assess how your marketing efforts stack up.

Industry Analysis Frameworks and Models

Now, let's explore essential frameworks and models commonly used in industry analysis, providing you with practical insights and examples to help you effectively apply these tools.

Porter's Five Forces Model

Porter's Five Forces is a powerful framework developed by Michael Porter to assess the competitive forces within an industry. This model helps you understand the industry's attractiveness and competitive dynamics.

It consists of five key forces:

• Threat of New Entrants: This force evaluates how easy or difficult it is for new companies to enter the industry. Factors that increase barriers to entry include high capital requirements, strong brand loyalty among existing players, and complex regulatory hurdles. For example, the airline industry has significant barriers to entry due to the need for large capital investments in aircraft, airport facilities, and regulatory approvals.
• Bargaining Power of Suppliers: This force examines the influence suppliers have on the industry's profitability. Powerful suppliers can demand higher prices or impose unfavorable terms. For instance, in the automotive industry, suppliers of critical components like microchips can wield significant bargaining power if they are few in number or if their products are highly specialized.
• Bargaining Power of Buyers: The bargaining power of buyers assesses how much influence customers have in negotiating prices and terms. In industries where buyers have many alternatives, such as the smartphone market, they can demand lower prices and better features, putting pressure on manufacturers to innovate and compete.
• Threat of Substitutes: This force considers the availability of substitute products or services that could potentially replace what the industry offers. For example, the rise of electric vehicles represents a significant threat to the traditional gasoline-powered automotive industry as consumers seek eco-friendly alternatives.
• Competitive Rivalry: Competitive rivalry assesses the intensity of competition among existing firms in the industry. A highly competitive industry, such as the smartphone market, often leads to price wars and aggressive marketing strategies as companies vie for market share.

Example: Let's consider the coffee shop industry . New entrants face relatively low barriers, as they can set up a small shop with limited capital. However, the bargaining power of suppliers, such as coffee bean producers, can vary depending on the region and the coffee's rarity. Bargaining power with buyers is moderate, as customers often have several coffee shops to choose from. Threats of substitutes may include energy drinks or homemade coffee, while competitive rivalry is high, with numerous coffee chains and independent cafes competing for customers.

SWOT Analysis

SWOT Analysis is a versatile tool used to assess an organization's internal strengths and weaknesses, as well as external opportunities and threats. By conducting a SWOT analysis, you can gain a comprehensive understanding of your industry and formulate effective strategies.

• Strengths: These are the internal attributes and capabilities that give your business a competitive advantage. For instance, if you're a tech company, having a talented and innovative team can be considered a strength.
• Weaknesses: Weaknesses are internal factors that hinder your business's performance. For example, a lack of financial resources or outdated technology can be weaknesses that need to be addressed.
• Opportunities: Opportunities are external factors that your business can capitalize on. This could be a growing market segment, emerging technologies, or changing consumer trends.
• Threats: Threats are external factors that can potentially harm your business. Examples of threats might include aggressive competition, economic downturns, or regulatory changes.

Example: Let's say you're analyzing the fast-food industry. Strengths could include a well-established brand, a wide menu variety, and efficient supply chain management. Weaknesses may involve a limited focus on healthy options and potential labor issues. Opportunities could include the growing trend toward healthier eating, while threats might encompass health-conscious consumer preferences and increased competition from delivery apps.

PESTEL Analysis

PESTEL Analysis examines the external macro-environmental factors that can impact your industry. The acronym stands for:

• Political: Political factors encompass government policies, stability, and regulations. For example, changes in tax laws or trade agreements can affect industries like international manufacturing.
• Economic: Economic factors include economic growth, inflation rates, and exchange rates. A fluctuating currency exchange rate can influence export-oriented industries like tourism.
• Social: Social factors encompass demographics, cultural trends, and social attitudes. An aging population can lead to increased demand for healthcare services and products.
• Technological: Technological factors involve advancements and innovations. Industries like telecommunications are highly influenced by technological developments, such as the rollout of 5G networks.
• Environmental: Environmental factors cover sustainability, climate change, and ecological concerns. Industries such as renewable energy are directly impacted by environmental regulations and consumer preferences.
• Legal: Legal factors encompass laws, regulations, and compliance requirements. The pharmaceutical industry, for instance, faces stringent regulatory oversight and patent protection laws.

Example: Consider the automobile manufacturing industry. Political factors may include government incentives for electric vehicles. Economic factors can involve fluctuations in fuel prices affecting consumer preferences for fuel-efficient cars. Social factors might encompass the growing interest in eco-friendly transportation options. Technological factors could relate to advancements in autonomous driving technology. Environmental factors may involve emissions regulations, while legal factors could pertain to safety standards and recalls.

Industry Life Cycle Analysis

Industry Life Cycle Analysis categorizes industries into various stages based on their growth and maturity. Understanding where your industry stands in its life cycle can help shape your strategies.

• Introduction: In the introduction stage, the industry is characterized by slow growth, limited competition, and a focus on product development. New players enter the market, and consumers become aware of the product or service. For instance, electric scooters were introduced as a new mode of transportation in recent years.
• Growth: The growth stage is marked by rapid market expansion, increased competition, and rising demand. Companies focus on gaining market share, and innovation is vital. The ride-sharing industry, exemplified by companies like Uber and Lyft, experienced significant growth in this stage.
• Maturity: In the maturity stage, the market stabilizes, and competition intensifies. Companies strive to maintain market share and differentiate themselves through branding and customer loyalty programs. The smartphone industry reached maturity with multiple established players.
• Decline: In the decline stage, the market saturates, and demand decreases. Companies must adapt or diversify to survive. The decline of traditional print media is a well-known example.

Example: Let's analyze the video streaming industry . The introduction stage saw the emergence of streaming services like Netflix. In the growth stage, more players entered the market, and the industry saw rapid expansion. The industry is currently in the maturity stage, with established platforms like Netflix, Amazon Prime, and Disney+ competing for market share. However, with continued innovation and changing consumer preferences, the decline stage may eventually follow.

Value Chain Analysis

Value Chain Analysis dissects a company's activities into primary and support activities to identify areas of competitive advantage. Primary activities directly contribute to creating and delivering a product or service, while support activities facilitate primary activities.

• Primary Activities: These activities include inbound logistics (receiving and storing materials), operations (manufacturing or service delivery), outbound logistics (distribution), marketing and sales, and customer service.
• Support Activities: Support activities include procurement (acquiring materials and resources), technology development (R&D and innovation), human resource management (recruitment and training), and infrastructure (administrative and support functions).

Example: Let's take the example of a smartphone manufacturer. Inbound logistics involve sourcing components, such as processors and displays. Operations include assembly and quality control. Outbound logistics cover shipping and distribution. Marketing and sales involve advertising and retail partnerships. Customer service handles warranty and support.

Procurement ensures a stable supply chain for components. Technology development focuses on research and development of new features. Human resource management includes hiring and training skilled engineers. Infrastructure supports the company's administrative functions.

By applying these frameworks and models effectively, you can better understand your industry, identify strategic opportunities and threats, and develop a solid foundation for informed decision-making.

Data Interpretation and Analysis

Once you have your data, it's time to start interpreting and analyzing the data you've collected during your industry analysis.

You can unlock the full potential of your data with Appinio 's comprehensive research platform. Beyond aiding in data collection, Appinio simplifies the intricate process of data interpretation and analysis. Our intuitive tools empower you to effortlessly transform raw data into actionable insights, giving you a competitive edge in understanding your industry.

Whether it's assessing market trends, evaluating the competitive landscape, or understanding customer behavior, Appinio offers a holistic solution to uncover valuable findings. With our platform, you can make informed decisions, strategize effectively, and stay ahead of industry shifts.

Experience the ease of data collection and interpretation with Appinio – book a demo today!

Get a free demo and see the Appinio platform in action!

1. Analyze Market Size and Growth

Analyzing the market's size and growth is essential for understanding its dynamics and potential. Here's how to conduct a robust analysis:

• Market Size Calculation: Determine the total market size in terms of revenue, units sold, or the number of customers. This figure serves as a baseline for evaluating the industry's scale.
• Historical Growth Analysis: Examine historical data to identify growth trends. This includes looking at past year-over-year growth rates and understanding the factors that influenced them.
• Projected Growth Assessment: Explore industry forecasts and projections to gain insights into the expected future growth of the market. Consider factors such as emerging technologies, changing consumer preferences, and economic conditions.
• Segmentation Analysis: If applicable, analyze market segmentation data to identify growth opportunities in specific market segments. Understand which segments are experiencing the most significant growth and why.

2. Assess Market Trends

Stay ahead of the curve by closely monitoring and assessing market trends. Here's how to effectively evaluate trends within your industry.

• Consumer Behavior Analysis: Dive into consumer behavior data to uncover shifts in preferences, buying patterns, and shopping habits. Understand how technological advancements and cultural changes influence consumer choices.
• Technological Advancements: Keep a keen eye on technological developments that impact your industry. Assess how innovations such as AI, IoT, blockchain, or automation are changing the competitive landscape.
• Regulatory Changes: Stay informed about regulatory shifts and their potential consequences for your industry. Regulations can significantly affect product development, manufacturing processes, and market entry strategies.
• Sustainability and Environmental Trends: Consider the growing importance of sustainability and environmental concerns. Evaluate how your industry is adapting to eco-friendly practices and how these trends affect consumer choices.

3. Evaluate Competitive Landscape

Understanding the competitive landscape is critical for positioning your business effectively. To perform a comprehensive evaluation:

• Competitive Positioning: Determine where your company stands in comparison to competitors. Identify your unique selling propositions and areas where you excel.
• Market Share Analysis: Continuously monitor market share among industry players. Identify trends in market share shifts and assess the strategies that lead to such changes.
• Competitive Advantages and Weaknesses: Analyze your competitors' strengths and weaknesses. Identify areas where you can capitalize on their weaknesses and where you need to fortify your own strengths.

4. Identify Key Success Factors

Recognizing and prioritizing key success factors is crucial for developing effective strategies. To identify and leverage these factors:

• Customer Satisfaction: Prioritize customer satisfaction as a critical success factor. Satisfied customers are more likely to become loyal advocates and contribute to long-term success.
• Quality and Innovation: Focus on product or service quality and continuous innovation. Meeting and exceeding customer expectations can set your business apart from competitors.
• Cost Efficiency: Strive for cost efficiency in your operations. Identifying cost-saving opportunities can lead to improved profitability.
• Marketing and Branding Excellence: Invest in effective marketing and branding strategies to create a strong market presence. Building a recognizable brand can drive customer loyalty and growth.

5. Analyze Customer Behavior and Preferences

Understanding your target audience is central to success. Here's how to analyze customer behavior and preferences:

• Market Segmentation: Use market segmentation to categorize customers based on demographics, psychographics , and behavior. This allows for more personalized marketing and product/service offerings.
• Customer Surveys and Feedback: Gather customer feedback through surveys and feedback mechanisms. Understand their pain points, preferences, and expectations to tailor your offerings.
• Consumer Journey Mapping: Map the customer journey to identify touchpoints where you can improve engagement and satisfaction. Optimize the customer experience to build brand loyalty.

By delving deep into data interpretation and analysis, you can gain valuable insights into your industry, uncover growth opportunities, and refine your strategic approach.

How to Conduct Competitor Analysis?

Competitor analysis is a critical component of industry analysis as it provides valuable insights into your rivals, helping you identify opportunities, threats, and areas for improvement.

1. Identify Competitors

Identifying your competitors is the first step in conducting a thorough competitor analysis. Competitors can be classified into several categories:

• Direct Competitors: These are companies that offer similar products or services to the same target audience. They are your most immediate competitors and often compete directly with you for market share.
• Indirect Competitors: Indirect competitors offer products or services that are related but not identical to yours. They may target a slightly different customer segment or provide an alternative solution to the same problem.
• Potential Competitors: These companies could enter your market in the future. Identifying potential competitors early allows you to anticipate and prepare for new entrants.
• Substitute Products or Services: While not traditional competitors, substitute products or services can fulfill the same customer needs or desires. Understanding these alternatives is crucial to your competitive strategy.

2. Analyze Competitor Strengths and Weaknesses

Once you've identified your competitors, you need to analyze their strengths and weaknesses. This analysis helps you understand how to position your business effectively and identify areas where you can gain a competitive edge.

• Strengths: Consider what your competitors excel at. This could include factors such as brand recognition, innovative products, a large customer base, efficient operations, or strong financial resources.
• Weaknesses: Identify areas where your competitors may be lacking. Weaknesses could involve limited product offerings, poor customer service, outdated technology, or financial instability.

3. Competitive Positioning

Competitive positioning involves defining how you want your business to be perceived relative to your competitors. It's about finding a unique position in the market that sets you apart. Consider the following strategies:

• Cost Leadership: Strive to be the low-cost provider in your industry. This positioning appeals to price-conscious consumers.
• Differentiation: Focus on offering unique features or attributes that make your products or services stand out. This can justify premium pricing.
• Niche Market: Target a specific niche or segment of the market that may be underserved by larger competitors. Tailor your offerings to meet their unique needs.
• Innovation and Technology: Emphasize innovation and technology to position your business as a leader in product or service quality.
• Customer-Centric: Prioritize exceptional customer service and customer experience to build loyalty and a positive reputation.

4. Benchmarking and Gap Analysis

Benchmarking involves comparing your business's performance and practices with those of your competitors or industry leaders. Gap analysis helps identify areas where your business falls short and where improvements are needed.

• Performance Benchmarking: Compare key performance metrics, such as revenue, profitability, market share, and customer satisfaction, with those of your competitors. Identify areas where your performance lags behind or exceeds industry standards.
• Operational Benchmarking: Analyze your operational processes, supply chain, and cost structures compared to your competitors. Look for opportunities to streamline operations and reduce costs.
• Product or Service Benchmarking: Evaluate the features, quality, and pricing of your products or services relative to competitors. Identify gaps and areas for improvement.
• Marketing and Sales Benchmarking: Assess your marketing strategies, customer acquisition costs, and sales effectiveness compared to competitors. Determine whether your marketing efforts are performing at a competitive level.

Market Entry and Expansion Strategies

Market entry and expansion strategies are crucial for businesses looking to enter new markets or expand their presence within existing ones. These strategies can help you effectively target and penetrate your chosen markets.

Market Segmentation and Targeting

• Market Segmentation: Begin by segmenting your target market into distinct groups based on demographics , psychographics, behavior, or other relevant criteria. This helps you understand the diverse needs and preferences of different customer segments.
• Targeting: Once you've segmented the market, select specific target segments that align with your business goals and capabilities. Tailor your marketing and product/service offerings to appeal to these chosen segments.

Market Entry Modes

Selecting the proper market entry mode is crucial for a successful expansion strategy. Entry modes include:

• Exporting: Sell your products or services in international markets through exporting. This is a low-risk approach, but it may limit your market reach.
• Licensing and Franchising: License your brand, technology, or intellectual property to local partners or franchisees. This allows for rapid expansion while sharing the risk and control.
• Joint Ventures and Alliances: Partner with local companies through joint ventures or strategic alliances. This approach leverages local expertise and resources.
• Direct Investment: Establish a physical presence in the target market through subsidiaries, branches, or wholly-owned operations. This offers full control but comes with higher risk and investment.

Competitive Strategy Formulation

Your competitive strategy defines how you will compete effectively in the target market.

• Cost Leadership: Strive to offer products or services at lower prices than competitors while maintaining quality. This strategy appeals to price-sensitive consumers.
• Product Differentiation: Focus on offering unique and innovative products or services that stand out in the market. This strategy justifies premium pricing.
• Market Niche: Target a specific niche or segment within the market that is underserved or has particular needs. Tailor your offerings to meet the unique demands of this niche.
• Market Expansion : Expand your product or service offerings to capture a broader share of the market. This strategy involves diversifying your offerings to appeal to a broader audience.
• Global Expansion: Consider expanding internationally to tap into new markets and diversify your customer base. This strategy involves thorough market research and adaptation to local cultures and regulations.

International Expansion Considerations

If your expansion strategy involves international markets, there are several additional considerations to keep in mind.

• Market Research: Conduct in-depth market research to understand the target country's cultural, economic, and legal differences.
• Regulatory Compliance: Ensure compliance with international trade regulations, customs, and import/export laws.
• Cultural Sensitivity: Adapt your marketing and business practices to align with the cultural norms and preferences of the target market.
• Localization: Consider adapting your products, services, and marketing materials to cater to local tastes and languages.
• Risk Assessment: Evaluate the political, economic, and legal risks associated with operating in the target country. Develop risk mitigation strategies.

By carefully analyzing your competitors and crafting effective market entry and expansion strategies, you can position your business for success in both domestic and international markets.

Risk Assessment and Mitigation

Risk assessment and mitigation are crucial aspects of industry analysis and strategic planning. Identifying potential risks, assessing vulnerabilities, and implementing effective risk management strategies are essential for business continuity and success.

1. Identify Industry Risks

• Market Risks: These risks pertain to factors such as changes in market demand, economic downturns, shifts in consumer preferences, and fluctuations in market prices. For example, the hospitality industry faced significant market risks during the COVID-19 pandemic, resulting in decreased travel and tourism .
• Regulatory and Compliance Risks: Regulatory changes, compliance requirements, and government policies can pose risks to businesses. Industries like healthcare are particularly susceptible to regulatory changes that impact operations and reimbursement.
• Technological Risks: Rapid technological advancements can disrupt industries and render existing products or services obsolete. Companies that fail to adapt to technological shifts may face obsolescence.
• Operational Risks: These risks encompass internal factors that can disrupt operations, such as supply chain disruptions, equipment failures, or cybersecurity breaches.
• Financial Risks: Financial risks include factors like liquidity issues, credit risk , and market volatility. Industries with high capital requirements, such as real estate development, are particularly vulnerable to financial risks.
• Competitive Risks: Intense competition and market saturation can pose challenges to businesses. Failing to respond to competitive threats can result in loss of market share.
• Global Risks: Industries with a worldwide presence face geopolitical risks, currency fluctuations, and international trade uncertainties. For instance, the automotive industry is susceptible to trade disputes affecting the supply chain.

2. Assess Business Vulnerabilities

• SWOT Analysis: Revisit your SWOT analysis to identify internal weaknesses and threats. Assess how these weaknesses may exacerbate industry risks.
• Financial Health: Evaluate your company's financial stability, debt levels, and cash flow. Identify vulnerabilities related to financial health that could hinder your ability to withstand industry-specific challenges.
• Operational Resilience: Assess the robustness of your operational processes and supply chain. Identify areas where disruptions could occur and develop mitigation strategies.
• Market Positioning: Analyze your competitive positioning and market share. Recognize vulnerabilities in your market position that could be exploited by competitors.
• Compliance and Regulatory Adherence: Ensure that your business complies with relevant regulations and standards. Identify vulnerabilities related to non-compliance or regulatory changes.

3. Risk Management Strategies

• Risk Avoidance: In some cases, the best strategy is to avoid high-risk ventures or markets altogether. This may involve refraining from entering certain markets or discontinuing products or services with excessive risk.
• Risk Reduction: Implement measures to reduce identified risks. For example, diversifying your product offerings or customer base can reduce dependence on a single revenue source.
• Risk Transfer: Transfer some risks through methods such as insurance or outsourcing. For instance, businesses can mitigate cybersecurity risks by purchasing cyber insurance.
• Risk Acceptance: In cases where risks cannot be entirely mitigated, it may be necessary to accept a certain level of risk and have contingency plans in place to address potential issues.
• Continuous Monitoring: Establish a system for continuous risk monitoring. Regularly assess the changing landscape and adjust risk management strategies accordingly.

4. Contingency Planning

Contingency planning involves developing strategies and action plans to respond effectively to unforeseen events or crises. It ensures that your business can maintain operations and minimize disruptions in the face of adverse circumstances. Key elements of contingency planning include:

• Risk Scenarios: Identify potential risk scenarios specific to your industry and business. These scenarios should encompass a range of possibilities, from minor disruptions to major crises.
• Response Teams: Establish response teams with clearly defined roles and responsibilities. Ensure that team members are trained and ready to act in the event of a crisis.
• Communication Plans: Develop communication plans that outline how you will communicate with employees, customers, suppliers, and other stakeholders during a crisis. Transparency and timely communication are critical.
• Resource Allocation: Determine how resources, including personnel, finances, and equipment, will be allocated in response to various scenarios.
• Testing and Simulation: Regularly conduct tests and simulations of your contingency plans to identify weaknesses and areas for improvement. Ensure your response teams are well-practiced and ready to execute the plans effectively.
• Documentation and Record Keeping: Maintain comprehensive documentation of contingency plans, response procedures, and communication protocols. This documentation should be easily accessible to relevant personnel.
• Review and Update: Continuously review and update your contingency plans to reflect changing industry dynamics and evolving risks. Regularly seek feedback from response teams to make improvements.

By identifying industry risks, assessing vulnerabilities, implementing risk management strategies, and developing robust contingency plans, your business can navigate the complexities of the industry landscape with greater resilience and preparedness.

Industry Analysis Template

When embarking on the journey of Industry Analysis, having a well-structured template is akin to having a reliable map for your exploration. It provides a systematic framework to ensure you cover all essential aspects of the analysis. Here's a breakdown of an industry analysis template with insights into each section.

Industry Overview

• Objective: Provide a broad perspective of the industry.
• Market Definition: Define the scope and boundaries of the industry, including its products, services, and target audience.
• Market Size and Growth: Present current market size, historical growth trends, and future projections.
• Key Players: Identify major competitors and their market share.
• Market Trends: Highlight significant trends impacting the industry.

Competitive Analysis

• Objective: Understand the competitive landscape within the industry.
• Competitor Identification: List direct and indirect competitors.
• Competitor Profiles: Provide detailed profiles of major competitors, including their strengths, weaknesses, strategies, and market positioning.
• SWOT Analysis: Conduct a SWOT analysis for each major competitor.
• Market Share Analysis: Analyze market share distribution among competitors.

Market Analysis

• Objective: Explore the characteristics and dynamics of the market.
• Customer Segmentation: Define customer segments and their demographics, behavior, and preferences.
• Demand Analysis: Examine factors driving demand and customer buying behavior.
• Supply Chain Analysis: Map out the supply chain, identifying key suppliers and distribution channels.
• Regulatory Environment: Discuss relevant regulations, policies, and compliance requirements.

Technological Analysis

• Objective: Evaluate the technological landscape impacting the industry.
• Technological Trends: Identify emerging technologies and innovations relevant to the industry.
• Digital Transformation: Assess the level of digitalization within the industry and its impact on operations and customer engagement.
• Innovation Opportunities: Explore opportunities for leveraging technology to gain a competitive edge.

Financial Analysis

• Objective: Analyze the financial health of the industry and key players.
• Revenue and Profitability: Review industry-wide revenue trends and profitability ratios.
• Financial Stability: Assess financial stability by examining debt levels and cash flow.
• Investment Patterns: Analyze capital expenditure and investment trends within the industry.

Consumer Insights

• Objective: Understand consumer behavior and preferences.
• Consumer Surveys: Conduct surveys or gather data on consumer preferences, buying habits , and satisfaction levels.
• Market Perception: Gauge consumer perception of brands and products in the industry.
• Consumer Feedback: Collect and analyze customer feedback and reviews.

SWOT Analysis for Your Business

• Objective: Assess your own business within the industry context.
• Strengths: Identify internal strengths that give your business a competitive advantage.
• Weaknesses: Recognize internal weaknesses that may hinder your performance.
• Opportunities: Explore external opportunities that your business can capitalize on.
• Threats: Recognize external threats that may impact your business.

Conclusion and Recommendations

• Objective: Summarize key findings and provide actionable recommendations.
• Summary: Recap the most critical insights from the analysis.
• Recommendations: Offer strategic recommendations for your business based on the analysis.
• Future Outlook: Discuss potential future developments in the industry.

While this template provides a structured approach, adapt it to the specific needs and objectives of your Industry Analysis. It serves as your guide, helping you navigate through the complex landscape of your chosen industry, uncovering opportunities, and mitigating risks along the way.

Remember that the depth and complexity of your industry analysis may vary depending on your specific goals and the industry you are assessing. You can adapt this template to focus on the most relevant aspects and conduct thorough research to gather accurate data and insights. Additionally, consider using industry-specific data sources, reports, and expert opinions to enhance the quality of your analysis.

Industry Analysis Examples

To grasp the practical application of industry analysis, let's delve into a few diverse examples across different sectors. These real-world scenarios demonstrate how industry analysis can guide strategic decision-making.

Tech Industry - Smartphone Segment

Scenario: Imagine you are a product manager at a tech company planning to enter the smartphone market. Industry analysis reveals that the market is highly competitive, dominated by established players like Apple and Samsung.

Use of Industry Analysis:

• Competitive Landscape: Analyze the strengths and weaknesses of competitors, identifying areas where they excel (e.g., Apple's brand loyalty ) and where they might have vulnerabilities (e.g., consumer demand for more affordable options).
• Market Trends: Identify trends like the growing demand for sustainable technology and 5G connectivity, guiding product development and marketing strategies.
• Regulatory Factors: Consider regulatory factors related to intellectual property rights, patents, and international trade agreements that can impact market entry and operations.
• Outcome: Armed with insights from industry analysis, you decide to focus on innovation, emphasizing features like eco-friendliness and affordability. This niche approach helps your company gain a foothold in the competitive market.

Healthcare Industry - Telehealth Services

Scenario: You are a healthcare entrepreneur exploring opportunities in the telehealth sector, especially in the wake of the COVID-19 pandemic. Industry analysis is critical due to rapid market changes.

• Market Size and Growth: Evaluate the growing demand for telehealth services, driven by the need for remote healthcare during the pandemic and convenience factors.
• Regulatory Environment: Understand the evolving regulatory landscape, including changes in telemedicine reimbursement policies and licensing requirements.
• Technological Trends: Explore emerging technologies such as AI-powered diagnosis and remote monitoring that can enhance service offerings.
• Outcome: Industry analysis underscores the potential for telehealth growth. You adapt your business model to align with regulatory changes, invest in cutting-edge technology, and focus on patient-centric care, positioning your telehealth service for success.

Food Industry - Plant-Based Foods

Scenario: As a food industry entrepreneur , you are considering entering the plant-based foods market, driven by increasing consumer interest in health and sustainability.

• Market Trends: Analyze the trend toward plant-based diets and sustainability, reflecting changing consumer preferences.
• Competitive Landscape: Assess the competitive landscape, understanding that established companies and startups are vying for market share.
• Consumer Behavior: Study consumer behavior, recognizing that health-conscious consumers seek plant-based alternatives.
• Outcome: Informed by industry analysis, you launch a line of plant-based products emphasizing both health benefits and sustainability. Effective marketing and product quality gain traction among health-conscious consumers, making your brand a success in the plant-based food industry.

These examples illustrate how industry analysis can guide strategic decisions, whether entering competitive tech markets, navigating dynamic healthcare regulations, or capitalizing on shifting consumer preferences in the food industry. By applying industry analysis effectively, businesses can adapt, innovate, and thrive in their respective sectors.

Conclusion for Industry Analysis

Industry Analysis is the compass that helps businesses chart their course in the vast sea of markets. By understanding the industry's dynamics, risks, and opportunities, you gain a strategic advantage that can steer your business towards success. From identifying competitors to mitigating risks and formulating competitive strategies, this guide has equipped you with the tools and knowledge needed to navigate the complexities of the business world.

Remember, Industry Analysis is not a one-time task; it's an ongoing journey. Keep monitoring market trends, adapting to changes, and staying ahead of the curve. With a solid foundation in industry analysis, you're well-prepared to tackle challenges, seize opportunities, and make well-informed decisions that drive your business toward prosperity. So, set sail with confidence and let industry analysis be your guiding star on the path to success.

How to Conduct Industry Analysis in Minutes?

Introducing Appinio , the real-time market research platform that transforms how you conduct Industry Analysis. Imagine getting real-time consumer insights in minutes, putting the power of data-driven decision-making at your fingertips. With Appinio, you can:

• Gain insights swiftly: Say goodbye to lengthy research processes. Appinio delivers answers fast, ensuring you stay ahead in the competitive landscape.
• No research degree required: Our intuitive platform is designed for everyone. You don't need a PhD in research to harness its capabilities.
• Global reach, local insights: Define your target group precisely from over 1200 characteristics and access consumer data in over 90 countries.

Get free access to the platform!

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