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.
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:
Define your target market by:
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:
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.
Estimate future demand for your offering by translating past, current and future market demand trends and drivers into forecasts:
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.
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.
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).
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:
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.
Market and industry research will enable you to incorporate the knowledge about your business environment into making solid decisions about the strategic direction of your company and make the business plan reader feel more comfortable with your potential for success.
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.