Summary: In this article, find out the key components to have in the Market Analysis section of your business plan.

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Every business plan should have the market analysis section. If you are seeking for banks loan or funding from potential investors, a market analysis section is required so that banks and investors know that the business you are pitching has viable market appeal. 

A market analysis can also be a benchmark to see how far you have come. This section can also help you to make projections based on real data rather than guesses.

And whether you are just starting a new business or reviewing an existing business, you should renew your market analysis annually.

Additional important data for this section such as statistics should be attached to the end of the business plan as appendices.

Things you should include are:

Industry Description and Outlook

You should include relevant and detailed statistics and metrics of the industry such as size, growth rate, trends, and outlook. This will show to banks or investors that you have done thorough research, know what you’re doing, and prepared to back up your business idea.

Target market

You need to be specific on this part. It is critical to establish a clear idea of your target market at the start.

Describe your ideal client or customer. This part should include demographics data of your target market such as age, gender, income level and lifestyle preferences. Data such as the size of the target market and how you intend to reach the market are equally important as well.

Make sure your market is measurable or quantifiable. For instance, you need to know whether you have 500 or 50,000 people in your market. Be able to show what the total market is for your business.

A quick tip: try to narrow your target market to a manageable size. By narrowing in on your specific customers, you will be able to make the best of your marketing dollars while attracting loyal customers. Usually, these are the ones who will spread the word about your business. 

Competitive Analysis

This part should identify your competition by product line or service and market segment.

It is good to know who and what you are up against, and it also lets you detect the competition’s weaknesses. Determine the strengths and weaknesses of your competitors. Come up with strategies that will help you to overcome the competition. You can also consider of performing a SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) to analyze your position in the market

Barriers to entry

 It is possible your industry has strict regulations and licensing requirements. Perhaps, the cost entry can be prohibitively high. But such barriers may actually protect you from new competition and you should see them as selling points for you.

At the same time, this is where you examine your weaknesses. Barriers such as technology changes, unusually high investment costs and lack of qualified personnel can be barriers as well.

Be honest with investors and yourself. Be realistic about these barriers and explain how you will be prepared for these obstacles.

Market Test Results

If your business is new, you should conduct market research and tests to investigate your position in the market. Talk about your testing processes such as who you have spoken to about the viability of your product, and include supporting statistics. Cite experts to back up your information.

Market Growth

It is crucial to have a possible idea of what your business may be like down the road. Carry out research to create a reasonable forecast of market growth.

To make an intelligent forecast, you should start with current conditions and then project changes over the next three to five years.

Market Trends

You need to know what is going on with your market. As you create your business plan, you will become aware of the market trends that affect your specific market.

Regulation

You need to lay out any customer or governmental regulatory requirements/restrictions that could possible affect your business and how you will comply. You will also need to address the cost of compliance that may have impact on your business.

Addressing these issues is essential if you are seeking investment or money from a lender.