If you’re writing a business plan, you’ve probably encountered the sections for industry analysis and market analysis. These sections are where you present your research on your market and your industry, but they can be confusing. Lots of people aren’t sure what goes into each section and why they’re different.
What’s an industry?
An industry is a group of businesses that make or sell similar products and services. The easiest way to think about your industry is to think about who your competitors are. For example, if you’re starting a restaurant, your competition is other restaurants. So, you’re in the restaurant (or food service) industry.
What to include in an industry analysis:
In your business plan, you’ll want to include an industry analysis. Your industry analysis should cover the following:
- Key players: Who are the key companies or businesses in your industry? Who are the biggest businesses in the industry and what are the core products and services that they sell? What are their business models?
- Growth: Is your industry growing or shrinking? You’ll want to show in your business plan how much is sold in your industry, both historically and predictions for the future. For example, the smartphone industry will ship 1.53 billion units in 2017 and is predicted to ship 1.77 billion units in 2021.
- Trends: If there are trends in your industry, you’ll want to discuss those as well and how those trends will impact your business. For example, in the restaurant industry, there has been a trend towards more “fast casual” restaurants. Another example is how the book industry has been impacted by e-readers and smartphones.
- Competitors: Who are your key competitors in your industry? Are there businesses who are using strategies that are similar to yours? How are you different?
The best place to start finding information on your industry is to find your industry association. There are literally associations for virtually every industry, from produce marketing to commercial spaceflight. There are plenty of lists (see here, here, and here) out there to help you find the association for your industry. If you’re still struggling, just call some businesses like yours and ask them for the name of their industry association.
What’s a market?
A market is a group of potential customers. Markets can be defined by geography, demographics (like age or gender), or psychographics (like hobbies and interests). Markets can also be defined as any combination of these things.
Your business might target just one market to sell to, or it may target several different markets. For example, a company that makes athletic shoes might target both middle-aged walkers and young athletes. You define your markets as your customers and then group them by their similarities. You can learn more about defining your target market in our guide on the topic.
What to include in a market analysis:
Your business plan should also include a section that reviews your target market. This section essentially describes who your customers are and how your company is going to meet their needs. Your market analysis should include:
- Size of the market: Different than the size of your industry, the size of the market is how many potential customers you could have. You’ll want to consider everything from your total addressable market (TAM) to your share of the market (SOM). Learn more about these ideas here.
- Demographics: These are details about the age, gender, educational level, occupation, and so on for your target market.
- Psychographics: Different than demographics, psychographics help explain your target market’s personality and lifestyle. This is where you’ll explain how your product fits into your customer’s lifestyle.
- Geographics: Where do you find your customers? Are they in a specific city or other location? Do your customers live in rural or urban areas?
- Behaviors: How do your customers shop for and buy products like yours?
- Trends: If your target market is changing their behavior, it’s important to note those trends and how that will impact your sales.
You can get additional help with your market research by reading our guide. We’ll walk you through all the steps that you need to take do a thorough analysis of your market and where to find the best market research resources.
You can also use the concept of target marketing as a strategy to grow your business. Learn more about that in our guide to target marketing.
While working on your market analysis and industry analysis can seem like a lot of work, it’s work that will pay for itself many times over once you start your business. Having the deep knowledge of how your industry works and how your target market behaves will help you develop smarter strategies for growth. Instead of just guessing or relying on hunches, you can make decisions that are backed up by real knowledge and increase your chances for success.