How do you know if your business is really a great idea or a potential flop? How can you be sure that your next business decision will grow your business instead of merely exposing it to unnecessary risk?
This tutorial will show you in detail how you can analyze market opportunities for your business. We’ll explain what a market opportunity is, provide market opportunity examples, and provide steps to help you find and seize the right market opportunity for you.
What Is a Market Opportunity?
Here’s how we’ll define market opportunity throughout this guide: It’s the projected potential size of your market and sales. This means you’d need to estimate how many consumers or businesses belong to your target market, as well as how much potential sales you could make from that market.
Trying to figure this out might sound like a lot of work, but it’s simpler than it looks. More importantly, you need to make an informed decision before you invest your life’s savings into your business. It’s not enough for you to believe that your products and services will appeal to others just because they appeal to you. You need to know for sure that there’s a potential customer base out there who will buy from your business and make it sustainable.
Since your market opportunities are essential to the success of your small business, include them in your business plan. Here’s how that might look like:
- For a wedding photography business in London. Couples in the U.K. are spending roughly £1,480 in wedding photography according to one wedding photography survey. Since most wedding photographers capture an average of 31 weddings per year, there’s an opportunity to have a gross income of roughly £45,880 per year as a wedding photographer. There are around 35,000 weddings in London each year according to the U.K. Office for National Statistics, but with a conservative estimate of at least 530 wedding photographers working in the London area (based on Yelp listings) serving these couples, it’s a very competitive industry.
- For independent contractors providing house cleaning services in Portland, Oregon. For the size of the market, there are around 143,000 single detached homes in Portland. There will be minimal growth in single detached homes in the coming years according to a report by the city of Portland, so potential customers in this segment will remain relatively flat. As for potential income, rates for cleaning providers in the area typically run at $12.81 per hour or $26,640 annually (based on data from the U.S. Bureau of Labor statistics).
Including these market statistics in your business plan can give you a clearer picture of how large your customer base could be and what kind of sustainability you can expect for the future.
Market Opportunity: How to Find and Seize It
The following steps will show you how to confidently work in these numbers into your business plan.
1. Identify a Large, Profitable Market
Your first step is to figure out three things:
- Market size. How many potential customers are available?
- Profitability. Are your potential customers willing and able to spend on your products and services?
- Potential growth. Are there signs or studies that the size of the market will grow, stay relatively static, or decrease?
To get an accurate estimate of your market size, you need to start by knowing the characteristics your target customer well. If you haven’t done the work of listing the demographics of your audience, you can learn how in this tutorial:
How to Define a Target Audience (For Your Marketing Plans)
But if you already know your target customers well, it’s time to measure how many of them are out there. Here are some approaches you can use if you’re targeting individuals:
- Government census and statistical data. Sites collecting census data can be really helpful in figuring out the population of your market. For the U.S., Census.gov and the Bureau of Labor Statistics can be helpful. For Australians, the Australian Bureau of Statistics is the go-to resource, while business owners from the U.K. can browse through the Office for National Statistics. Look out for information on the population size of your market, any historical trends or forecasts about the size of the market, and hourly/annual wages for your industry or field.
- Social media sites. Facebook Audience Insights is one of the simplest go-to resources for trying to figure out the size of a demographic group. It’s typically used for selecting an audience for buying Facebook ads, but its results will tell you how many Facebook users meet the demographics you’re targeting. For example, if you look up 25 to 34-year-olds living in Vancouver who are interested in sci-fi movies, you’ll see that there are around 20,000 Facebook users matching that criteria (see image below). This works best if you’re targeting people from a country or location with high Facebook penetration. Alternatively, when targeting members of a specific profession or job title, you can use LinkedIn search to find out how many people belong to that profession.
- Industry surveys and reports. Look for any existing statistics or reports on your industry. You can do this via a simple Google search or, if you know any well-known organizations or niche websites in your industry, you can look them up to see if they’ve released any reports or whitepapers relevant to you. For example, if you’re looking to be a freelancer, you can look at Freelancers Union or Payoneer, which regularly release survey results with information about freelancer pay.
On the other hand, if you’re targeting businesses and organizations, you can add the following resources to your research tools:
- Government agencies relevant to business. Business-related departments or bureaus in the government typically collect relevant data. For example, if you’re targeting small businesses in construction, you’ll learn that the market size is around 615,000 businesses, according to a report from the U.S. Small Business Administration. The Census Bureau also collects data on all US businesses, big or small. The European Commission and the Office of National Statistics (U.K.) also collect similar data.
- Market research report websites. There are websites that specialize in compiling industry reports that’ll include the market size of your target market and how much the industry is worth per year. For example, Ibis World collects data from different industries in the U.S. (including state-based data), Australia, China, and a few other countries. If you’re looking to serve HVAC contractors, their report will show you that there are 113,490 HVAC businesses in the U.S. and that the industry is worth $93 billion. Similar websites include Grand View Research, Technavio, and Absolute Reports. Though you typically have to pay for the full report, even previews can give you a lot of information when you’re on a budget.
As you look up more sources, your market opportunity analysis will be clearer. If you find conflicting information, choose the more reliable source or the source that has studied businesses closer to yours. But if you find similar results from multiple sources or studies, then the more confident you’ll be about your numbers.
2. Brainstorm Your Offer
Now that you’ve figured out the size and profitability of your target market, it’s time to craft offers for them. These “offers” are basically the products and services you’ll sell to these potential customers.
Here are some questions you’ve got to answer:
- Why do you want to serve this specific market and not others? Since you’ll be addressing why you think your target market is an attractive prospect, your answers to this question will give you an idea about what your unique selling proposition is.
- Which of their needs do you want to address first? Identify the primary problem you’re trying to solve or the main desire you’re trying to fulfill for your prospective customers.
- If you were to craft a solution to this need, what would it look like? Now you’ll start brainstorming product and service ideas for your target customers. Doing your market opportunity analysis before generating ideas like these will help you be more customer-focused rather than product-focused.
If you want a thorough step-by-step tutorial to finding out what your potential customers want, feel free to review this guide on creating offers.
3. Set Your Targets
Now that you know the size and profitability of your market, as well as the offer you’ll make to that market, you can set reasonable goals. The goal to set at this stage is how many sales can you expect to make within a year?
While you can’t expect to sell to 100 percent of the market, you can estimate your size of that pie. Ask yourself the following:
- Is there a subsegment of the market that you can corner right now? This could be the share of the market that’s closer to your location or that you can reach more easily.
- What’s the market share of your competitors? Do you know roughly how many sales or customers that your competition has? Compare your business only with competitors of a similar size.
- What’s one percent to five percent of your market size? Computing one to five percent of your total market size will give you a conservative enough estimate of your own potential pool of customers.
- Do you know any organizations that your target market belongs to? The more organizations you’ve got access to, the bigger your chances of reaching out to potential customers in bulk.
- Do you know any individuals who already belong to your target market (or, if you’re targeting businesses, do you know any key decision-makers)? If you already know people who are part of your target market, you can reach out to them first for initial insights and potential sales.
Once you answer the above questions, you can set a reasonable goal for the number of new customers or sales you’ll make. This will let you know if your business has enough opportunity to thrive. As you gain more information, you can change your target accordingly. The important thing is to avoid overestimating your targets.
If you need more guidance in setting sales goals, the following tutorials can help:
How to Set Goals With No Room For Excuses
How to Set Effective Goals for Your Freelance Business
4. Test Your Market Opportunity Analysis
Finally, your opportunity analysis should hold up in practice. This will help you be better at forecasting your potential sales and growth as you renew your business plans each year. Here are some ways you can do this:
- Run a test launch. If your opportunity estimations are off, it’s best to know it in advance of your launch. Online, you can launch this by setting up a squeeze page, stating your offer on the page, and inviting people to sign up via email in anticipation of the launch. You can invite people manually by posting on social media or contacting them privately. You can also run affordable ads on social media. After your test launch see how many people signed up and compare it with how many people you reached. What percentage signed up? If it’s less than five percent, go back to your initial analysis and offer and see which changes are needed.
- Conduct regular reviews throughout the year. Three months after you’ve launched your business, see how many customers you’ve gotten so far. Review your earlier analysis and compute the percentage of your market size you’ve reached so far. Then, keep reviewing every three months. Watch out for trends such as month-on-month declines in new customers and lower profits.
- Ask successful entrepreneurs for their feedback. Opportunity analysis is one of those things that you’ll only get better at with time. In your network or in online groups, look for people who have run businesses for more than five years and have a habit of making sales projections. Show them how you arrived at your analysis and ask for their feedback. Find out if you’ve been too optimistic in your estimates or if your numbers are closer to guesswork than research.
Opportunity analysis might not start out as an exact science for small business owners who are doing it themselves but, with practice, you can get more strategic and more accurate with your approach.
Take Advantage of Your Market Opportunity
By digging deeper with a market opportunity analysis, it’s going to be easier to carve out a piece of the market for your business. Decision-making will be simpler, and you’ll be able to see a clear path for growing your business. As you get better in spotting and taking advantage of opportunities, you and your business could eventually become leaders of your industry. Now that you know what to look for, why not conduct a market opportunity analysis for your business today?