Posts Tagged ‘business planning’

Doing Market Research for Your Business Plan Need not be Expensive

June 2, 2010

Every business needs to do market research. Whether your company is a Fortune 500 corporation or the neighborhood bar, understanding the market or markets in which you operate is critical to your company’s success. Would you invest money in an oil company that didn’t research the fields where it wanted to drill? Would you buy a house in a neighborhood without checking out the schools, crime rate, or housing market? Would you open a restaurant if you knew nothing about the location, the traffic around it, or the prospective customers? You can be sure that if you wanted to open a business, no banker will loan you money without you having done proper, thorough market research.

When one hears the phrase “market research,” most often he/she thinks about surveys and focus groups. These are the most common, yet often most expensive types of market research. Surveys and focus groups are primary research methods, since they are conducted from scratch. Most market research that small businesses need is secondary, that is, research that has already been conducted, published, and available to the public. Often, secondary research can be found in libraries, online, or through other published sources. Secondary research is also much less expensive – sometimes even free – to obtain; however, sifting through it for information relevant to your business’ needs and analyzing it properly can be very time-consuming. In this post, we will discuss how someone starting a business can do market research without breaking the budget.

First Step: Decide on the Information You Need

Tom Johnson has decided to fulfill his dream of starting a comedy club. He’s purchased a book on writing a business plan, and finds that one section of a typical business plan is “Market Analysis.” Tom realizes he must get this section down pat in order to determine the viability of his business and make projections of his first few years of revenues, and convince a banker to lend him money. Tom needs to ask himself several questions: What type of customers am I catering to? What locations are most convenient for attracting those customers? What are the traffic patterns in those locations? What other comedy clubs and entertainment venues are in the area? What do they charge? How do they promote their businesses? What types of promotions do my target customers respond to? Tom writes down all the questions he can think of that will help him analyze his market.

Census Bureau

The first place Tom turns to is the U.S. Bureau of the Census. The bureau’s Web site, www.census.gov, provides a wealth of info for him. He looks at the Web site for demographics, and plugs in the ZIP codes for the locations he is considering, along with their adjacent ZIP codes. The Web site provides great insights into the number of households in the ZIP code, the age ranges, income levels, racial composition, and other demographic factors. Also from the bureau’s Web site, Tom obtains the latest “Consumer Expenditure Survey,” and finds out what the average family spends on entertainment each year.

Tom then notices that the bureau also does an Economic Census of businesses every five years. He finds the Web page for County Business Patterns and looks to see how many entertainment establishments are within the ZIP codes he is considering. He gets good insights about the number of establishments, their employee size, revenues, and payrolls. Tom also finds other interesting facts from the Economic Census – particularly what percentage of revenues entertainment establishments typically spend on various categories: advertising, salaries, maintenance, etc.

Local Library

Tom realizes the Census Bureau has provided him with data that is summarized and aggregated. He needs more information about specific competitors and business patterns in the areas he is considering. So he visits his local library, which has access to several different databases of small businesses, like Dun & Bradstreet’s Hoover’s, and Million Dollar Database. These databases provide information on several individual establishments, including revenues, owner/officer information, employees, and location. Tom does a search of all entertainment establishments in his locations of interest.

Tom also searches through local newspapers of the past few weeks to see which entertainment venues were advertising, how often they were advertising, what they were offering in their ads, etc. He then goes to the Yellow Pages to see if those prospective competitors advertise there as well.

Chambers of Commerce

Tom then contacts different chambers of commerce around his locations of interest. He finds out when their functions are and attends some of them. The local chambers of commerce are great sources for identifying the similar businesses in his area, meeting their owners directly, and finding other businesses that can be help to Tom in opening his business. For example, Tom could meet the general manager of a local movie theater, and might learn from him that the area seems to be pressed for customers, or is impacted by some local ordinance; Tom might also meet a banker or an attorney who specializes in helping new businesses start. Still, he might meet people from a local corporation who are seeking to do events for employees, of which a comedy club can be a great option. Tom might also find information on the cost of labor in the area, as well as commercial real estate rents in various areas. Chambers of commerce are ideal for networking, news, assistance, prospective customers, and other information.

Getting Out There

Tom has now done a lot of secondary research, an exhaustive amount if you ask me! But there is also some primary research he can – and must – do. Tom should drive the areas near the proposed locations for his comedy club. He should check out the other entertainment places nearby: restaurants, jazz/dance clubs, movie theaters, other comedy clubs, karaoke bars, etc. That is, he should mystery shop. Tom should go into some of these competitors and get a feel for the type of clientele to which they cater, the prices they charge, the quality of service they deliver, and how busy they are. He can also see the décor of these venues, their peak times, the outdoor signage, and the traffic around them. All of these can yield valuable clues about the venue’s degree of competitive threat to Tom’s comedy club, and the viability of the location.

Putting it all Together

While there are countless many more sources Tom can turn to for market research, we see he’s done quite an impressive amount already. While most of his sources were free, or of minimal cost, Tom’s real expense was the time and legwork he put into it; he must now synthesize all this information and analyze it to see which locations provide the best mix of traffic, revenue potential, rental costs, and demographics, and then use that information to create forecasts. Once he’s done that, Tom can write the Market Analysis section.

PlanPro Makes the Market Analysis Section of Your Business Plan a Snap!

Chances are you don’t have the time Tom did to do all of that research. Finding all that secondary information and making heads or tails of it is probably something you’d rather delegate to a professional. With PlanPro, Analysights conducts all the secondary research you need for your business, and provides you with templates for the primary research you need to do. Once all the research is compiled, we will analyze it and provide you with the findings, so that you could write the Market Analysis section of your business plan with ease. All for a flat $495! For an extra $125, we will also write the Market Analysis section for you. This way, you can spend more time on the elements of your business plan that make the best use of your time. To learn more about PlanPro, visit: http://analysights.com/PlanPro.aspx or call Analysights at (847) 895-2565.

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Sales Forecasting: Crucial to Small Business Success

May 18, 2010

Forecasting sales is never easy, yet the ability to do so can alleviate a lot of headaches, especially for owners of small or family businesses. Small businesses have lots of the same questions large companies do: how much inventory to acquire/keep? How many workers to staff on Wednesday? How much lift in sales will each $1,000 of advertising expenditure generate? How much will sales change if we adjust the price up/down by $1? Most business owners, with all their other pressing responsibilities, have either given sales forecasting a low priority on their task list, or given up on it entirely. This is unfortunate, since an objective system of sales forecasting can greatly simplify a business owner’s planning, identify areas for improvement, and even enhance the value of his/her business. Today’s blog post explains the various benefits of having a sales forecasting system.

Simplified Planning, Reduced Planning Time

With an objective way to forecast sales, business owners can greatly reduce the time it takes them to plan for inventory purchasing and employee staffing. This is because such a system minimizes the uncertainty of tomorrow by establishing educated guesses based on historical sales. Often, decisions based on these measures are more accurate than those made with unaided judgment. A forecasting system recognizes patterns within the data, so that a business owner can make adjustments for seasonality, trends, and business cycle occurrences. For the most part, if sales on Tuesdays have been averaging $2,000 per day and sales on Wednesdays $3,000 per day, then the business owner knows to schedule more staff on Wednesdays and carry more inventory than on Tuesdays. Just knowing how sales are trending saves the business owner some valuable time.

A sales forecasting system can also help a business owner gauge the impact of seasonality. If he/she finds that sales of her product/service in July average 10% higher than baseline monthly sales, then the owner can plan more effectively for those seasonal variations.

Detection of Opportunities and Problem Areas

Forecasting systems can also alert owners of small businesses to problems and opportunities. Returning to our Tuesday/Wednesday example, the business owner may realize an opportunity to get creative with marketing. If the business is a restaurant, the owner may decide to issue coupons and advertise specials to encourage more diners to come in on Tuesdays. The reduced business on Tuesday may also alert the business owner to a problem. If Tuesday is the restaurant’s slowest day, it may be because there’s a weekly event on Tuesdays that the owner is competing against for patrons, or because the restaurant is short-staffed on Tuesdays and many potential patrons choose not to wait. There could be many reasons, but forecasting can alert the owner to the existence of a problem and the various solutions he/she could try.

Reduced Costs, Increased Revenues, Increased Employee Morale

In trying to project sales, a business owner can make two very different mistakes – under and over predicting, – each with its own undesirable consequences. Usually, these mistakes occur when the business owner’s forecasts are due largely to “gut” or other subjective means. When an owner under predicts sales, he/she may not order enough inventory or schedule enough staff. As a result, the business may run out of inventory and not be able to fulfill orders, resulting in reduced sales and lower customer satisfaction. The inadequate staffing can also increase waiting times, which also lowers customer satisfaction. When an owner over predicts sales, he/she is likely to order too much inventory and/or schedule too many workers, which results in large quantities of unsold inventory and excessive labor costs. Moreover, there are both carrying and opportunity costs associated with excessive unsold inventory. Also, inaccurate predictions can adversely affect the morale of a business’ labor force. Frequent overstaffing due to over prediction can result in bored employees, while frequent understaffing due to under prediction can lead to burned-out employees. Either way, employee morale takes a hit. With an objective forecasting system in place, small businesses can minimize the impact of both over and under prediction.

Enhanced Business Valuation

Cash flow is the lifeblood of every business, not to mention the driver of their value as going-concerns. When entrepreneurs buy existing businesses, they want to know how much cash their generating. All things equal, those businesses that generate more cash command higher sales prices than those that generate less. In the absence of an objective forecasting system, discovery of a business’ true valuation can become problematic. Buyers may demand a discount on the price of a business to compensate for the lack of sales certainty; sellers would have no concrete way to justify the price they seek. A forecasting system greatly shortens the value discovery process and makes it less cumbersome and subjective.

In addition, lenders often make decisions based on cash flows and valuation. A forecasting system can possibly increase your likelihood of getting a loan, and also the amount of funding you seek.

ForecastEase Takes the Pain Out of Forecasting

Having a system in place to forecast sales can make your business more successful and your life easier, more enjoyable, and richer. With ForecastEase, Analysights examines your sales and builds models that generate forecasts that will help you with your planning so that you can spend more time on the strategic elements of your business. Once the models are developed, we create a simulator in Excel that lets you build scenarios painlessly and effortlessly. And the models – depending on the fluctuations of the business – are durable, not needing to be updated all the time. Click here to learn more about ForecastEase or call Analysights at (847) 895-2565.

Introducing Analysights’ Small Business Solutions

May 11, 2010

I’m pleased to announce that Analysights has developed a line of solutions designed to provide high-quality marketing research services to small businesses at affordable rates. Much like large corporations, small businesses need to forecast sales, analyze and monitor their marketplace, and understand what their customers think and where improvements must be made. However, most small businesses don’t have the budget that larger ones do to get the insights they need.

Now they don’t have to!

Small businesses can now get customized marketing research services for a flat price! Analysights has introduced three lines of small business solutions: SurveySimple, ForecastEase, and PlanPro.

SurveySimple is our small scale survey solution, which includes initial consultation, questionnaire design, survey deployment, data collection for 100 to 300 responses, and analysis and reporting with recommendations. You can choose from a Silver, Gold, or Platinum package, depending on the number of people surveyed and/or the length and complexity of the questionnaire. Find out more about SurveySimple.

ForecastEase is a customized sales forecasting solution for small businesses. We use your past sales data to build a forecast model that will help you predict what sales will be in the both the short- and long-term. We then provide you with an Excel spreadsheet powered with the model, so you need only plug in a few numbers to get estimates of upcoming sales, making it easier for you to schedule employees, order supplies and inventory, and make plans with more certainty. You can have sales forecasts made on a daily, weekly, monthly, or quarterly basis. ForecastEase also has a flat price, depending on the periodic basis chosen. Find out more about ForecastEase.

PlanPro is geared towards any small business or entrepreneur preparing a business or marketing plan. The “Market Analysis” is a critical, but often difficult, section of a business plan to create. Analysights takes the drudgery of the Market Analysis section off your hands. We will consult with you and then research your market, examine industry’s trends, competition, and regulatory environment, develop projections for the next couple of years, and provide you with the findings. For a small fee, we will even write the Market Analysis section of your business plan for you. Find out more about PlanPro.

With Analysights’ Small Business Solutions, the question is no longer a matter of “can you afford to do marketing research,” but of “can you afford not to?”

Conducting Market Research Without an Underlying Business Purpose Wastes Time and Money

April 21, 2010

The other day, a question was directed to me on the AllExperts.com Website, where I am a participating market research expert.  A student from the Netherlands was preparing a graduation thesis based on a large scale market research project he was doing for a manufacturer of water cooling systems for power plants.

His thesis topic was, “What does the northwest European market for cooling water systems in power plants look like?” 

While the manufacturer was good with the topic, his thesis advisor was not.  The advisor felt the topic wasn’t strategic.  And the advisor was right!

Market research has no value if a company can’t act on it.  Market research findings need to be taken to the next step – a recommended course of action for the client.  If the power plant water cooling system manufacturer knows what the market looks like, that’s great, but what does it do with that knowledge?  Many companies, for this very reason, end up suffering from “analysis paralysis.”

So I advised the student to reformulate the thesis topic into a strategic initiative, something like, “How can Company A achieve an X% share of the power plant water cooling systems market in northwest Europe?”  From there, he would still answer his research questions to understand what the market looked like, but then the findings would lead him to determine the strategy he should recommend to the manufacturer. (See his question and my response here).

Knowing what initiative the client wants to achieve is the starting point.  Once you know the business purpose, you can then determine the research questions that must be answered.  Once those questions are answered, you can then come up with the recommendations that lead to achievement of the business purpose.  Insights that can’t be acted on waste everyone’s time and money.

8 Steps to Determining Market Size

May 1, 2009

Whether you’re an entrepreneur writing a business plan or an established firm looking to introduce a new product or service, you will encounter the need to estimate the size of the market/s that you plan to serve.  Market-sizing is an interesting and exciting branch of marketing research, but it can be almost as much an art as it is a science.  Today, I will walk you through the process of estimating market size, using the example of a financial planner looking to develop a practice in his community.

Step 1: Define your target market

This can never be stressed enough.  If you don’t know the type of customer you want to serve, you will waste a lot of time and money trying to get any customers.  Market-sizing is easier when you know the exact group you’re searching for.  Our financial planner has decided that his target market will be married couples with young children.

Step 2: Determine the needs of your target market and how they create demand for your product/service

Here you formulate a hypothesis.  Ask yourself the benefits your product or service offers your target customers.  What problem does your product help them solve?  Begin with a statement about why your target customers need your product.  Our financial planner’s statement might be: “Married couples with young children need my services because they must be prepared for college, as well as for unexpected emergencies such as disability and early death.”  This statement assumes, of course, that the financial planner sells financial products that address these needs; if the planner sells only financial plans, his statement will be different.  

Step 3: Identify the information you need to estimate the size of your market

Now that you have identified your target market and hypothesized about its demand for your product, what information do you need to develop your estimates?  Among other things, our financial planner would need to know:

  • The age distribution within the geographic area he serves;
  • The number of households with children in that area;
  • The distribution of family income in that area;
  • Home market values in the area;
  • Educational attainment and college enrollment rates for graduating high school students;
  • How many competitors, direct (other financial planners and insurance agents) and indirect (stock brokers, banks with financial planning services, etc.) are serving the market; and
  • What financial planning services people buy and how much they pay.

There are others, but this list is pretty comprehensive.

Step 4: Identify the sources you need to obtain that information

So where do you find information about your market?  These days, there is such a wealth of published statistics about almost every industry and market segment, that a combination of library and online research can fulfill most of your information needs.  In some cases, if you are looking for very specialized information, you may need to conduct your own primary research (surveys, focus groups, etc.) to get what you need. 

The U.S. Bureau of the Census provides comprehensive demographic statistics by metropolitan area, county, ZIP code, census tract, and state.  Information about population, age, income, educational attainment, presence of children, and home market value can easily be obtained at any of these levels, so the financial planner would be able to answer many of his questions.  In addition, the Census Bureau also produces County Business Patterns, which provides information about the activity of each industry by each of the same geographic levels listed earlier.  Hence, our financial planner can also obtain the number of financial planning establishments,  insurance agencies, and brokerage firms serving the area in which he hopes to establish his practice.

In addition, our financial planner may consult online data sources such as Dun & Bradstreet’s Million Dollar Database and ABI’s ReferenceUSA to identify specific financial planning firms and insurance agencies in his area and get estimates of their employment size and revenues.

The financial planner can also get lots of relevant information from trade associations, local chambers of commerce, Web sites of his existing competitors, and through primary research, such as surveys and interviews with experts.

Step 5: Collect the data

Now that you have identified your data sources, you need to extract the data.  The financial planner will scour all the sources he identified to pull out data that meets his information needs.  He will determine whether his data sources provide sufficient and useful data, or whether they provide insufficient or suspect data, at which point he may seek out additional sources to answer his questions.

Step 6: Analyze the data

Now that you have all the data, what does it mean?  What is it telling you?  Let’s say that the area our financial planner wants to serve has 200,000 households, of which 15% – or 30,000 – are two-parent households, with a median family income of $60,000 per year, a median age of 32, and an average household size of 4.  Immediately, the financial planner knows he is serving a young upscale market, and it’s very likely – without looking at the number of competition – that there will already be an above average number of financial planners trying to serve them.

The financial planner may also find from financial planning industry statistics that 60% of families in that age group carry life insurance, and that the average policy face value is $100,000.  Given the affluence of this area, the planner may reason that households in his target market have much greater assets and income to protect, so he may adjust his estimates of life insurance coverage for that area upward – to policies of maybe $250,000 or $500,000.  He’ll make similar estimates for any other financial products and services he offers.

Step 7: Derive your market estimate

Now that you’ve compiled and analyzed your data, you need to come up with an estimate of market size.  Our financial planner may – through all his data sources – come up with an average and standard deviation of the policy amounts of life, disability, and other policies aimed at his target market in that area.  He will then project that amount out by the number of households within that market to come up with an aggregate size of the financial planning market in that area.  From there, he will build in a margin of error, perhaps using a 95% confidence interval, to come up with a low estimate, a middle estimate (which would be the aggregate size he determined earlier), and a high estimate.

Step 8: Apply your estimate

Your market size estimate is useless if you do not apply it.  Once our financial planner derives his aggregate estimate, he will estimate how much of that market he can reasonably get based on his competition and the amount of money he can earn based on his commission structure.  This will feed his business plan projections.

In addition, the size and characteristics of this market will help our financial planner determine how best to market his services, whether by direct mail, giving presentations, networking, or other means.

Market-sizing can be a daunting, tedious task, but the value it adds to your planning and marketing efforts can make the time, money and effort invested in it more than worthwhile.