It's one of the cardinal rules of owning a business: “Know your customer.” Most entrepreneurs believe this means improving your familiarity with things like whether you should market to consumers or businesses. But you also need to know how many prospective customers there are, how many you can reasonably expect to land and other customer profile attributes.
Knowing how to size up your market will help you determine whether your business idea is viable and figure out its growth potential.
Yet gauging your customers is an element of planning that many business owners overlook, says Dave Lavinsky, founder of Growthink, a Los Angeles-based business growth consultancy.
To get a better sense of the size of your prospective market and revenue potential, adopt these three strategies:
Look at the big picture. Before focusing on your particular company, research the size, health and customer base characteristics of your industry sector to determine how it’s doing overall.
Consult trade associations and sources like the Census Bureau’s Survey of Business Owners to find out the numbers of employees and revenue levels of businesses like the one you plan to launch, as well as the characteristics of their typical customers. For example, a prospective restaurant owner might look for the demographic profile of the typical casual diner.
Use the right tools to slice your piece of the pie. To understanding the prospects for your particular business, start by completing a customer-profile worksheet like this one. Your local Small Business Development Center can help you locate industry-specific market research data and match you with an experienced counselor who can help you accurately estimate your fledgling business's market.
Your state’s economic development office website is another good resource for zeroing in on local demographic, population and trend data.
For the latest U.S. Census market data, look to the Business Dynamics Statistics data series and the People and Households section of the Census.gov site.
Moody’s Analytics’ FreeLunch.com has a smorgasbord of helpful statistics, from local household income to international trade data by industry. And The Black Sales Journal, a website for African-American sales professionals, has an excellent primer for determining the ideal number of prospects (of all races).
Check out your competition. Next, look at how many other companies serve the market you plan to enter, and try to find competitive gaps. If you can serve a need better than your competitors or address one they're ignoring, you have an opportunity to capture a healthy share of the market.
Talk with prospective customers and ask them what they like or don’t like about existing firms. If possible, visit competitors and try to do business with them. Then ask yourself: How could I improve on their products or services?
You could also conduct market-research surveys with free online services such as SurveyMonkey.com, or even hire a market research firm.
Two resources worth checking out:
The business-data company Hoover’s lets you search online at its site to scope out competing firms.
And BizStats.com can tell you how much competing companies spend on advertising. That will give you a sense of what it will cost to attract enough customers to sustain and grow your business.