Researching your marketplace is key to helping you set up your business. Quite simply, once you’ve got an idea for your product or service, you need to know if anyone will buy it. Knowing your market is also important if you need to raise money for your business and have to produce a business plan. You need to show that you understand the structure of your market and have a clear idea of where your product will be positioned compared to the competition.

Key areas to consider are:

• who will buy your products?
• what competition is there?
• what are your revenue streams likely to be – will your business be profitable?
• can you identify potential partners?

Identify your customers

Look for a niche in your proposed market, and then start building up customer profiles. It will help if you can target customers with common characteristics, tastes and features, such as people who have a disposable income or people with similar jobs. If you are targeting businesses, you can group potential customers around areas such as their buying patterns and sectors they operate in.

Once you have identified all the groups that could make up your market, you need to look at the competition. Ask yourself the following: are there already suppliers to that group of people? Can you clearly distinguish your product from the competition to ensure there is demand for it?

Check out the competition

Consider visiting one of your competitors and posing as a customer. This will give you the opportunity to ask about areas such as pricing, which type of customers shop there and which products are the most popular. This will help you to identify your competitive advantage.

If you are looking to target businesses, you need to find out as much as you can about their buying policies. Do research into the other suppliers to the business – both competitive and non-competitive ones.

Set up databases to help you organise the information.

Related: Performing a competitor analysis – how and why

How much will you sell?

You need to know what your revenues are likely to be. The level of sales you make depends on the following:

• the market size
• the market structure
• the market share you establish
• the market trends

To establish the market size, do research into the market share of your competitors. Try to gather data on areas such as: how many products do they sell, how well have they done over the last few years, how do they sell and who their main customers are.

It’s also important to identify market trends so that you can develop and adapt your business if there are changes in the market. You can do this by looking at who your potential customers are now, what they will buy from you, and how their needs are likely to change.

Getting to know your market can be a costly and time-consuming exercise, so make sure you know exactly what you need to find out before starting. And don’t stop researching once you have set up your business – you need to keep in touch with your customers’ needs if you want to stay ahead of the competition.

See also: Guidelines for conducting market research for small businesses