Your LivePlan Small Business Plan – Understand Your Target Market
This process starts with identifying and/or describing who your ideal customer is.
The description of your ideal customer will be very specific.
This will allow you to develop an understanding of who your typical customer is.
The description of your typical customer will use looser ranges for defining things like demographic and psychographic characteristics.
Once you have an idea of who your typical customer is, you can begin to determine how large your target market is.
Your Ideal Customer
Having a good understanding of who your ideal customer is will help you better develop your product or service and will help you do a better job focussing your marketing efforts.
You may or may not include an in-depth description of your ideal customer in your LivePlan, but you should go through the exercise of clearly defining who they are either way.
They may be based on a real customer or may be fictional.
It may sound silly, but if you don’t have an ideal existing customer in mind, consider creating an avatar for an ideal fictional customer.
It is a very common practice for successful small businesses.
Start by specifically defining your ideal or fictional customer’s basic demographic characteristics.
- Education Level
- Income Level
- Marital Status
- Familial Status
Then define psychographic characteristics:
- Personal and Professional Goals
Have a little fun with the process by getting super specific and identify things like:
- Alma Mater
- Favorite Band
- Favorite Movie
If you’re artistic and are developing a fictional avatar, draw a picture of them.
Or use a website like AvatarMaker.com to create an avatar online.
I suggest that it’s easier to start with defining one ideal customer, but as you learn more about your business you may identify multiple ideal customers or develop multiple fictional avatars.
If you are just starting your business, your ideal customer, like many other things you assumed about your business, will probably change or evolve as you progress and learn more about your business and customers.
So you should update how you define your ideal customer whenever necessary.
Your Typical Customer
Most of your customers won’t fit the exact mold of your ideal customer.
In Embarkment Salon’s case described in the caption above, some customers will be younger and some will be older. Some will be married and some will be single.
Once you have your ideal customer defined, you will have a starting point for defining who your typical customer is.
Defining your typical customer involves using looser ranges to describe demographic characteristics like age, income, education, and the geographic location of your customer.
The ranges should approximate the description of your ideal customer, but they won’t be exact.
Once you have your typical customer defined, you can estimate how large your target market is.
Free options for doing this include using Facebook’s ad manager, combing through census data or visiting websites for trade organizations in your industry to see what kind of free resources they may offer.
However, if having data on your target market is important for your plan and you have some funds budgeted for developing it, I recommend paying for a resource like BizMiner.
You can create reports based on whatever custom parameters you set.
I recommend starting with the Industry Market Report.
With a customized Industry Market Report you will get valuable information about your industry, including the number of establishments, sales volume, and employment information, which can be used in future sections of your LivePlan.
For purposes of the Target Market section, you will get demographic information for the area you choose, including total population, race, ethnicity, age, employment, income, and housing status.
You can customize your report to include the entire United States population or focus on entire state, county or metropolitan areas.
You can also customize the report by zip code.
After determining the size of your market, you can describe how much of the market you can reasonably expect to capture.
This will vary widely from business to business and industry to industry and is, at best, an educated guess.
Your estimate of market share should be based largely on the competitive landscape and can also be based on factors like how critical your product is to your target market.
You can describe how much of the market you expect to capture and defend your estimate in the Target Market section of your LivePlan.
However, if you are just starting a business there is another option.
As an alternative to estimating how much of the market you expect to capture, you may consider reverse engineering a long term goal and determining if it is reasonable based on what you determined your market size to be.
What does this mean?
Well, in the first post in this Create a LivePlan guide, I discussed how important it is to have a grasp of why you started your business and what you want to accomplish long term.
Almost all of what you want to accomplish can be boiled down to what it will take financially.
Determine what you want to accomplish long term and then estimate how many customers it will take to accomplish your goals.
I mentioned this is a particularly useful exercise if you are just getting into business because you probably don’t have a baseline for estimating how much of the market you will capture.
However, in conducting this exercise it is critical that you are reasonable and honest with yourself.
You probably can’t expect to capture your entire target market.
If you reverse engineer your goals and determine that they are unreasonable, it is best to recognize this and either pivot or adjust accordingly.
This is one of the many benefits of planning.
Determining that your goals or the plan for achieving them is unrealistic can save you a significant amount of time, money, and undue stress in the future.
If you choose to reverse engineer your goals you will need to do it in conjunction with developing your financial forecasts, which comes later in the process and in this blog series.
You can begin to develop goals, but to complete the exercise you need to have a grasp of your projected financials.
If you plan to estimate your market size, you will need to have a solid grasp of your competition, which happens to be the next topic to be addressed.
Regardless of how you choose to define your market size, you can glean more insight and get assistance and feedback by signing up for the next LivePlan Online Workshop.
The next group is being formed now. Sign up today.
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