How to Do Market Research for Your Business Plan (Step-by-Step)

What is Market Research and Why It Matters for Your Business Plan

Market research is the systematic process of gathering, analyzing, and interpreting information about your target market, competitors, and the overall industry. For your business plan, effective market research serves several critical purposes:

• Validates your business idea by confirming actual market demand
• Identifies your ideal customers and their specific needs
• Reveals market size and growth potential to justify financial projections
• Uncovers competitors' strengths and weaknesses to help position your business
• Informs your pricing strategy based on market expectations
• Highlights industry trends that could impact your business

I once worked with a client who was certain her custom jewelry business would thrive in her area. However, our market research revealed the local demographic couldn't support her premium pricing strategy. By adjusting her target market to include neighboring affluent communities and developing an online strategy, she created a viable business that might have otherwise failed.

Types of Market Research for Your Business Plan

Primary Research: Gathering Original Data

Primary research involves collecting first-hand data directly from potential customers and market participants. This provides customized insights specific to your business idea.

Methods include:

1. Surveys and Questionnaires
   • Online surveys using tools like SurveyMonkey or Google Forms
   • In-person questionnaires at relevant locations
   • Email surveys to existing contacts or purchased lists
2. Interviews and Focus Groups
   • One-on-one interviews with potential customers
   • Focus groups with 5-10 participants from your target market
   • Expert interviews with industry professionals
3. Observation and Field Testing
   • Observing customer behavior in relevant settings
   • Testing prototypes or concepts with potential users
   • Pop-up shops or limited service trials

Pro tip: When conducting surveys, always test your questions with a small group first to ensure they're clear and unbiased.

Secondary Research: Analyzing Existing Data

Secondary research involves collecting and analyzing data that already exists from various sources. This approach is often less expensive and faster than primary research.

Key sources include:

1. Industry Reports and Market Studies
   • Reports from organizations like IBISWorld, Statista, or Gartner
   • Industry association publications and data
   • Government economic data and census information
2. Competitor Analysis
   • Competitor websites, marketing materials, and social media
   • Customer reviews of competing products/services
   • Annual reports of publicly traded competitors
3. Academic and Business Publications
   • Journal articles and academic research
   • Business magazines and trade publications
   • Case studies of similar businesses

According to a CB Insights study, 42% of startups fail because there's no market need for their product or service—a problem proper market research would identify early on.

Step-by-Step Guide to Conducting Market Research

Step 1: Define Your Research Objectives

Before diving into research, clearly outline what you need to know:

• What is the size and growth rate of your target market?
• Who are your ideal customers and what are their characteristics?
• Who are your main competitors and what are their strengths/weaknesses?
• What are current industry trends and challenges?
• What pricing will the market bear for your product/service?

Example objectives:

• Determine the market size for organic pet food in the Pacific Northwest
• Identify the purchasing habits of millennial pet owners
• Analyze the pricing strategies of top 5 competitors in the organic pet food space

Step 2: Identify Your Target Market

Creating detailed customer profiles is essential for focused research:

1. Demographic Factors
   • Age, gender, income, education, occupation
   • Location, family status, homeownership
2. Psychographic Factors
   • Values, interests, attitudes, lifestyle
   • Purchasing motivations and pain points
3. Behavioral Factors
   • Buying habits, brand loyalty, product usage
   • Decision-making process and influences

Example target market profile: "Health-conscious pet owners, primarily women aged 30-45, with household incomes above $75,000, who prioritize natural products, are environmentally conscious, and treat their pets as family members."

Step 3: Analyze Your Competition

Understanding your competition helps you identify market gaps and differentiation opportunities:

1. Identify direct and indirect competitors
   • Direct: Businesses offering similar products/services
   • Indirect: Alternative solutions to the same problem
2. Analyze competitor strengths and weaknesses
   • Products/services and their features
   • Pricing strategies and positioning
   • Marketing approaches and brand positioning
   • Customer experience and service quality
3. Create a competitor comparison matrix

Step 4: Determine Market Size and Trends

Quantifying your market helps validate the opportunity:

1. Calculate total addressable market (TAM)
   • The total potential market for your product/service
2. Identify serviceable available market (SAM)
   • The portion of TAM you can realistically reach
3. Define serviceable obtainable market (SOM)
   • The portion of SAM you can realistically capture
4. Research market trends
   • Industry growth rates and projections
   • Emerging technologies and innovations
   • Changing consumer preferences
   • Regulatory changes

Example calculation: "There are 85 million pet-owning households in the U.S. (TAM). Of those, 15 million regularly purchase premium pet food (SAM). Based on our distribution capacity and marketing plan, we aim to capture 2% of this market in year one, representing 300,000 customers (SOM)."

Step 5: Gather Primary Research

Collect first-hand data specific to your business idea:

1. Design your research tools
   • Create survey or interview questions
   • Develop focus group discussion guides
   • Plan observation methods
2. Select your sample
   • Identify who to survey/interview
   • Determine appropriate sample size
   • Plan how to reach respondents
3. Conduct the research
   • Launch surveys or schedule interviews
   • Run focus groups or field tests
   • Document observations thoroughly

Sample survey questions:

• "How much do you typically spend on pet food monthly?"
• "What factors are most important when choosing pet food?" (quality, price, convenience, etc.)
• "How likely would you be to purchase locally-sourced organic pet food at [price point]?"

Step 6: Collect Secondary Research

Gather existing data to complement your primary research:

1. Industry reports and statistics
   • Market size, growth rates, trends
   • Consumer behavior studies
2. Government data
   • Census data on demographics
   • Economic indicators relevant to your market
   • Regulatory information
3. Academic and trade publications
   • Recent studies and findings
   • Expert opinions and forecasts

Useful resources:

• U.S. Census Bureau
• Bureau of Labor Statistics
• Industry-specific associations and publications
• IBIS World, Statista, or MarketResearch.com reports

Step 7: Analyze Your Findings

Transform raw data into meaningful insights:

1. Organize and clean data
   • Compile survey responses and interview notes
   • Organize secondary research by topic
   • Identify and address inconsistencies or gaps
2. Look for patterns and trends
   • Common customer preferences or pain points
   • Market gaps or unmet needs
   • Competitive advantages or threats
3. Draw actionable conclusions
   • Market opportunity validation
   • Target customer refinement
   • Competitive positioning strategy
   • Pricing and marketing approach

One client's survey revealed that 78% of respondents were willing to pay a 20% premium for locally-sourced products with transparent ingredients—information that directly informed their pricing strategy and marketing messaging.

Incorporating Research Into Your Business Plan

Now that you've done the research, here's how to effectively integrate it into your business plan:

Market Analysis Section

This section should include:

1. Industry overview
   • Size, growth rate, and trends
   • Regulatory environment
   • Historical context and future projections
2. Target market description
   • Detailed customer profiles
   • Market segmentation
   • Customer needs and pain points
3. Competitive analysis
   • Key competitors and their offerings
   • Your competitive advantages
   • Barriers to entry and market position

Supporting Other Sections

Your market research will also inform:

1. Executive Summary
   • Market opportunity highlights
   • Key competitive advantages
2. Marketing Strategy
   • Positioning based on competitor analysis
   • Pricing strategy supported by market data
   • Promotion tactics informed by customer preferences
3. Financial Projections
   • Market size informing revenue projections
   • Pricing strategy reflected in financial models
   • Customer acquisition costs based on market research

Pro tip: Use visual elements like charts, graphs, and tables to make your market research more digestible and impactful.

Common Market Research Mistakes to Avoid

In my years of consulting, I've seen businesses make these critical mistakes:

1. Confirmation bias – Only looking for data that confirms your existing beliefs
   • Solution: Actively seek contradictory evidence and alternative perspectives.
2. Insufficient sample size – Drawing conclusions from too few responses
   • Solution: Ensure statistically relevant sample sizes (generally 300+ for quantitative research).
3. Poor question design – Using leading or ambiguous questions
   • Solution: Test your questions with a small group first and revise as needed.
4. Overlooking secondary research – Reinventing the wheel when data already exists
   • Solution: Begin with thorough secondary research before conducting primary research.
5. Failing to segment the market – Treating all potential customers as one group
   • Solution: Identify distinct customer segments with different needs and preferences.
6. Ignoring qualitative data – Focusing only on numbers, not insights
   • Solution: Balance quantitative data with qualitative insights from interviews and observations.

Market Research Tools and Resources

The right tools can dramatically improve your market research efficiency. Here are tools at various price points:

Free and Low-Cost Tools:

• Google Trends:Track interest in keywords related to your business over time.
• Facebook Audience Insights:Learn about demographics and interests of potential customers.
• SurveyMonkey (basic version):Create and distribute simple surveys.
• SEMrush (free trial):Research keywords and competitor websites.
• Public libraries: Access market research databases like IBISWorld for free.

Mid-Range Options:

• Qualtrics Core XM:Professional survey software with advanced analytics.
• SurveyMonkey Advantage:Expanded survey capabilities and response collection.
• SparkToro:Discover audience interests, behaviors, and preferred content.

Enterprise Solutions:

• SPSS:Advanced statistical analysis for large datasets.
• Forrester Reports:In-depth industry analysis and forecasts.
• GfK Custom Research:Tailored research projects for specific business needs.

I've found that most startups can get 80% of the insights they need using primarily free tools, supplemented with one or two targeted paid resources in their specific industry.

Final Thoughts

Market research isn't just a step—it's your foundation. Skip it, and your business plan turns into guesswork. Do it right, and you gain clarity, direction, and a competitive edge.

I've seen how even a simple customer survey can uncover hidden needs, new ideas, or reveal that you're targeting the wrong audience. The insights you gather early can shape smarter decisions later.

Now it's your turn. Apply the methods you've learned to build a plan rooted in facts, not assumptions. Revisit your findings regularly. Markets shift—so should your understanding.

Stay curious, ask better questions, and let data guide your strategy. The strongest business plans begin with sharp research—and yours should be no exception.

FAQs

What if my primary research contradicts industry reports?

This isn't necessarily a problem—it could indicate you've found a unique market niche or opportunity that larger reports haven't captured. Analyze the discrepancies to understand why they exist. Is your sample different? Are you asking different questions? The contradiction might be your competitive advantage.

Should I hire a professional market research firm for my business plan?

While professional research can be valuable, most startups can conduct sufficient research independently. Consider hiring professionals only for specialized industries or when targeting enterprise clients where detailed market intelligence is crucial. Otherwise, DIY research methods often provide the insights you need at a fraction of the cost.

How do I research a market when I'm creating something completely new?

For innovative products or services, focus on researching adjacent markets and substitutes. Identify the problem you're solving and research how customers currently address that problem. User interviews and concept testing become particularly important when market data doesn't exist for novel solutions.

What's more important for my business plan—primary or secondary research?

Both are valuable, but secondary research typically provides context and scale while primary research offers specific insights about your unique value proposition. Start with secondary research to understand the landscape, then use primary research to test your specific business hypotheses.

How often should I update my market research after launching my business?

Market research isn't a one-time effort. Plan to formally revisit your research quarterly in fast-moving industries or annually in more stable markets. Additionally, create systems to continuously gather customer feedback and monitor competitor activities so you can make real-time adjustments to your strategy.