2. Feasibility check - is there a market?
It’s always worth checking that there are enough potential customers out there for your business to survive and grow. To do this, you will need to work out some rough numbers on your market size.
Key questions to ask of your business:
- How many customers do you need to be profitable?
For your product or service, you first need to work out roughly how many transactions you will need to make a profit, and how many customers you will need to generate those transactions. For example, for a cleaning business, maybe you need 100 cleaning jobs a month to be profitable, but if customers will be weekly, then you need a minimum of 25, and then a few more to allow for churn.
- Are there enough potential customers?
Do a rough pen portrait of the type of customer who is likely to be interested in your offering, including elements like their location, age, gender and income bracket. Then look at population stats online to get a feel for some numbers.
For the cleaning business, you’d check if it’s realistic to find more than 25 customers in a small local area, who need and can afford a cleaner. Or, if you are creating a product or service for new born babies in Scotland and you know you need to sell thousands before you are profitable, it is handy to know that there are less than 60,000 births in Scotland each year. Realistically you would only convert a small percentage of these, which may lead you to decide you need to widen your market through digital channels across the UK or internationally to be able to sell the volume you need to.
- Does this market exist just now?
If you can easily identify direct competitors, then it will be obvious there is an existing market and you can undertake competitor analysis to identify how to stand out. Remember, if there are many competitors, then the market could be saturated, and you will need to stand out enough to encourage customers to switch to you instead.
If you have come up with something really innovative then there may not be an established market just now. On one hand this is good news - although you will inevitably have indirect competitors, direct competitors will not be an issue.
However, for an innovative offering, it can be hard for potential customers to see the same potential you do and for you to convince them to buy. In this instance, doing some form of audience research (see point 3) will be particularly useful for how you position your offering.
Data sources
To help you with the above research, there are free online data sources for market insights:
- Business Gateway Market Reports
To help gather market information, Business Gateway has an excellent section of over 100 free to download market reports covering a wealth of industries, such as Alternative and Complementary Therapies, Ancestral Tourism, Child Care, Civil Engineering, Craft Beer, Hairdressing and Music Tuition.
For example, in the report on Maternity and Baby products, it highlights the long-term overall decline in the baby wipes market due to environmental concerns. But this can also help you identify an opportunity if you are looking to launch an environmentally friendly baby product or service.
The reports also include links to professional and industry bodies which may have additional useful statistics and insights. If you need further information, Business Gateway can access more detailed research for you and send you extracts from them.
- Office for National Statistics
The Office for National Statistics is also a useful source of population and demographic information.
