Which of the following issues should be considered in industry/target market feasibility analysis?

Key Takeaways

• A market feasibility study helps businesses set expectations and plans.
• A good market feasibility study assesses the market environment while also identifying potential customers and other sources of revenue.
• Unlike marketing plans, which aim to make your business look as good as possible, market feasibility studies should be an objective assessment.

How To Write a Market Feasibility Study

Market feasibility studies should include a description of the industry, current market analysis, competition, anticipated future market potential, potential sources of revenue, and sales projections.

Industry Description

Give a brief description (one or two paragraphs) of the industry your business is in, according to the U.S. Department of Labor. Determining your industry is essential for receiving government contracts, attracting investors, and for receiving grants if you form a nonprofit.

For example, Fictitious Business Example (FBE) is being established to produce and provide quality industrial first aid kits to the U.S. Government and both private and public companies to improve worker safety on the job. FBE's services are classified under the U.S. Department of Labor Standard Industrial Classification (SIC) as SIC Code 5047 and classified as being in the "Medical, Dental, and Hospital Equipment and Supplies" industry. Your company's SIC can be found on OSHA's SIC search tool.

Current Market Analysis

This section of a market feasibility study describes the current market for your product or service. If you are offering something so unique that there are few market statistics, you can either use related industry information or conduct your own independent study. Several ways to conduct your research for new ideas include polling internet forums, sending out questionnaires addressed to targeted consumer groups or the general population, and even customer surveys.

Any solid evidence you have that there is a demand (or market) for your product or services will help you sell your idea. It is particularly important if you are marketing something unique or within a small, specialized market.

Note

You need to show that your ideas are novel because you have found a niche and not because there is no existing market for the idea.

A good source for finding out what is selling (and what is not) is the Department of Labor. Industries showing employee growth is often a good indicator of an industry's overall stability, and massive layoffs indicate fewer business opportunities. Where there is a demand for something, there should be correlating employment growth, the number of new companies being formed, or in the industry's overall combined revenue.

Competition

If you are planning only to serve a local market, start by identifying every competitor within a 50-mile radius. List each competitor by location and distance from you, as well as their distances from each other. You should closely examine all competing businesses that are within 15 miles of your location. Consider their locations, business hours, and how long they have been in business. These things can help you determine how hard it will be to establish a similar business in the same geographic area.

You should also make a note of any similar businesses in your area that have recently gone out of business. There may be a reason such as poor location, high taxes, operating restrictions, or not enough demand for the product or service in that area to sustain a business. Researching local competitor information can tell you two things: what works now and what has not worked for other businesses.

If you are planning to sell your products or services on a larger scale through franchise development or internet sales, you need to look beyond the local competition. To find smaller competition, use a search engine to find businesses by keywords related to your industry. The return will show you companies selling similar products that are ranking high in search engine results and possibly getting more business.

Visit their websites to see what they are selling and what they are not selling.

Note

If you are not sure what keywords relate to your industry, use free, online keyword search tools to help you know what most people are searching for in your related field.

Anticipated Future Market Potential

This section should include a narrative description, as well as attached spreadsheets, graphs, or tables showing trends, statistics, or projections. There are no surefire ways to tell if an industry will have measurable growth in the future, but you can make logical and reasonable predictions based on trends, past growth, and the current markets.

It is critical in this section that your projections are fact-based as much as possible. Every business takes risks; the key is to minimize those risks by carefully studying already successful companies. Rather than targeting the entire industry, try to isolate similar businesses and study what they are doing, how they are doing it, and their financial track record.

Potential Sources of Revenue

You can obtain a lot of information by visiting company websites and looking over product lines. Look for discontinued products or services and high-priced items. Somewhere in between these two things are probably the most stable long-term items. Discontinued means consumers no longer demand the product, while high-priced items may indicate a fad.

Since big companies spend big bucks on market research, take advantage of their money spent and public information. For example, if you are trying to crack the pet market, look at PetSmart and Petco. Examine the new product lines or services they are offering; chances are good that they spent millions researching industry trends to develop new product ideas.

Look for press releases about businesses in your industry. Press releases are an advertisement, but they also often tell why a company is branching out, closing a division, or changing its product line. They have already done the research for you, so do not hesitate to take clues from other businesses.

Sales Projections

Sales projections can be a challenge for any new business owner because there is little or no track record to support how fast you will grow or what products or services will sell best. Sales projections should factor in how much time and money will be invested in the business and the markets you will be targeting.

Note

For example, if you get your product in the door at Walmart or Target, your sales are more likely to grow faster than if you sell your product in local mom-and-pop stores.

That's why it is important that you write a market feasibility study first. Your market study will help you decide where to sell your product or services and what products and services are most likely to generate the most revenue. 

If you have an internet-based business, you should estimate the total traffic (number of visitors) to your website each month, project anticipated site traffic volume over time, use traffic projections to estimate the average number of sales per every 10,000 visits to your site, and calculate the average amount of each sale.

The more traffic you can drive to your site, the more opportunities you have for making a sale—and it helps to have good search engine optimization (SEO) skills. This is important for all internet businesses because, as your site becomes more popular, you can project an increase in sales. A good rule of thumb is to summarize sales projections in the content but attach a spreadsheet showing actual numbers based on sales projections.

How To Identify Potential Customers, Clients, and Contract Sources

This component of your small business market feasibility study should be descriptive. Your potential customers, clients, and contract sources should include a list of current customers, clients, and contracts, as well as possible new or renewed contracts. Make a note of any sales lead that may generate new customers or clients, a list of government contracting agencies—with a brief description of what type of contracts they solicit and how they pertain to your industry—and a list of market types you currently target or intend to target, such as senior citizens, working mothers, organizations, specialty retailers, etc.

Depending on the nature of your business, it may not be possible to associate specific amounts of revenue with a particular market, but you can at least try to estimate the percentage of total revenue expected from each source. For example, if you plan to sell products to five specialty stores, list each store you plan to sell to, and total overall revenue for the specialty stores, rather than an amount for each individual store.

How a Market Feasibility Study Differs From a Marketing Plan

Feasibility studies are done on ideas, campaigns, products, processes, and entire businesses, and they look at how things work, if they will work, and if there are potential problems. Feasibility studies are assessment tools, not just reports to try and sell your business to investors. They should consider both the pros and cons and analyze a variety of potential business scenarios.

A marketing plan maps out specific ideas, strategies, and campaigns based on feasibility study investigations, and is intended to be implemented. Think of market feasibility studies as a logistical study, and a marketing plan as a specific, planned course of action to take.

Frequently Asked Questions (FAQs)

What is the importance of the market feasibility study?

Market feasibility studies give you a more realistic sense of whether or not your business can survive. Marketing efforts, pitch decks, and similar documents will always highlight your company's best potential. A market feasibility study helps you gauge your probability of success after reviewing all of the issues and competitors.

What are the main parts of a market feasibility study?

The main parts of a market feasibility study are the executive summary, the description of the product or service, the technology considerations, the product or service marketplace, the identification of a specific market, the marketing strategy, the organization structure, the schedule, and the final projections.

Which of the following issues should be considered in the feasibility analysis of the target industry market?

What is an industry target market feasibility analysis?

Which of the following are the main components of an industry or target market feasibility analysis?

What are the three issues to consider in the financial feasibility analysis?