It’s natural to be excited and confident about your prospects for business success – but to be sure your idea is feasible, you’ll need enough demand to make a profit.
Detail is the most important aspect of assessing the market feasibility of a business idea, especially when it comes to estimating capital and running costs.
There's no way to be certain your idea will become successful. However, conducting thorough market research will help ensure you’re investing your time and effort in a venture that should offer a favorable return.
So no matter what kind of business idea you’re fleshing out, make sure that when you assess its feasibility, you go through it with a fine-tooth com
Why market research is necessary
Good market research helps you better understand what customers want to buy, what they are willing to pay and how you can better position your business to be their preferred vendor.
Market research doesn’t need to be expensive or time consuming. In fact, it’s something that every business in Canada does – often without thinking about it or referring to it as market research.
Researching the preferences of non-customers can be tricky – especially if you are still aren’t quite ready to start trading. Consider attending trade shows or events where target customers will be present.
Other methods of gaining quality research include focus groups (a gathering of consumers who are brought together to discuss a product) and personal interviews (one-on-one sessions with consumers). For such events, you can spur conversation by offering product samples and comparison products (your own product or those of competitors).
Road test your idea
Use feasibility tests to measure the financial risks of your business ideas before you commit to them.
To be feasible, a business idea must at least cover its costs and produce a profit – but how much profit is needed depends on your requirements.
Conducting a feasibility test will help you:
- Define realistic targets.
- Discover compliance and legal issues.
- Assess when your business will start making a profit.
- Assess long-term sustainability.
If you successfully make the leap into self-employment, you can contribute towards a brighter future for yourself, your loved ones and the economy. So it’s worth getting it right.
Here are our top suggestions when testing the viability of your products or services:
Measure demand instead of assuming it
It’s important to find out which customer segments will respond most positively to your offering and target them so you can market your business cost-effectively.
Most industries have an industry association that produces research or can offer you some information or insights. Look at other towns and cities – is there demand for similar products or services in these locations?
Statistics Canada is a great place to find free information to help you assess demand.
Analyse the competition
Competitor analysis is an essential skill to learn. If you know what your competitors offer and how effective they are at doing so, you know how to set your business apart.
Find out what their respective competitive advantages are, and examine their pricing and marketing strategies. Check to see if they have a social media profile, such as Facebook or Twitter – to get a feel for how they interact online.
Is there room for you to muscle in and get a large enough share of the market to break even and start making a profit? Does your product or service really fill a need that isn’t met by the competition?
When it comes to financial forecasts of any kind, drilling down into the detail is vital. The more ambiguous your forecasts, the less accurate they’ll be.
Start by defining target-market value and then estimate the share your business will take from competitors. Knowing how much the pie’s worth and what your share of it could be, allows you to optimise pricing and find a workable profit margin.
Figure out a cash flow forecast using your anticipated costs, selling prices and sales quantities. How long will it take to build up your sales to a point where your business is able to break even and make a profit?
There's little point in investing a lot of money, time and effort into running a business if you earn less than the returns you'd get from putting your money into a term deposit. Ask yourself the following questions:
- Is your business venture going to do more than keep you busy?
- Is it actually going to make you money?
- Once your business is established, what sort of return on investment (ROI) will you get?
At the end of the day, if you are unsure about the size of your market, at the very least conduct a break-even exercise to calculate what you need to sell to cover costs.