Before you can start a successful business, you need to identify prospective customers that will actually buy your products and services. In marketing circles this is typically called identifying your target market.
It’s important that you identify your target market accurately because you will have to spend a significant portion of your startup funds to advertise to this key group of prospective buyers. Additionally even before you put together a business plan, you will need to understand how many customers are actually in this target market to ensure that there will be enough demand to sustain your business
There are many ways to identify your target market. Try answering the following seven questions to help you identify it.
1. What characteristics does my ideal customer have?
Begin by identifying the key characteristics of you ideal customer. For instance, are you selling to consumers or businesses? If you are selling to consumers, will they be young or old? male or female? live in a house or an apartment? have children or pets? If you are selling to businesses, what industry are they in? how many employees do they have? is the business office based or factory based?
Try to identify as many characteristics as you can for your ideal customer and then rank them in order of importance. You can use this information to develop a list of prospective customers in your target market.
2. Who is already buying something similar?
In many instances, your idea for a new product or service will be suitable for someone that is already buying something that is similar or it is in the same product category. For example, if your product is a new iPhone accessory then you have a pretty good idea that your target market is made up of people that have already purchased and an iPhone.
If you can get your hands on this type of information, then you will probably need to fine tune it for your specific product. In the iPhone accessory example, maybe your accessory is more suitable for women, so you would want to drill down and try and identify women iPhone purchasers only.
3. Will everyone “really” want to purchase my product?
It’s too easy to assume that everyone in your target market will want to purchase your product or service. In reality only a subset will actually be interested in paying for what you have to offer. As you put your financial projections together, see if your business would still be successful if only 1% to 5% of the people in your target market were to buy your product.
In most cases it’s best to be conservative when estimating the size of your target market. You may need to augment your estimate by doing some additional research. Ideally you could run a “test” sale to a small group and see how many people would actually buy your product. For instance if you ran a Google AdWords campaign and 100 people clicked on your ad, but only 5 people actually ended up making a purchase, then you could estimate that 5% of your target market would buy your product.
4. What do the experts think?
Another way to fine tune your target market is to ask some experts in your field. Firstly you’ll need to identify the experts (if you don’t know who they are already) and then reach out to them and get their thoughts on the prospective buyers.
Experts in your field normally write blogs, are quoted in news articles, or teach at schools or universities. By doing some research in your chosen field, it should become pretty apparent who many of the experts are. In addition to helping you identify your target market, industry experts should be able to help you to estimate the overall size of your target market.
5. How will I make money from my idea?
For some this question will be easy to answer. If you are making a tangible product that can be sold in a store, then it’s pretty simple to understand how you are going to make money. Either you own the store will get paid directly from the customer, or you will work through a middleman like a distributor who will pay you for your products.
Understanding how you will make money in these instances will help you to identify your target market. In the case of the store, your target market is either the storeowners, or, if it’s your own store, then your target market is the customers that frequent your store. Likewise, if you are working through a distributor, then your target market will be a group of distributors that specialize in the types of products you are selling.
In today’s world there are plenty of other opportunities to make money where the target market is not so obvious. If you build a social networking platform or a new telecommunications service, it may not be immediately clear who is going to pay for your service. Will it be through advertising, commissions or revenue share with another party? In this case you will have to rely on other business models for some insight into your target market.
6. Where will I sell my product or service?
Like understanding how you will get paid, understanding where you will sell your product may help you to define your target market. In some cases the answers to these questions are the same. For instance if you are going to open a store, then the customers who frequent the store are the same as the ones who are going to pay you and they make up your target market.
On the other hand, if you are going to sell your products online then the answer is a little different. Since online selling basically opens up your store to the entire planet, you will need to further refine your target market. In this case, probably where and how you advertise will have a bigger impact on identifying your target market. If you use Google AdWords, then the keywords you select will define your market. If you run ads on a particular website or blog, then the readers of those sites will be your potential customers.
7. What is my competition doing?
Your competition can help you define your target market. If you have developed a product that is designed to do something better than an existing product already being sold in the market, then anyone who has already bought that product defines a potential target market for your product.
For instance if you have invented a new type of rain jacket that folds into a nice little package, then you would target buyers of traditional rain gear. You could also expand your target market by selling your rain jacket to travelers, golfers or campers.
Now that you’ve read through the questions above you should be able start identifying your target market. It’s probably best to use a combination of your answers to identify your prospective customers and the size of the market. There is no correct answer, but at least you should be able to explain to someone how you determined whether there is a market for your product or service, and whether it is large enough to sustain a business.