How market research can help you choose the most profitable business idea
Find out why choosing a profitable business requires diligent research of the market, your competition and your ideal customer
When starting a small business you have a dizzying number of choices to make.
Doing your market research is vital if you want to be sure you’re making the right decisions and be confident you’ve ended up with the most profitable business idea.
Diligent market research will allow you to assess the size of the opportunity and will form the foundations of your business plan – the blueprint for your new company.
You need to take a deep dive into the market, scope out the competition and understand your customer.
This will enable you to build in a plan for profitability from the beginning, because, as that hackneyed old saying goes: turnover is vanity, profit is sanity.
The following research steps will help you choose the most profitable business idea:
1. Choose a profitable industry
There’s no definite answer to which is the most profitable small business industry, as it all depends on how a company is run within a given sector.
That said, some sectors only require very small overheads and little in the way of ongoing costs. And what does that mean? Better profit margins of course.
Selling a service is usually more profitable that selling a product as it doesn’t require the significant capital expenditure needed to acquire goods and materials, and invest in manufacturing.
For example: professional services such as accounting, real estate and digital services have a higher net profit margin than selling food, drink, clothes or other products.
Research cheap small business ideas to find out the best sectors are for making a profit.
2. Research the competition
If you don’t know your competition in the market, how do you know you’re developing a suitably superior offering?
As the latest player in the space you have the major advantage of being able to improve on the products and services that have come before.
Find out who your main rivals are and assess their strengths and weaknesses. What do they do that nobody else does? What are their customers dissatisfied with? What do they do that eats into their profits?
Bear in mind that researching your competition doesn’t end when you’re a fully-fledged business. Tomorrow’s crafty upstart will be just behind you ready to take some of the market share, and you’ll be engaged in a constant battle of innovation and one-upmanship with competitors.
3. Research your target market
You can’t appeal to everyone, so ensure you really focus on establishing who your audience are and the size of your target market.
Questionnaires, speaking to customers through social media and focus groups are great ways of engaging and understanding exactly what your customers are looking for and how they’d make the most of your product or service.
Then you can use that information to design your offering with their needs in mind from the beginning rather than developing a product and then hoping it will find a customer base after the fact.
This could also reveal what aspects of your service would be unwanted and prevent you from wasting resources unnecessarily.
4. Write a compelling business plan
So, you know everything about the sector you’re entering, you know the strengths and weaknesses of your competition and you know the needs of your perfect customer.
It’s time to tie it all together in a business plan. This document will detail everything including your outgoings, your route to market, your revenue streams, and how exactly you’re going to become profitable.
It will also be crucial in convincing investors that your business has potential.
How does this help you make profit?
The simple equation for profits is revenue (the amount of cash you make from the sale of your goods and services) minus cost (your overheads, including: equipment, stock, staff wages, marketing etc).
Download a free business plan template here.
Once you’ve identified your main outgoings you can start to streamline costs to maximise profits.