What is a Customer Analysis?
The customer analysis section is a key component of your business plan and assesses the customer segments your company serves. The objective of the customer analysis is to justify your market choice, identify differentiators, and prioritize the segments you are targeting.
Components of a Customer Analysis
A complete customer analysis contains 3 primary sections:
- Identify your target customers
- Convey the needs of these customers
- Show how your products and/or services satisfy these needs
Why Conduct a Customer Analysis?
A thorough customer analysis provides the following benefits:
- Supports your market choice and helps you avoid entering too broad a market
- Helps you focus on serving current customers rather than trying to find new ones
- Enables you to determine which segments to prioritize and how much effort to put into each one
- Helps you identify the appropriate marketing strategy and platform to reach these customer segments
How to Write Your Customer Analysis
The first step of the customer analysis is to define exactly which customers the company is serving. This requires specificity. It is not adequate to say the company is targeting small businesses, for example, because there are several million of these types of customers. Rather, an expert business plan writer must identify precisely the customers it is serving, such as small businesses with 10 to 50 employees based in large metropolitan cities on the West Coast.
When defining your target market, be sure to identify the following:
- The market segment you are choosing to serve (i.e., age range, annual income, etc.)
- The geographic location of these customers (i.e., city, region, state)
- What is the average revenues/income of these customers?
Once the plan has clearly identified and defined the company’s target customers and the customer demographics, it is necessary to determine the size of your target market: How many potential customers fit the given definition and is this customer base growing or decreasing?
Next, the business plan must detail these customers’ needs. Conveying customer needs could take the form of past actions (X% have purchased a similar product in the past), future projections (when interviewed, X% said that they would purchase product/service Y), and/or implications (because X% use a product/service which our product/service enhances/replaces, then X% need our product/service).
Prioritize the needs of your target customer according to how critical they are, and include a description of each in your customer analysis. Be sure to answer questions such as:
- What pain points do these customers have? How is their current situation lacking?
- What will your product/service do to help solve these problems?
The business plan customer analysis must also detail the drivers of customer decision-making. Sample questions to answer include:
- Do the customers find price to be more important than the quality of the product or service?
- Are customers looking for the highest level of reliability, or will they have their own support and just seek a basic level of service?
- Why will customers purchase your product and/or service rather than look for cheaper alternatives?
Prioritize the benefits of your products and services according to how much difference they make for customers and include a description of each in your customer analysis. Be sure to answer questions such as:
- What does your product do? How is it unique or better than other similar products?
- What type of customer could benefit the most from this feature/benefit and why?
Be sure to also show an understanding of the actual decision-making process. Examples of questions to be answered here include:
- Will the customer consult others in their organization/family before making a decision?
- Will the customer seek multiple bids?
- Will the product/service require significant operational changes (e.g., will the customer have to invest time to learn new technologies, and will the product/service cause other members within the organization to lose their jobs? etc.)
Finally, identify each segment you are targeting and how much effort you will put into reaching them. Be sure to answer questions such as:
- How many customers are in each segment and how much revenue will they generate?
- What percentage of total industry sales does this represent?
- What market potential did we estimate for each segment and how does that compare with actual sales? Include the number of leads converted and average deal size.
Sample Customer Analysis for a Candle Making Company
The needs of this customer segment are that they are looking for high-quality candles that are made with all-natural ingredients. The benefits of their product that are most important to them are that the candles are vegan, eco-friendly, and made with essential oils. Drivers of customer purchase decisions include quality, price, and unique offerings. The company’s target market size is 750,000 people which represent a significant portion of the candle industry. They will put effort into reaching these customers through online advertising, social media posts, and word-of-mouth.
It is essential to truly understand customers to develop a successful business and marketing plan. That’s why including a customer analysis in your business plan is so crucial. Likewise, sophisticated investors require comprehensive profiles of a company’s target customers. By spending the time researching and analyzing customers in your target market, you will develop both enhance your business strategy and funding success.
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Other Resources for Writing Your Business Plan
How to Write a Great Business Plan Executive Summary
How to Expertly Write the Company Description in Your Business Plan
How to Write the Market Analysis Section of a Business Plan
Completing the Competitive Analysis Section of Your Business Plan
The Management Team Section of Your Business Plan
Financial Assumptions and Your Business Plan
How to Create Financial Projections for Your Business Plan
Everything You Need to Know about the Business Plan Appendix
Business Plan Conclusion: Summary & Recap