How to Write a Business Plan: Target Market
The target market section of a business plan should concentrate on a specific demographic or group of people, with similar traits or characteristics, that need or want the business’s products or services. At least, this is the “textbook” definition of the target market.
When I have my client described their target market, I like to set a scene for the client. The scenario goes something like this:
“You see a person walking towards you. There is no doubt in your mind that this person will absolutely, 100%, unequivocally purchased your product or service. What does this person look like? Describe the person in as much detail as possible. “
Here are some helpful questions to answer.
- What does a person look like?
- Is the person male and female?
- Young or old?
- How are they dress? Blue-collar worker? Executive? Office worker?
Once a business owner can identify their primary target market, they are now ready to complete the primary target market segment of the business plan.
On a final note, keep in mind, just because an entrepreneur has a narrow target market, it does not mean that this demographic will be their only customers. The organization very well may have a broad appeal to a multitude of demographics. However, every company, has a limited amount of resources they can dedicate towards advertising. Because of the scarce resource, having a target market in mind who will best appeal to the company’s advertising dollars is definitely advisable.
As noted above, most businesses will have several demographics that appeal to their product or service. However, almost always, there is one demographic, or group of people, that will most definitely need or want the firm’s products or services. This demographic is the primary target market for the business.
Business Plan Writing Tip:
Make sure to describe the primary target market in detail. Also, justify why this demographic was selected. Not only will this help you understand whom the firm is targeting for their products or services, but why this group was selected.
Primary Target Market
Our primary target market will be young, blue color works. Specifically, females between the ages of 25 to 35. This demographic was selected because of their propensity to enjoy wine while socializing with friends and family.
The primary target market identified in this example were female, blue-collar workers between the ages of 25 to 35 who enjoy wine while socializing with friends and family. In this example, there is a specific age bracket, worker description, and appreciation noted for the organization’s product or service.
Just by reading these couple of sentences, a person can visualize what the target market looks like. As noted above again, just because the target market is a narrow group of people does not mean the organization will not appeal to other demographics.
Identifying the primary target market will allow the business owner to devise advertising campaigns that will appeal to this demographic. Further, a company owner can decorate their establishment utilizing items that will appeal to this demographic.
The secondary target market should be written in a similar manner as the primary target market. Except, a separate demographic should be constructed. By following this process, the business owner is showing that their facility will appeal to more than just one demographic. In other words, having a secondary target market indicates a broad appeal for the business’s offerings.
Secondary Target Market
As for the secondary target market, this will be medical professionals working at the hospital across the street or in medical facilities surrounding the hospital. This demographic was selected due to their proximity to our establishment.
In this example, a demographic was selected based on profession and geographic distance from our hypothetical business. This shows that the company will appeal to a wide area of people, as well as, a niche, targeted groups.
Target market growth is another key component that should be addressed in the target market section of the business plan. Target market growth potential is how much growth an entrepreneur expects in their target market. Usually, growth is measured in percentages or actual growth estimate numbers.
Business Plan Writing Tip:
When writing the target market growth potential segment of the business plan, I like to, personally, include a little bit of math. For example, if the blue-collar segment of the city is approximately 250,000 people, and the growth rate in the city has been 1.3% annually, we can then multiply the 250,000 by 1.013. This would give us a population target market 253,250 people in the next 12 months. This process may also be utilized in the same manner for subsequent years as well.
Target Market Growth Potential
Based on research from website XYZ, the current blue color work force in ABC City is 250,000 people. The U.S. Census Bureau has noted that the city’s population increased by 1.3% annually over the last five years. Based on this factor, our business owner expects a similar growth rate for the next five years. From this, the target market formulation will be 253,250 within the next 12 months. In two years, our target market population will expand to 256,543 people.
The important take away in the segment is the business owner’s assumptions, which are the population growth rate and the number of blue-collar workers, are sourced. By showing where your information comes from, the entrepreneur is adding credibility to the assumptions. The math, obviously, stands for itself.