How to identify your small business's target audience

Determining what kind of business you want to open is only the first step in the startup process- it is equally important to select your business's target audience or target market. A small company can't compete with mass-market businesses by being all things to all people. You must identify a specific market that has enough profit potential for you to succeed. Here are some steps to picking your target market.

Start by thinking about the kind of customers you would like to do business with. For example, suppose you are planning to start a marketing business. In this case, determine whether you will be selling to other businesses or to consumers. Within the consumer or business categories, drill down further. If you are selling to businesses, do you want to sell to companies in a specific industry?

Identifying your own experience and skills will help you home in on your target customers. For instance, if you plan to start a marketing firm and have spent 10 years working in retail marketing, you may want to focus on retail businesses as your customers.

Next, assess where and how these target customers currently buy the kind of product or service you're selling. In our marketing example, you'll want to research how retail companies handle their marketing, which may entail contacting some companies directly. Your research may show you that large retailers have in-house marketing teams, but small retailers don't.

The next step in identifying your target market is pinpointing a need. In the example above, the research shows you that small retailers have a need for your services, so it makes sense to focus on them.

Once you have some potential target markets identified, assess each one using market research to answer these questions:

  • How big is this target market? Is it growing or shrinking?
  • What is the average income of this target market? How much do they spend on your type of product or service?
  • Where are these target customers located? If your business will rely on a local market, it's important that more of your target market is moving into the area than moving out.
  • Will this target market generate adequate sales volume to meet your business goals?
  • What is the profit potential of this target market?
  • Who else is competing for this target market?
  • How much of this market can I realistically expect to capture?

Once you select your target market, doing market research periodically will show how your market is changing and enable you to stay one step ahead of the competition.

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