Analyzing Customers in Your Business Plan
by Dave Lavinsky
An important step in writing a successful and useful business plan is analyzing your customers. Without knowing who your customers are, you can't effectively market your products or services, nor are you likely to find anyone willing to invest in your business. Here is how to analyze your customers for your business plan.
The Customer Analysis section of the business plan assesses the customer segments that the company serves. In it, the company must 1) identify its target customers, 2) convey the needs of these customers, and 3) show how its products and services satisfy these needs.
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, the plan 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.
Once the plan has clearly identified and defined the company's target customers, it is necessary to explain the demographics of these customers. Questions to be answered include: 1) how many potential customers fit the given definition? is this customer base growing or decreasing? 2) what is the average revenues/income of these customers? and 3) where are these customers geographically based?
After explaining customer demographics, the plan must detail the needs of these customers. 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).
The business plan must also detail the drivers of customer decision-making. Sample questions to answer include: 1) Do customers find price to be more important than the quality of the product or service? and 2) are customers looking for the highest level of reliability, or will they have their own support and just seek a basic level of service?
There is one last critical step in the Customer Analysis -- showing an understanding of the actual decision-making process. Examples of questions to be answered here include: 1) will the customer consult others in their organization/family before making a decision?, 2) will the customer seek multiple bids? and 3) will the product/service require significant operational changes (e.g., will the customer have to invest time to learn new technologies? will the product/service cause other members within the organization to lose their jobs? etc.).
It is essential to truly understand customers to develop a successful business and marketing strategy. As such, sophisticated investors require comprehensive profiles of a company's target customers. By spending the time to research and analyze your target customers, you will develop both enhance your business strategy and funding success.