A market analysis is an important element of a business plan (for-profit) as well as the statement of need (non-profit).  An effective market analysis serves two primary purposes:

(1) It helps you make informed decisions about the future direction for your business/ organization.

(2) It demonstrates to the reader that you are taking your product or service seriously and adds to your credibility. Whether you are seeking investor funding, an institutional grant, or gifts from major donations, a convincing market analysis will greatly enhance your chances for success

What is a market analysis? First of all let’s define a “market.” Your market is the figurative space in which you deliver or sell your service or product. The iPhone operates in the worldwide mobile-device/ cell phone market. Save the Children operates in the international market for child welfare, the Boy’s and Girls Club is present in the youth development market in local communities. For a non-profit organization, understanding your marketplace is of fundamental importance when designing your program and is a key element in defining the need that your service will meet.

Geography

How do you define your market? Most of all this is based on your geographical location. Whether you serve  a specific school or an entire school district; A street, neighborhood or an entire city; or group of people with a cultural identify that may span states or even countries, depends largely on your capacity. Be careful about over committing, even on paper. When someone writes to me that they are a startup nonprofit looking for grant funds to help feed children worldwide, they immediately have lost all credibility in my view. Be realistic.

Demographics

The other attribute of your “market” is the demographic — who are you going to serve? Often you can drill down to a subset of a community or even a subset of a subset! The more specific and targeted you can get the better. If you work in an elementary school — do you serve all students in that school or do you work with a targeted group?  Perhaps its 3rd and 4th grade students. Go deeper. 3rd and 4th grade students who are struggling in Math. Deeper.  3rd and 4th grade students who are struggling in Math and demonstrate an interest in impoving (bingo!). Now that you have defined the geographic and demographic to be served, tell me about the people. Do the kids from this school have a poor record of matriculating high school and going to college? How do test scores compare to other schools in the area? Are the kids at-risk or disadvantaged economically? If so can you suppot these assertions? You can if you have data! Get as much information — qualitative and quantitative as you can. Test scores and performance data are great. And don’t overlook anecdotal stories and qualitative assessments from teachers, principles, parents and teachers.

Market Data

Hard data can be difficult to come by and is also very persuasive in making your case. Trying to make a case for a farmers market? Checkout the USDA’s database of “food desert” census tracks. Need to paint a picture of a forgotten school with low expectations? Go the school district’s and the state’s education websites and compare metrics of your target demographic with a control group from a nearby school. Look at attendance, suspensions, standardize test scores, parent satisfaction surveys, etc. Making a Case for Support for your homeless shelter? Interview managers at other human service providers, food pantries and state agencies — they will give you trend data as well as first-hand accounts from the front lines to help you make your case. Don’t forget to look internally for market data as well, particularly if your demographic is well defined and you serve a substantial portion of your target demographic already. Your own utilization data, number of people served, and results achieved for your community can be telling, especially if contrasted with other communities or  ‘competitors.’

Competition

While there may be need among your target demographic, you are only relevant if you fill a service gap. If someone else already provides the service you are proposing you quickly become irrelevant. Explore best practices and benchmarks established by similar groups operating in your space. Create a matrix illustrating which groups address which community needs and where your group fits in. How is your program different/ unique/ more effective at serving the population?

When drafting your market analysis be sure to mix your stats with an informative and interesting narrative to tie it all together. A bunch of stats from the US census without context will get you nowhere. Here are a few examples of excerpts you may see from a market analysis, which one sounds better?

Example 1a:

“Nonprofit XYZ has an Emergency Shelter and Soup Kitchen. The Soup Kitchen serves 22,000 meals per year. During the year 3,500 shelter beds are filled. The unemployment rate in Anytown USA is 7.5%. The unemployment rate in the state is 6.2%. There is not enough affordable housing and Anytown USA is one of the worst towns in the state as far as that goes. We plan to build transitional housing units and permanent housing units.”

Example 1b:

“Non profit xyz has a long and successful track record of serving the homeless in Anytown USA, meeting a critical community need. Between 2010 and 2013 the unemployment rate in Anytown increased from 6% to 7.5% is now significantly higher than the state average of 6.2%. The lack of jobs in the area has put additional stress on low income families who are already struggling to find affordable housing. According to the state Dept  of Housing Anytown is ranked third from the bottom, out of 122 municipalities, in affordable housing as a percentage of total housing units. These circumstances have created a perfect storm for the low income residents of the town — jobs are hard to come by and when things get tough there is no safety net other than our Emergency Shelter.

XYZ is very good at what it does. In the past year alone more than 22,000 meals were served at the Soup Kitchen, and 3,500 beds were filled in the Emergency Shelter. These figures represent 20% of all emergency shelter beds and soup kitchen meals for the entire state, yet Anytown has only 5% of the state’s population. Simply put, we must do more. While it is essential for us to maintain our emergency shelter and soup kitchen to help those with no other option, we want to be part of the long term solution and help develop other options! Our 3-year strategy is to create 10 units of transitional housing and 5 units of affordable permanent housing.

Last week a woman named Stella checked out of our shelter after the maximum allowable stay of 60 consecutive nights. When we asked her where she was going next she told us she really didn’t know, maybe to stay with a relative in the capital city or else to another shelter. Stella has a job, an Associate’s Degree and is highly motivated. But she does not make enough to afford her own apartment. Stella is a perfect candidate for the new housing program we are proposing. This cycle of poverty has to stop.Will you help us to create permanent solutions to this unacceptable problem?”

The above example is fitting for non-profit human service provider. How might your market analysis be different for a business? imagine you are a pineapple farmer and are considering turning your pineapples into, and wholesaleing, juice instead of selling your product to a commodities trader. You need to convince investors there is enough profit in this venture and show that the market environment and market forces are conducive to such an idea. You would want to have a rigorous assessment of:

• Market conditions and infrastructure — Is the climate suitable, is there a transportation system in place to deliver your product to the distributor? How do pineapple juice-makers distribute their product?
• Competition — Who is your competition and where is your product positioned in the mix? Is your product different or unique (ie organic, different breed, Non GMO, etc.) Do other pineapple growers produce juice themselves or do they ship the raw material to a processor? Do they market the product themselves?
• Consumer and wholesale price data — What are the margins associated with retail vs. wholesaleing the product? What are the startup costs and capital requirements to launch (explored in detailed in financial analysis)
• Target market — Does producing your own juice give you a competitive advantage over competitors, based on consumer market data?

How to get this data? Some of it you can obtain through USDA data. You can also call other producers, though if they know you are a competitor you will have a hard time getting information. Focus groups are expensive but you can survey retailers and wholesalers to get their opinions — often they know the market context very well.

Spending the time to draft a thorough and deep-probing market analysis will give you the confidence and credibility to drive forward with your vision. And most importantly, allow you to create an operational plan that is grounded in reality and more likely to succeed.