The market analysis in a business plan shows a reader that enough people will pay for what you sell, at your price, in your area, and that you know who else is competing for them. It usually has five parts: an industry overview, your target market and its segments, the market size (often given as TAM, SAM and SOM), a competitor analysis, and the trends that affect demand. Each claim should rest on a source the reader can check, or on research you did yourself.

Below: each part in order, the market-size math, free data sources and a full made-up example.

What a market analysis section needs to prove

Lenders and investors read this section looking for answers to four questions:

  1. Is there demand? Do enough people or businesses already spend money on this kind of product?
  2. Who exactly will buy from you? Can you describe them closely enough to find them and reach them?
  3. How big is your share realistically? Does your sales forecast fit what the market and your capacity allow?
  4. Why would customers switch to you? What do existing competitors do badly or not at all?

The SBA’s guide to writing a business plan lists market analysis as a standard section: you need “a good understanding of your industry outlook and target market.” Your numbers later in the plan, especially in your financial projections, should trace back to this section.

How long should it be?

For most small-business plans, two to five pages is enough: a lender wants evidence and clear math, not an essay. Put long tables and raw survey data in an appendix.

Step 1: Write the industry overview (industry analysis)

The industry analysis places your business in its wider industry. Keep it to a few paragraphs and cover:

  • The industry’s name and code. Find your NAICS code. The North American Industry Classification System was developed jointly by Canada, Mexico and the United States, and government industry data in all three countries is organized by it.
  • Size and structure. How many businesses operate in it, and are they mostly small independents or a few large chains?
  • Health and direction. Is the industry growing, flat or shrinking? What’s driving that?
  • Typical economics. Average revenue and profitability for small firms, if you can find them, help a reader judge whether your projections are reasonable.
  • Regulation or barriers. Licenses, certifications or high startup costs that shape who can compete.

National figures set the scene; local figures show you looked closely.

Step 2: Define your target market and segments

Your target market is the specific group of customers you’ll sell to first. “Everyone who owns a car” isn’t a target market. “Commuters in the north end of the city who need same-day repairs” is.

Describe your target customer with three kinds of detail:

  • Demographics or firmographics: age, household income, family type and location for consumers; industry, size and location for business buyers.
  • Behavior: how often they buy, how much they spend, where they buy now, and what triggers a purchase.
  • Needs and frustrations: what they complain about with the current options. This is where your advantage comes from.

Then split the market into two to four segments if your customers differ in ways that matter. A segment earns its own line in the plan when it buys for a different reason, pays a different price or needs a different way to reach it. For each segment, give its approximate size, what it values and how you’ll reach it.

Step 3: Estimate market size with TAM, SAM and SOM

Market size is the part readers check hardest. The usual framework uses three nested numbers:

Term Stands for What it means
TAM Total addressable market All spending on this type of product in the market you’ve defined
SAM Serviceable available market The part of the TAM your business model and location can actually serve
SOM Serviceable obtainable market The part of the SAM you can realistically win in the next one to three years

Top-down versus bottom-up

A top-down estimate starts with a big published number (national spending on a category) and cuts it down by percentages. It’s quick but easy to inflate, and readers distrust a plan that says “if we get just 1% of a $2 billion market.”

A bottom-up estimate starts with countable things: households, businesses, purchases per year and price per purchase. It takes longer but shows your reasoning. Use bottom-up as your main estimate and a top-down number, if you have one, as a sanity check.

Worked example: TAM, SAM and SOM with the math shown

Example: a made-up mobile dog-grooming business called Suds & Tails, in a made-up city with 120,000 households. All numbers are for illustration.

TAM. Start with every household in the city that pays for professional dog grooming.

  • Households in the city: 120,000
  • Share that own a dog (assumed from the owner’s research): 35% → 120,000 × 0.35 = 42,000 households
  • Share of dog owners who pay for grooming: 40% → 42,000 × 0.40 = 16,800 households
  • Average spend: 8 grooms a year × $60 = $480 per household
  • TAM = 16,800 × $480 = $8,064,000 a year

SAM. Cut the TAM down to the customers Suds & Tails can serve: households in its service area (the east half of the city) who would use a mobile groomer, which costs more than a salon.

  • Paying households in the service area: 16,800 × 0.50 = 8,400
  • Share open to mobile grooming (from the owner’s survey): 25% → 8,400 × 0.25 = 2,100 households
  • Average spend at the mobile price: 8 grooms × $90 = $720 per household
  • SAM = 2,100 × $720 = $1,512,000 a year

SOM. Now limit the SAM by what one van can do, since capacity, not demand, caps a small service business.

  • Capacity: 6 grooms a day × 5 days × 48 weeks = 1,440 grooms a year
  • At full capacity: 1,440 × $90 = $129,600, or 1,440 ÷ 8 = 180 regular clients
  • Share of SAM: $129,600 ÷ $1,512,000 = 8.6% (and 180 ÷ 2,100 = 8.6% of households, which matches)
  • Year 1 at 60% of capacity: 864 grooms × $90 = $77,760
  • SOM by year 2 at full capacity = $129,600 a year

Summarized for the plan:

Measure Households Annual spend per household Annual market
TAM 16,800 $480 $8,064,000
SAM 2,100 $720 $1,512,000
SOM (year 2) 180 $720 $129,600

Two things make this convincing. Each step has a stated source or assumption the reader can question, and the SOM comes from capacity rather than a percentage pulled from the air. If your SOM is a large share of your SAM, say above a third, expect pushback and explain why.

Step 4: Analyze your competitors (with a comparison table)

List every business your target customer could choose instead of you, including indirect options: doing it themselves, a different kind of product, or doing nothing.

For each competitor, find out:

  • What they sell and at what price
  • Who they serve and where
  • What customers praise and complain about (read their reviews)
  • How easy they are to buy from: wait times, booking, hours
  • Roughly how big they are: locations, staff, years open

Then put the comparison in a table. Choose columns that matter to your customer, and be honest about where competitors beat you. A reader trusts a table that shows your weaknesses more than one where you win every row.

Finish with a short paragraph on your position: the gap you’ll fill and why competitors can’t easily copy you. If you’re also writing a SWOT analysis, the competitor research feeds its “threats” and “opportunities” directly.

Pick two to four trends that affect demand for your product over the next few years. Good candidates:

  • Demographic shifts: population growth or aging in your area, new housing developments
  • Spending patterns: whether households are spending more or less on your category
  • Technology: online booking, delivery, new equipment that changes costs
  • Regulation: new rules that create demand or raise barriers
  • Prices: inflation in your input costs or your customers’ budgets

For each trend, say what it is, cite where you found it, and say what it means for your business. A trend with no “so what” is filler.

Where to find market research for a business plan for free

You don’t need to buy an industry report. Government agencies publish most of what a small-business plan needs.

Canada

  • Canadian Industry Statistics (Innovation, Science and Economic Development Canada). Search by NAICS code or keyword. Each industry page has tabs for the number of businesses by employee size, the financial performance of small and medium-sized businesses (such as average revenue and the share that are profitable), and wages. It’s one of the best free sources for a sanity check on your revenue forecast.
  • Census Profile, 2021 Census of Population (Statistics Canada). Population, age, households, income, housing and more for provinces, cities, communities and census tracts. Use it to count the households or people in your trading area. Statistics Canada says the first 2026 Census results (population and dwelling counts) are scheduled for February 10, 2027, so check for newer data if you’re writing after that.
  • Survey of Household Spending (Statistics Canada). How Canadian households spend on categories such as food, clothing, shelter and transportation. Useful for the “average spend” line in a bottom-up estimate.
  • Statistics Canada’s home page for everything else, including the latest economic indicators.

United States

Your own research

Published data tells you about the market. Only your own research tells you about your customers. Cheap ways to get it:

  • Call or visit competitors as a customer. Note prices, wait times and how they treat you.
  • Read competitors’ reviews and tally the most common complaints.
  • Run a short survey of 5 to 10 questions with people who fit your target customer. Ask what they buy now and what they’d pay, not whether they “like the idea.”
  • Talk to suppliers. They often know which businesses are growing.
  • Count foot or car traffic at a possible location at different times.

Always say in the plan how many people you surveyed and how you found them. A small survey is still useful if you’re open about its limits.

If you use ChatGPT or Claude to help draft this section, have it organize your research, not supply facts; AI tools can invent statistics. Our guide to writing a business plan with ChatGPT or Claude covers how to check its output.

Market analysis business plan example

Below is a complete market analysis section for the made-up Suds & Tails. All businesses, figures and research results are invented for illustration. In a real plan, every number would come from a named source or your own research.

Market analysis: Suds & Tails Mobile Dog Grooming (example)

Industry overview. Suds & Tails is in pet care (except veterinary) services, NAICS 81291, which Canadian Industry Statistics defines as businesses “grooming and boarding pet animals.” In our city, we counted 14 grooming businesses: 9 salons, 3 in-store salons at pet supply stores, and 2 mobile groomers. Mobile grooming needs a fitted van, which keeps the number of competitors low.

Target market. Our primary customers are dog-owning households in the east half of the city who already pay for grooming and value convenience over price. We surveyed 64 dog owners, recruited at two dog parks and through a neighborhood social media group. Of the 40 who already pay for grooming, 10 (25%) said they would use a mobile groomer at $90 per visit.

Segment Description What they value How we’ll reach them
Busy professionals Dual-income households, one or two dogs Time saved, reliable scheduling Online booking, neighborhood social media ads
Seniors Owners who find transporting a dog hard No car trip, gentle handling Flyers at community centers, vet referrals
Anxious dogs Dogs stressed by busy salons One-on-one, quiet van Referrals from vets and trainers

Market size. We estimate a total addressable market of $8,064,000 a year (16,800 paying households × $480), a serviceable available market of $1,512,000 (2,100 households open to mobile grooming × $720), and a serviceable obtainable market of $129,600 by year 2, the full capacity of one van. Year 1 revenue is forecast at $77,760, 60% of capacity. Our full calculation and assumptions are in Appendix B.

Competitors.

Competitor (made up) Type Price, medium dog Wait for appointment Strengths Weaknesses
Pampered Paws Salon $65 2 weeks Established, loyal clients Dogs wait in kennels for hours
Pet store salon In-store chain salon $55 1 week Low price, long hours Staff turnover, mixed reviews
Groom to You Mobile, 1 van $95 4 weeks Strong reviews Fully booked, west side only
Suds & Tails Mobile, 1 van $90 Target: 1 week One-on-one, east side, online booking New, no reviews yet

The only mobile groomer near our service area is fully booked a month out and serves the west side. That waitlist, plus salon reviews that complain about dogs being kenneled all day, is the gap we’re entering.

Trends. (1) Two new subdivisions on the east side are adding households in our service area, according to the city’s building permit records. (2) In our survey, 45 of 64 respondents (70%) said they book appointments online when they can, which supports our online-only booking. (3) Fuel and supply costs change with inflation, so we will review prices every year against our costs.

Risks. A second mobile groomer could enter the east side. Our response is to build repeat bookings early: clients who prebook their next appointment at checkout get a 10% discount.

Market analysis checklist

Before you call the section done, check that it:

  • Names your industry and its NAICS code
  • Describes your target customer specifically enough to find them
  • Splits customers into segments only where they behave differently
  • Shows TAM, SAM and SOM with each step’s math and assumption
  • Bases SOM on your capacity or a realistic sales plan, not a round percentage
  • Compares at least three competitors in a table, including your weaknesses
  • Covers two to four trends, each with a source and a “so what”
  • Cites a source for every number, or says it’s from your own research and how you did it
  • Matches the sales forecast in your financial projections
  • Moves long tables and raw survey results to an appendix

Common mistakes

  • The “1% of a huge market” argument. It shows you haven’t worked out who will actually buy.
  • Saying you have no competitors. Every customer has an alternative, even if it’s doing nothing.
  • Old data with no date. Always give the year of any statistic you cite.
  • National numbers for a local business. A café’s market is a few kilometers wide, not the country.
  • Research that doesn’t connect. If your survey says customers want evening hours, your operations plan should offer them.

Where this fits in the rest of your plan

Your marketing plan should reach the segments defined here, your prices should reflect the competitor table, and your sales forecast should stay within your SOM. For the full order of sections, see how to write a business plan, step by step.

If your plan supports a loan application, ask the lender what evidence and format it expects.