If you are an entrepreneur looking to start your own business, you have probably already read quite a bit of material on the subject. You have probably been told that the best way to find a successful business venture is to focus on something you are passionate about. But what is the point of doing something you are passionate about when it isn’t profitable? So how do you go about determining whether there is a profitable market for your business?

First, a profitable market has to be a hungry market. In other words, there must be sufficient demand for the product in place. The difficult thing about demand is that it is influenced by a number of different factors. Initially, you need to examine the following:

The size of the customer base. Collect information about total annual sales made in your product category. Have total sales increased from year to year? If not, you may be looking at a declining or saturated market.

Customer income. Who are your target customers? Survey the average income of your target customers and ask yourself how much purchasing power they have.

Prices. Look around and see what the current price levels for your product category are. A general rule of thumb is that if there is a growing demand for a product, the price levels should stay elevated.

Second, the less competition there is in a market, the more profitable it is. You may be up for quite a battle if there are many competitors in your market, especially if they are large and established competitors. Also, remember that competition is made up of direct competition and indirect competition. Your direct competition sells the exact same product as you while your indirect competition sells a similar product that competes for the same customers. Focus on the following:

Identify your direct and indirect competition. Who are they and how many of them are out there?

Strengths and weaknesses. What are the strengths and weaknesses of each competitor and what implications would that have on your business?

Uniqueness. Is there any reason why customers would purchase your product instead of one from a competitor? Are you giving them enough of a reason to?

Mind you, analysing the profitability of a market is a relatively complex process. The factors listed above should only be used as a preliminary approach. If upon examination of these factors, you end up with some favourable results, it means that you should proceed with a more careful assessment of the viability of your business. A complete feasibility study would have to be done.

For more information on starting a business, have a look at my article “Why You Need a Unique Selling Point”.