Could expanding your target market be the catalyst for growth your business needs this year? Whether you’ve discovered an exciting potential opportunity or you’re simply looking for ways to infuse new revenue into your business, exploring market expansion can help you achieve your goals.
Successfully expanding into another market, however, requires business intelligence, thoughtful analysis and careful strategic planning. Use these tips to evaluate whether a market expansion is right for you:
Research the Opportunity
The first step in understanding whether you should try to enter a new market is conducting research. According to the Small Business Administration, a market analysis should outline several key factors by answering the following questions:
Determining Whether the ROI Justifies the Investment
When business owners evaluate new markets, it’s important to look at one critical question: will the return on investment (ROI) justify the expense of expanding into a new market?
Consider the total potential of the market, how hard it will be to break in and the upfront expenses. Using that information, determine how long you can invest before you need to break even — and then build a cushion into your projections. Taking a cautious approach helps ensure your finances stay stable.
Managing Your Risk Exposure
Entering a new market takes time, focus and capital investment. Whether it’s staff time or the money needed to buy inventory and advertising, expanding doesn’t always pay off (and the first place you’ll feel the repercussions of a failed expansion attempt is in your bottom line.) Following the steps above helps you manage your risks. It’s also smart to consider:
Signs You Shouldn’t Expand Yet
Expansion is usually a good thing, but it’s important that you’re aware of red flags. Often, one of the main concerns around expansionist timing is whether you have the resources, budget and team needed to continue serving your current clients while also exploring new markets. If not, now may not be the right time to expand.
Another factor that may signal it’s not the right time is a lack of clarity around your market. When you don’t fully understand your customers, competition or how you’ll be different from what’s already out there, that’s a sign that you have more work to do in developing strategies, products and services before taking the leap.
Market expansion can help you acquire new customers, diversify revenue streams and grow your company’s bottom line. Before taking the leap, take the time to ask the right questions about your potential market and make sure the timing is right to grow your business this way.
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Neil Parikh, co-founder of mattress startup Casper, says that their team had to get creative when they sold out of inventory immediately after launching.
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