How to Write the Competitive Analysis of a Business Plan
Written by Dave Lavinsky
If you are writing a business plan, hopefully by this point you’ve conducted thorough market research to identify industry trends and identified the target market for your business. Now it’s time to conduct a competitor analysis. This section is included in virtually every simple business plan template , and the information you include will depend on several factors such as how many competitors there are, what they offer, and how large they are in comparison to your company.
Download our Ultimate Business Plan Template here
What is a Competitive Analysis?
A competitive analysis is a type of market research that identifies your competitors, their strengths and weaknesses, the strategies they are using to compete with you, and what makes your business unique. Before writing this section it’s important to have all the information you collected during your market research phase. This may include market data such as revenue figures, cost trends, and the size of the industry.
Why Do You Need the Competitive Analysis?
If you are planning to raise capital, the investor will require a business plan that includes the competitive analysis section. This section will also come in handy while writing a business plan template , if your company is considering increasing prices or adding new products and services. You can use the information you find to determine how well-positioned your business is to perform in the competitive landscape.
3 Steps to Writing a Competitive Analysis
The steps to developing the competitive analysis section of your business plan include:
- Identify your competition.
- Select the appropriate competitors to analyze.
- Determine your competitive advantage.
1. Identify Your Competition
To start, you must align your definition of competition with that of investors. Investors define competition as to any service or product that a customer can use to fulfill the same need(s) as the company fulfills. This includes companies that offer similar products, substitute products, and other customer options (such as performing the service or building the product themselves). Under this broad definition, any business plan that claims there are no competitors greatly undermines the credibility of the management team.
When identifying competitors, companies often find themselves in a difficult position. On one hand, you may want to show that the business is unique (even under the investors’ broad definition) and list few or no competitors. However, this has a negative connotation. If no or few companies are in a market space, it implies that there may not be a large enough base of potential customers to support the company’s products and/or services.
2. Select the Appropriate Competitors to Analyze
Once your competition has been identified, you want to consider selecting the most appropriate competitors to analyze. Investors will expect that not all competitors are “apples-to-apples” (i.e., they do not offer identical products or services) and therefore will understand if you chose only companies that are closest in nature. So, you must detail both direct and, when applicable, indirect competitors.
Direct competitors are those that serve the same potential customers with similar products and services. If you sell your products or services online, your direct competitors would also include companies whose website ranks in the top 5 positions for your same target keyword on Google Search.
For example, if you are a home-based candle-making company , you would consider direct competitors to be other candle makers that offer similar products at similar prices. Online competitors would also include companies who rank for the following keywords: “homemade candles”, “handmade candles”, or “custom candles.”
Indirect competitors are those that serve the same target market with different products and services or a different target market with similar products and services.
In some cases, you can identify indirect competitors by looking at alternative channels of distribution. For example, a small business selling a product online may compete with a big-box retailer that sells similar products at a lower price.
After selecting the appropriate competitors, you must describe them. In doing so, you must also objectively analyze each of their strengths and weaknesses and the key drivers of competitive differentiation in the same market.
For each competitor, perform a SWOT Analysis and include the following information:
- Competitor’s Name
- Overview of Competitor (where are they located; how long have they been operating)
- Competitor’s Product or Service
- Competitor’s Pricing
- Estimated Market Share
- Potential Customers (Geographies & Segments)
- Competitor’s Strengths
- Competitor’s Weaknesses
By understanding what your competitors offer and how customers perceive them, you can determine your company’s competitive advantage against each competitor.
Finish Your Business Plan Today!
If you’d like to quickly and easily complete your business plan, download Growthink’s Ultimate Business Plan Template and complete your plan and financial model in hours.
3. Determine Your Competitive Advantage
Perhaps most importantly, you must describe your company’s competitive advantages over the other companies in the space, and ideally how the company’s business model creates barriers to entry. “Barriers to entry” are reasons why it would be difficult for new companies to enter into or compete in the same market.
For instance, you may have a patent that provides value to your customers and makes them less likely to switch suppliers, which protects your business from potential competitors. Or, you may have more resources than the competition and thus be able to provide superior customer service.
Below is a list of areas in which you might have a competitive advantage:
- Size of the Company – Large companies have more resources and can usually offer lower prices than smaller businesses. This is a significant barrier to entry, as starting a small business and competing with a larger company may be difficult.
- Product or Service Differentiation – If your product or service is unique in some way, this will make it less likely that customers will switch to a competitor.
- Experience & Expertise – Experience and knowledge are valuable attributes that can help differentiate you from the competition.
- Location – If you are located in an area where there is high demand for your product or service, this can be a barrier to entry because competitors will not want to open new locations.
- Patents & Copyrights – Protecting intellectual property can prevent others from entering the same market and competing with your company.
- Brand Recognition – Customers are loyal to brands they have come to trust, which protects the company from new competitors.
- Customer Service – Providing excellent customer service can help you retain customers and prevent them from switching suppliers.
- Lowest Cost Offerings – If you can offer a lower price than your competitors, this makes it more difficult for them to compete with you.
- Technology – New technology that enables you to provide a better product or service than your competitors can be an advantage.
- Strategic Partnerships & Alliances – Collaborating with a company that your customers want to work with can help keep them from switching.
- Human Resources – If you have a highly skilled and talented workforce, it can be difficult for competitors to find and employ the same skills.
- Operational Systems – Strong operational systems that lead to greater efficiencies can protect your business from the competition.
- Marketing Strategy – Investing in strong marketing campaigns can make your business difficult to compete with.
For instance, you could say that your [enter any of the bullets from above] is better than your competitors because [insert reason].
The competitive landscape is one of the most important considerations in developing a business plan since it sets the stage by providing information on past and current competitors and their respective strengths and weaknesses. A strong understanding of the competitive landscape is needed before you can develop a strategy for differentiating your company from the competition. Follow the above competitive analysis example and you will be well-prepared to create a winning competitor analysis section of your business plan.
How to Finish Your Business Plan in 1 Day!
Don’t you wish there was a faster, easier way to finish your business plan?
With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!
Click here to finish your business plan today.
OR, Let Us Develop Your Plan For You
Since 1999, Growthink has developed business plans for thousands of companies that have gone on to achieve tremendous success.
Click here to see how a Growthink business plan consultant can create your business plan for you.
Other Resources for Writing Your Business Plan
How to Write a Great Business Plan Executive Summary
How to Expertly Write the Company Description in Your Business Plan
The Customer Analysis Section of Your Business Plan
How to Write the Market Analysis Section of a Business Plan
The Management Team Section of Your Business Plan
Financial Assumptions and Your Business Plan
How to Create Financial Projections for Your Business Plan
Everything You Need to Know about the Business Plan Appendix
Business Plan Conclusion: Summary & Recap
Other Helpful Business Plan Articles & Templates
How to Write a Competitor Analysis for a Business Plan
April 28, 2023
A competitor analysis for your business plan can be an incredibly important part of the business planning process. By trying to learn as much as you can about your competitors, you can learn a lot about what to expect in your own business. You can also identify how you can differentiate your business and gain a competitive advantage.
In this article I plan to walk through the following:
- What to Include in a Competitor Analysis
How to Find Data on Competitors
Finding competitor data for online businesses, finding competitor data for physical retail businesses, competitor analysis business plan example.
With that as our road map, let’s dive in.
What is Included in a Business Plan Competitor Analysis
A competitor analysis should include the following components:
- Key Competitors
Competitive positioning, target market, opportunities and threats.
- Conclusions and Strategic Recommendations
Begin with a brief overview of the market or industry you operate in, outlining its size, growth trends, and key segments. This will provide context for the competitive analysis and help you understand the market dynamics. You can often find some great industry trend data from sources like IBISworld .
Make a list of your main competitors, which may include direct and indirect competitors. Direct competitors offer similar products or services, while indirect competitors offer alternatives or substitutes that could fulfill the same customer needs.
One major turn off for investors and lenders is to say that you have “no competitors.” You always have competitors. If you are opening a coffee shop in your town that doesn’t have a coffee shop, your competitor might be the coffee at the local gas station, or coffee made at home.
For each key competitor, provide a detailed profile that includes:
- Company background: Briefly describe their history, mission, and size.
- Market share: Estimate their share of the market compared to yours (if you haven’t started yet you won’t have any market share yet) and other competitors.
- Product or service offerings: Describe their products or services and how they compare to yours.
- Pricing strategy: Analyze their pricing model and compare it to your own.
- Distribution channels: Identify the channels they use to distribute their products or services, such as online, retail stores, or partnerships.
- Marketing and promotional strategies: Analyze their marketing efforts, including advertising, social media, and public relations.
- Strengths and weaknesses: Identify their competitive advantages and disadvantages in comparison to your business.
Assess your company's competitive positioning by comparing your strengths, weaknesses, opportunities, and threats (SWOT analysis) to those of your competitors. Highlight what makes you unique and areas where you can gain a competitive advantage.
Describe your target market and how it differs from your competitors'. Understanding the market segments that your competitors serve will help you better define your own target audience and tailor your marketing strategies accordingly.
Based on your competitor analysis, identify potential opportunities to exploit in the market and threats that your competitors may pose to your business. This can help you develop proactive strategies to mitigate risks and capitalize on growth opportunities.
Conclusion and Strategic Recommendations
Summarize your findings and provide recommendations for how your business can differentiate itself, address competitive challenges, and gain market share. This may include recommendations for product or service development, pricing, marketing strategies, or strategic partnerships.
So one of your initial questions should be where in the world do you find reliable data on your competitors, it's not like you can call them and just ask them for their financial statements and customer database!
Depending on whether your business is primarily online or a physical location, the approach and tools that I use to do competitive research will differ. I am going to show you examples of the type of research that I like to do and the data that I am able to pull from a couple of tools that we like to utilize.
There are a few data points that I like to find for online competitors. I want to know:
- How much organic traffic is my competitor's website getting?
- How much paid traffic is my competitor’s website getting?
- How much search volume is there for keywords that I want to compete for?
- How much would I have to pay per click for keywords that I want to rank for?
In order to find this data I use two tools.
- Google Adwords Keyword Planner
Let me show you how I use both tools to gather data on my competitors.
How to Use Ahrefs for Competitor Analysis
Let’s assume I am working on a business plan for a gym in Indianapolis. I would start by looking at the search volume for “Indianapolis Gyms” which would give me some idea of the number of people searching for this each month. You can see below that there are 250 monthly searches for this keyword according to Ahrefs.
Next, I would look to see which gym is top ranked for that keyword and in this example I found a Lifetime Fitness . Now I can take that keyword and run it through the Ahrefs Site Explorer and I can now see how much website traffic that particular competitor is getting each month. This particular website is getting about 800 organic website visitors per month.
Ahrefs can also estimate how much paid traffic a particular website is receiving each month as well.
If you want to see exactly how I use the Ahrefs tool, check out the short video below:
Watch: I recorded a demo of using Ahrefs for competitor analysis here.
How to Use Google Adwords Keyword Planner for Market Research
I also like to use Google Adwords Keyword Planner to gather some additional data about my market. So again, if I search for “Indianapolis Gyms” I can see Google’s estimate of traffic per month as well as seasonal trends in search volume. I can also see the average cost per click that advertisers are paying for that keyword.
As you can see, the cost per click ranges from $1.32 to $5.29 for advertisers right now. If you can see how much paid traffic your competitor is getting on Ahrefs and you know the average cost per click for relevant keywords from Google Keyword Planner, you can back into a rough estimate of how much your competitor is spending on advertising per month. I think this can be useful as well.
One other thing you might notice is that Ahrefs seems to have conservative search volume estimates compared to Google Keyword Planner. We saw 250 monthly searches from Ahrefs and 2,400 from Google Keyword Planner. This should give you some range of how big your market might be.
If your competition is not an online business, or doesn’t really have much of an online presence, then finding foot traffic data is going to be much more useful for you in your competitor analysis.
We have partnered with a company called Advan Research to be able to pull foot traffic data reports from their platform.
Here is some of the really cool data that we can get and how you might use it in your competitor research.
Monthly Foot Traffic Data
You can pull monthly foot traffic data for your competitors. This foot traffic data is based on cell phone GPS data and can provide some great insight on potential customer traffic you might expect. For example, in the graph below we pulled the monthly traffic for a local Steakhouse that gets about 5,000 visitors per month.
Daily and Hourly Foot Traffic Data
You can pull foot traffic data for a location by the day and the hour to get an idea of what days and hours are busiest for your competitors and likely to be busiest for you.
Customer Location Data
One of the most powerful data reports you can pull on a competitor is a heat map of where their customers are coming from. If you notice that customers are traveling a long distance to your competitor, you could look at finding a location that is closer to a large segment of your competitors' customers.
Annual Revenue Estimate and Revenue per Square Foot Data
Finally, for larger businesses or publicly traded companies, Advan can provide you with estimates of their annual revenue, revenue per square foot and how many square feet they are renting for their business. Talk about some serious competitor intelligence that can set you ahead and impress your investors and lenders.
The following is an example of a competitor analysis for a restaurant business plan which you can adapt to your own business. I would also recommend that you incorporate data from Ahrefs, Google Adwords Keyword Planner and our Foot Traffic Data Report into this section of your business plan. The idea here is to get a good understanding of where the competitors stand and to identify your place in the market.
I. Competitor Analysis
The purpose of this section is to identify and evaluate the main competitors in the local Italian restaurant industry and to determine our competitive positioning. Understanding the competitive landscape will help us to develop effective strategies that enable us to compete effectively in the market, differentiate ourselves, and carve out a sustainable market share. Our analysis will focus on the following key areas
A. Market Overview
The local Italian restaurant market is valued at approximately $X million and is expected to grow at a CAGR of X% over the next five years. The industry is characterized by the presence of several well-established Italian restaurants, popular chain restaurants, and a few emerging independent restaurants. The primary segments within the industry are fine dining, casual dining, and fast-casual dining.
B. Key Competitors
Competitor A (Fine Dining Italian Restaurant)
Market Share : X%
Strengths: High-quality ingredients, exceptional culinary skills, elegant ambiance, and strong brand recognition.
Weaknesses: High pricing, limited menu offerings, and a focus on a specific customer segment (high-income individuals).
Competitor B (Casual Dining Italian Restaurant)
Market Share: X%
Strengths: Wide variety of Italian dishes, family-friendly atmosphere, and strong customer loyalty.
Weaknesses: Inconsistent food quality, slow service during peak hours, and limited menu innovation.
Competitor C (Fast-Casual Italian Restaurant)
Strengths: Quick service, affordable pricing, and convenient locations.
Weaknesses: Limited menu variety, lack of authentic Italian flavors, and a focus on takeout and delivery over dine-in experiences.
C. Competitive Positioning
Based on our analysis, our competitive positioning is as follows:
Unique Value Proposition: Our primary differentiation lies in our commitment to providing authentic Italian cuisine using high-quality, locally-sourced ingredients, combined with exceptional customer service in a warm and inviting atmosphere. This will enable us to attract customers seeking a genuine Italian dining experience that sets us apart from competitors.
Competitive Pricing: Our pricing strategy is to offer value for money while maintaining profitability. By carefully selecting our suppliers and managing our costs, we will be able to offer a competitively priced menu without compromising on quality.
Target Market: We will cater to a broad range of customers, including families, couples, and groups of friends, by offering a versatile menu that appeals to various tastes and preferences. Our focus will be on attracting local patrons and tourists alike, who are looking for an authentic and memorable Italian dining experience.
Marketing and Promotion: We will invest in both traditional and digital marketing strategies to create brand awareness and drive customer traffic. This will include targeted social media campaigns, local newspaper advertisements, participation in local food festivals, and collaboration with local businesses and organizations.
I hope this has been helpful in giving you some ideas on how to gather relevant competitor research so that you can make informed decisions about where you locate and start your business.
If you are interested in our Foot Traffic Data Report to help provide the data for your competitor analysis or other sections of your business plan, please don’t hesitate to contact us.
About the Author
Adam is the Co-founder of ProjectionHub which helps entrepreneurs create financial projections for potential investors, lenders and internal business planning. Since 2012, over 50,000 entrepreneurs from around the world have used ProjectionHub to help create financial projections.
Other Stories to Check out
5 key financial projection assumptions for ecommerce startups.
for your eCommerce startup, there are several key assumptions that can have a dramatic impact on your revenue projections. In this article I want to highlight 5 of the key assumptions that I see entrepreneurs struggle with most often
Hardware Company Valuation Guide To Get Funding For Your Startup
Are you a hardware startup looking for funding? Check out our guide on how to value your company to get the most investment.
Biotech Startup Finance: Why it’s so Tough
Starting a biotech business can be incredibly difficult due to the high costs, high degree of expertise, and peculiar revenue model. In this article I wanted to highlight some challenges and answer some common questions as it relates to finance for biotechnology startups.
Have some questions? Let us know and we'll be in touch.
How to Write a Competitive Analysis for Your Business Plan
11 min. read
Updated October 27, 2023
Do you know who your competitors are? If you do, have you taken the time to conduct a thorough competitor analysis?
Knowing your competitors, how they operate, and the necessary benchmarks you need to hit are crucial to positioning your business for success. Investors will also want to see an analysis of the competition in your business plan.
In this guide, we’ll explore the significance of competitive analysis and guide you through the essential steps to conduct and write your own.
You’ll learn how to identify and evaluate competitors to better understand the opportunities and threats to your business. And you’ll be given a four-step process to describe and visualize how your business fits within the competitive landscape.
- What is a competitive analysis?
A competitive analysis is the process of gathering information about your competitors and using it to identify their strengths and weaknesses. This information can then be used to develop strategies to improve your own business and gain a competitive advantage.
- How to conduct a competitive analysis
Before you start writing about the competition, you need to conduct your analysis. Here are the steps you need to take:
1. Identify your competitors
The first step in conducting a comprehensive competitive analysis is to identify your competitors.
Start by creating a list of both direct and indirect competitors within your industry or market segment. Direct competitors offer similar products or services, while indirect competitors solve the same problems your company does, but with different products or services.
Keep in mind that this list may change over time. It’s crucial to revisit it regularly to keep track of any new entrants or changes to your current competitors. For instance, a new competitor may enter the market, or an existing competitor may change their product offerings.
2. Analyze the market
Once you’ve identified your competitors, you need to study the overall market.
This includes the market size , growth rate, trends, and customer preferences. Be sure that you understand the key drivers of demand, demographic and psychographic profiles of your target audience , and any potential market gaps or opportunities.
Conducting a market analysis can require a significant amount of research and data collection. Luckily, if you’re writing a business plan you’ll follow this process to complete the market analysis section . So, doing this research has value for multiple parts of your plan.
What’s your biggest business challenge right now?
3. create a competitive framework.
You’ll need to establish criteria for comparing your business with competitors. You want the metrics and information you choose to provide answers to specific questions. (“Do we have the same customers?” “What features are offered?” “How many customers are being served?”)
Here are some common factors to consider including:
- Market share
- Product/service offerings or features
- Distribution channels
- Target markets
- Marketing strategies
- Customer service
4. Research your competitors
You can now begin gathering information about your competitors. Because you spent the time to explore the market and set up a comparison framework—your research will be far more focused and easier to complete.
There’s no perfect research process, so start by exploring sources such as competitor websites, social media, customer reviews, industry reports, press releases, and public financial statements. You may also want to conduct primary research by interviewing customers, suppliers, or industry experts.
You can check out our full guide on conducting market research for more specific steps.
5. Assess their strengths and weaknesses
Evaluate each competitor based on the criteria you’ve established in the competitive framework. Identify their key strengths (competitive advantages) and weaknesses (areas where they underperform).
6. Identify opportunities and threats
Based on the strengths and weaknesses of your competitors, identify opportunities (areas where you can outperform them) and threats (areas where they may outperform you) for your business.
You can check out our full guide to conducting a SWOT analysis for more specific questions that you should ask as part of each step.
- How to write your competitive analysis
Once you’ve done your research, it’s time to present your findings in your business plan. Here are the steps you need to take:
1. Determine who your audience is
Who you are writing a business plan for (investors, partners, employees, etc.) may require you to format your competitive analysis differently.
For an internal business plan you’ll use with your team, the competition section should help them better understand the competition. You and your team will use it to look at comparative strengths and weaknesses to help you develop strategies to gain a competitive advantage.
For fundraising, your plan will be shared with potential investors or as part of a bank loan. In this case, you’re describing the competition to reassure your target reader. You are showing awareness and a firm understanding of the competition, and are positioned to take advantage of opportunities while avoiding the pitfalls.
2. Describe your competitive position
You need to know how your business stacks up, based on the values it offers to your chosen target market. To run this comparison, you’ll be using the same criteria from the competitive framework you completed earlier. You need to identify your competitive advantages and weaknesses, and any areas where you can improve.
The goal is positioning (setting your business up against the background of other offerings), and making that position clear to the target market. Here are a few questions to ask yourself in order to define your competitive position:
- How are you going to take advantage of your distinctive differences, in your customers’ eyes?
- What are you doing better?
- How do you work toward strengths and away from weaknesses?
- What do you want the world to think and say about you and how you compare to others?
3. Visualize your competitive position
There are a few different ways to present your competitive framework in your business plan. The first is a “positioning map” and the second is a “competitive matrix”. Depending on your needs, you can use one or both of these to communicate the information that you gathered during your competitive analysis:
The positioning map plots two product or business benefits across a horizontal and vertical axis. The furthest points of each represent opposite extremes (Hot and cold for example) that intersect in the middle. With this simple chart, you can drop your own business and the competition into the zone that best represents the combination of both factors.
I often refer to marketing expert Philip Kohler’s simple strategic positioning map of breakfast, shown here. You can easily draw your own map with any two factors of competition to see how a market stacks up.
It’s quite common to see the price on one axis and some important qualitative factor on the other, with the assumption that there should be a rough relationship between price and quality.
It’s pretty common for most business plans to also include a competitive matrix. It shows how different competitors stack up according to the factors identified in your competitive framework.
How do you stack up against the others? Here’s what a typical competitive matrix looks like:
For the record, I’ve seen dozens of competitive matrices in plans and pitches. I’ve never seen a single one that didn’t show that this company does more of what the market wants than all others. So maybe that tells you something about credibility and how to increase it. Still, the ones I see are all in the context of seeking investment, so maybe that’s the nature of the game.
4. Explain your strategies for gaining a competitive edge
Your business plan should also explain the strategies your business will use to capitalize on the opportunities you’ve identified while mitigating any threats from competition. This may involve improving your product/service offerings, targeting underserved market segments, offering more attractive price points, focusing on better customer service, or developing innovative marketing strategies.
While you should cover these strategies in the competition section, this information should be expanded on further in other areas of your business plan.
For example, based on your competitive analysis you show that most competitors have the same feature set. As part of your strategy, you see a few obvious ways to better serve your target market with additional product features. This information should be referenced within your products and services section to back up your problem and solution statement.
- Why competition is a good thing
Business owners often wish that they had no competition. They think that with no competition, the entire market for their product or service will be theirs. That is simply not the case—especially for new startups that have truly innovative products and services. Here’s why:
Competition validates your idea
You know you have a good idea when other people are coming up with similar products or services. Competition validates the market and the fact that there are most likely customers for your new product. This also means that the costs of marketing and educating your market go down (see my next point).
Competition helps educate your target market
Being first-to-market can be a huge advantage. It also means that you will have to spend way more than the next player to educate customers about your new widget, your new solution to a problem, and your new approach to services.
This is especially true for businesses that are extremely innovative. These first-to-market businesses will be facing customers that didn’t know that there was a solution to their problem . These potential customers might not even know that they have a problem that can be solved in a better way.
If you’re a first-to-market company, you will have an uphill battle to educate consumers—an often expensive and time-consuming process. The 2nd-to-market will enjoy all the benefits of an educated marketplace without the large marketing expense.
Competition pushes you
Businesses that have little or no competition become stagnant. Customers have few alternatives to choose from, so there is no incentive to innovate. Constant competition ensures that your marketplace continues to evolve and that your product offering continues to evolve with it.
Competition forces focus & differentiation
Without competition, it’s easy to lose focus on your core business and your core customers and start expanding into areas that don’t serve your best customers. Competition forces you and your business to figure out how to be different than your competition while focusing on your customers. In the long term, competition will help you build a better business.
- What if there is no competition?
One mistake many new businesses make is thinking that just because nobody else is doing exactly what they’re doing, their business is a sure thing. If you’re struggling to find competitors, ask yourself these questions.
Is there a good reason why no one else is doing it?
The smart thing to do is ask yourself, “Why isn’t anyone else doing it?”
It’s possible that nobody’s selling cod-liver frozen yogurt in your area because there’s simply no market for it. Ask around, talk to people, and do your market research. If you determine that you’ve got customers out there, you’re in good shape.
But that still doesn’t mean there’s no competition.
How are customers getting their needs met?
There may not be another cod-liver frozen yogurt shop within 500 miles. But maybe an online distributor sells cod-liver oil to do-it-yourselfers who make their own fro-yo at home. Or maybe your potential customers are eating frozen salmon pops right now.
Are there any businesses that are indirect competitors?
Don’t think of competition as only other businesses that do exactly what you do. Think about what currently exists on the market that your product would displace.
It’s the difference between direct competition and indirect competition. When Henry Ford started successfully mass-producing automobiles in the U.S., he didn’t have other automakers to compete with. His competition was horse-and-buggy makers, bicycles, and railroads.
Do a competitive analysis, but don’t let it derail your planning
While it’s important that you know the competition, don’t get too caught up in the research.
If all you do is track your competition and do endless competitive analyses, you won’t be able to come up with original ideas. You will end up looking and acting just like your competition. Instead, make a habit of NOT visiting your competition’s website, NOT going into their store, and NOT calling their sales office.
Focus instead on how you can provide the best service possible and spend your time talking to your customers. Figure out how you can better serve the next person that walks in the door so that they become a lifetime customer, a reference, or a referral source.
If you focus too much on the competition, you will become a copycat. When that happens, it won’t matter to a customer if they walk into your store or the competition’s because you will both be the same.
See why 1.2 million entrepreneurs have written their business plans with LivePlan
Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.
Table of Contents
- Do a competitive analysis, but don’t let it derail your planning
5 Min. Read
Business Plan Vs Strategic Plan Vs Operational Plan—Differences Explained
10 Min. Read
When Should You Write a Business Plan?
How to Create a Convincing Problem and Solution Statement
12 Min. Read
Free Amazon FBA Business Plan PDF [2023 Template + Sample Plan]
The LivePlan Newsletter
Become a smarter, more strategic entrepreneur.
Your first monthly newsetter will be delivered soon..
What is a competitive analysis?
Competitive analysis involves identifying your direct and indirect competitors using research to reveal their strengths and weaknesses in relation to your own.
Direct competitors market the same product to the same audience as you, while indirect competitors market the same product to a different audience. After identifying your competitors, you can use the information you gather to see where you stand in the market landscape.
What to include in a competitive analysis
The purpose of this type of analysis is to get a competitive advantage in the market and improve your business strategy. Without a competitive analysis, it’s difficult to know what others are doing to win clients or customers in your target market. A competitive analysis report may include:
A description of your company’s target market
Details about your product or service versus the competitors’
Current and projected market share, sales, and revenues
Marketing and social media strategy analysis
Differences in customer ratings
You’ll compare each detail of your product or service versus the competition to assess strategy efficacy. By comparing success metrics across companies, you can make data-driven decisions.
How to do a competitive analysis
Follow these five steps to create your competitive analysis report and get a broad view of where you fit in the market. This process can help you analyze a handful of competitors at one time and better approach your target customers.
1. Create a competitor overview
In step one, select between five and 10 competitors to compare against your company. The competitors you choose should have similar product or service offerings and a similar business model to you. You should also choose a mix of both direct and indirect competitors so you can see how new markets might affect your company. Choosing both startup and seasoned competitors will further diversify your analysis.
Tip: To find competitors in your industry, use Google or Amazon to search for your product or service. The top results that emerge are likely your competitors. If you’re a startup or you serve a niche market, you may need to dive deeper into the rankings to find your direct competitors.
2. Conduct market research
Once you know the competitors you want to analyze, you’ll begin in-depth market research. This will be a mixture of primary and secondary research. Primary research comes directly from customers or the product itself, while secondary research is information that’s already compiled. Then, keep track of the data you collect in a user research template .
Primary market research may include:
Purchasing competitors’ products or services
Conducting online surveys of customers
Holding in-person focus groups
Secondary market research may include:
Examining competitors’ websites
Assessing the current economic situation
Identifying technological developments
Reading company records
Tip: Search engine analysis tools like Ahrefs and SEMrush can help you examine competitors’ websites and obtain crucial SEO information such as the keywords they’re targeting, the number of backlinks they have, and the overall health of their website.
3. Compare product features
The next step in your analysis involves a comparison of your product to your competitors’ products. This comparison should break down the products feature by feature. While every product has its own unique features, most products will likely include:
Age of audience served
Number of features
Style and design
Ease of use
Type and number of warranties
Customer support offered
Tip: If your features table gets too long, abbreviate this step by listing the features you believe are of most importance to your analysis. Important features may include cost, product benefits, and ease of use.
4. Compare product marketing
The next step in your analysis will look similar to the one before, except you’ll compare the marketing efforts of your competitors instead of the product features. Unlike the product features matrix you created, you’ll need to go deeper to unveil each company’s marketing plan .
Areas you’ll want to analyze include:
As you analyze the above, ask questions to dig deeper into each company’s marketing strategies. The questions you should ask will vary by industry, but may include:
What story are they trying to tell?
What value do they bring to their customers?
What’s their company mission?
What’s their brand voice?
Tip: You can identify your competitors’ target demographic in this step by referencing their customer base, either from their website or from testimonials. This information can help you build customer personas. When you can picture who your competitor actively targets, you can better understand their marketing tactics.
5. Use a SWOT analysis
Competitive intelligence will make up a significant part of your competitor analysis framework, but once you’ve gathered your information, you can turn the focus back to your company. A SWOT analysis helps you identify your company’s strengths and weaknesses. It also helps turn weaknesses into opportunities and assess threats you face based on your competition.
During a SWOT analysis, ask yourself:
What do we do well?
What could we improve?
Are there market gaps in our services?
What new market trends are on the horizon?
Tip: Your research from the previous steps in the competitive analysis will help you answer these questions and fill in your SWOT analysis. You can visually present your findings in a SWOT matrix, which is a four-box chart divided by category.
6. Identify your place in the market landscape
The last step in your competitive analysis is to understand where you stand in the market landscape. To do this, you’ll create a graph with an X and Y axis. The two axes should represent the most important factors for being competitive in your market.
For example, the X-axis may represent customer satisfaction, while the Y-axis may represent presence in the market. You’ll then plot each competitor on the graph according to their (x,y) coordinates. You’ll also plot your company on this chart, which will give you an idea of where you stand in relation to your competitors.
This graph is included for informational purposes and does not represent Asana’s market landscape or any specific industry’s market landscape.
Tip: In this example, you’ll see three companies that have a greater market presence and greater customer satisfaction than yours, while two companies have a similar market presence but higher customer satisfaction. This data should jumpstart the problem-solving process because you now know which competitors are the biggest threats and you can see where you fall short.
Competitive analysis example
Imagine you work at a marketing startup that provides SEO for dentists, which is a niche industry and only has a few competitors. You decide to conduct a market analysis for your business. To do so, you would:
Step 1: Use Google to compile a list of your competitors.
Steps 2, 3, and 4: Use your competitors’ websites, as well as SEO analysis tools like Ahrefs, to deep-dive into the service offerings and marketing strategies of each company.
Step 5: Focusing back on your own company, you conduct a SWOT analysis to assess your own strategic goals and get a visual of your strengths and weaknesses.
Step 6: Finally, you create a graph of the market landscape and conclude that there are two companies beating your company in customer satisfaction and market presence.
After compiling this information into a table like the one below, you consider a unique strategy. To beat out your competitors, you can use localization. Instead of marketing to dentists nationwide like your competitors are doing, you decide to focus your marketing strategy on one region, state, or city. Once you’ve become the known SEO company for dentists in that city, you’ll branch out.
You won’t know what conclusions you can draw from your competitive analysis until you do the work and see the results. Whether you decide on a new pricing strategy, a way to level up your marketing, or a revamp of your product, understanding your competition can provide significant insight.
Drawbacks of competitive analysis
There are some drawbacks to competitive analysis you should consider before moving forward with your report. While these drawbacks are minor, understanding them can make you an even better manager or business owner.
Don’t forget to take action
You don’t just want to gather the information from your competitive analysis—you also want to take action on that information. The data itself will only show you where you fit into the market landscape. The key to competitive analysis is using it to problem solve and improve your company’s strategic plan .
Be wary of confirmation bias
Confirmation bias means interpreting information based on the beliefs you already hold. This is bad because it can cause you to hold on to false beliefs. To avoid bias, you should rely on all the data available to back up your decisions. In the example above, the business owner may believe they’re the best in the SEO dental market at social media. Because of this belief, when they do market research for social media, they may only collect enough information to confirm their own bias—even if their competitors are statistically better at social media. However, if they were to rely on all the data available, they could eliminate this bias.
Update your analysis regularly
A competitive analysis report represents a snapshot of the market landscape as it currently stands. This report can help you gain enough information to make changes to your company, but you shouldn’t refer to the document again unless you update the information regularly. Market trends are always changing, and although it’s tedious to update your report, doing so will ensure you get accurate insight into your competitors at all times.
Boost your marketing strategy with competitive analysis
Learning your competitors’ strengths and weaknesses will make you a better marketer. If you don’t know the competition you’re up against, you can’t beat them. Using competitive analysis can boost your marketing strategy and allow you to capture your target audience faster.
Competitive analysis must lead to action, which means following up on your findings with clear business goals and a strong business plan. Once you do your competitive analysis, you can use the templates below to put your plan into action.
The top 16 project charts to visualize project effectiveness
Create an impactful annual plan with Asana
How to Do a Competitive Analysis
Table of contents.
A competitive analysis is a tool you can use to discover where your business is doing well, where you need to improve and which trends you need to get ahead of. Complete a competitive analysis when your company isn’t moving forward as fast as you want or when competitors are securing orders from your ideal customers.
In this article, we’ll explain the concept of a competitive analysis and how to perform one for your business.
How to complete a competitive analysis
Josh Rovner, business consultant and bestselling author of Unbreak the System: Diagnosing and Curing the Ten Critical Flaws in Your Company (Lioncrest Publishing, 2020), shared with us nine steps for completing a competitive analysis.
1. Identify the products or services you want to evaluate.
For most analyses, they will be the products or services that generate the highest revenues or demonstrate the most significant potential for growth.
2. Seek direct competitors.
These companies compete for roughly the same market with comparable products or services. For example, accountants competing against other accountants.
3. Pinpoint indirect competitors.
These companies target the same market but with different products or services. For example, accountants competing against bookkeepers.
4. Examine replacement competitors.
These companies offer a different product or service, but address the same issue as your products or services (for example, apps that assist entrepreneurs).
5. Determine which parts of your competitors’ businesses are worth investigating.
These aspects could be pricing, distribution and delivery strategies, market share, new products or services coming to market, who their long-standing, highest-spending customers are, the quality of after-sales support, and which sales and marketing channels they use.
6. Research all identified competitors.
You may only find minimal accounting and operational records for most competitors, especially nonpublic companies. Other useful information – like target customers, product features, type of staff employed and price points – will be easier to find.
7. Document your research in a written analysis.
Make sure your document is substantive and actionable, but not so long that your staff won’t read it. Comparison charts and graphs are useful to help you and your team visualize your position in the market in relation to your competitors.
8. Identify areas to improve and execute the changes.
Could you improve the quality of your products or services by adding or amending a feature, lowering the price to be more affordable or improving after-sales support? Could you achieve a better ROI on your marketing budget by investing in a more capable CRM for better lead management ?
Rovner recommends including information about related trends in your market and region for a more complete picture of the entire competitive landscape. “Document what threats are out there that could have a negative impact on your business, and document the opportunities out there that you could take advantage of better than your competitors.”
9. Track your results.
Measure your sales with a profit and loss statement to determine if the changes were successful.
Limit the number of competitors you analyze to 10-12, and focus your attention on direct and indirect competitors with similar market shares rather than replacement competitors.
Competitive analysis explained
A competitive analysis – also known as a competitor analysis – is a way of evaluating how well your business and its products or services are performing compared to other companies selling similar products or services in your market.
“A competitor analysis focuses on identifying market participants positioned to encroach on your opportunity and isolates each participant’s operational strengths, substantive weaknesses, product offerings, market dominance, and missed opportunities,” said David Taffet, CEO of Petal.
Competitor analyses help you improve your business in these ways:
- Identify your strengths and weaknesses. When you know where you’re ahead of the competition, you can focus your marketing message to press home that advantage. When you know where you’re behind, you can better understand how you need to improve your products, services or after-sales to exceed your competitors.
- Understand the marketplace you operate in. You know who many of your competitors are but you won’t know all of them right off the bat and may not be aware of the latest entrants to the market . Identifying your primary competitors (as well as any upcoming threats), and how they differ from your business is key to beating them.
- Evaluate trends in your sector. Which new or improved product, service or feature are competitors offering to gain an advantage? Which trends have they seen that you haven’t yet? By examining the behaviors and actions of other companies in your marketplace, you can judge whether they’ve taken the right course and whether you should be going head-to-head with them. [Related content: Top E-Commerce Challenges Facing SMBs ]
- Plan future growth. Want to be the third-largest firm in your sector instead of the fourth? A competitive analysis gives you the information you need to get there, including how much more you need to sell, the demographics to market and any skill gaps your organization has.
Factors your competitor analysis should include
Colin Schacherbauer, executive marketing assistant at Investor Deal Room, recommended the following 10 components for an effective competitor analysis.
Find all the features that each direct competitor’s product or service has. Keep this information in a competitor insight spreadsheet to visualize how companies stack up against one another.
Market share percentage
Evaluating the marketplace by percentage helps identify the main competitors in your area. Don’t exclude larger competitors entirely, as they have much to teach you about how to succeed in your industry. Instead, practice the 80/20 rule: Keep an eye on 80% direct competitors (companies with similarly sized market shares) and 20% top competitors.
Pinpoint how much your competitors charge and where they fall on the quantity versus quality spectrum.
What type of marketing plan does each competitor employ? Look at competitors’ websites, their social media strategy, the type of events they sponsor, their SEO strategies, their taglines and current marketing campaigns. [Follow these tips to create a great business marketing plan .]
What makes your competitors unique and what do they advertise as their best qualities? How is that different from your company?
Identify what your competitors are doing well and what works for them. Do reviews indicate they have a superior product? Do they have high brand awareness? Can you test a competitor’s products yourself to see where they are performing better?
Identify what each competitor could be doing better to give you a competitive advantage. Do they have a weak social media strategy? Do they lack an online store? Is their website outdated?
Look at where your competitors are located and the regions they service. Are they brick-and-mortar companies or is the bulk of their business performed online?
Evaluate your competitors’ objectives, employee satisfaction and company culture . Are they the type of business that advertises the year it was established or are they recent startups? Read employee reviews for further insight into competitors’ culture. [Learn the best ways to improve your company culture .]
Analyze your competitors’ customer reviews, both positive reviews and negative ones. In a 5-star system, look at 5-star, 3-star and 1-star reviews. Three-star reviews are often the most honest.
Benefits of carrying out a competitive analysis
In an era of digital innovation , no business can remain preserved in time and expect to survive. Companies can disappear overnight if they don’t pay attention to new trends. A clear example of this is Blockbuster’s catastrophic error of initially dismissing Netflix’s services. Today, Netflix is a juggernaut, while Blockbuster is virtually extinct.
Even if your sector is not susceptible to this type of seismic change, it’s worth knowing what drives your clients’ decision-making processes. By keeping a regular eye on your marketplace through a competitive analysis, you’ll also be aware of these trends:
- Changes to competitors’ existing products or services that make them more attractive
- New complementary products or services from your contenders that you could also offer or alter
- The threat posed by new market entrants or transformative products
“In some cases, you may find that you are at a competitive disadvantage, in which case you may need to make a change in order to maintain your sales volumes,” Rovner said. “In other cases, you may notice that you have an advantage that could enable you to make a change that increases your sales or profit.”
Some other useful methods are the SWOT analysis (an assessment of your company’s strengths, weaknesses, opportunities and threats), PEST analysis (how external political, economic, social and technological factors affect your business) and BCG matrix (another way to examine the competitive landscape).
How often you should perform a competitive analysis
Regular competitive analysis is key. You may want to do the analysis once a year on a large scale and quarterly on a smaller scale.
“Too many businesses do a competitor analysis early on and then neglect it once their brand is established,” Schacherbauer added. “Industries are constantly changing, and each time a new company enters your space, they are doing a competitor analysis on you. It’s important to continually evaluate your competitors.”
Analyzing your business regularly against your competitors will reveal opportunities to improve your products, better serve your target customers and increase levels of profitability. You may also want to consider using another model – like Porter’s Five Forces – to further analyze the competition.
“Understanding one’s competitors allows one to distinguish oneself from the competition, focus on the underserved market opportunities, determine the services to offer, identify the best practices to employ and isolate the worst practices and rotten players,” Taffet said.
Entrepreneur Edward Lowe outpaced his competition by foreseeing a trend: He realized the clay from his father’s industrial absorbent business could be used as a first-of-its-kind kitty litter. Lowe, whose Edward Lowe Foundation is a champion of competitive analyses, saw a space in the marketplace and built his business into a multimillion-dollar company.
How competitive analyses help small businesses
Your successful business today won’t necessarily be a successful tomorrow if you don’t keep an eye on the competition. By employing a competitive analysis, you can evaluate the current marketplace and where you stand compared to your competitors. With that knowledge, you can make adjustments to set your company up for continued success.
Skye Schooley contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.
Building Better Businesses
Insights on business strategy and culture, right to your inbox. Part of the business.com network.
Upmetrics AI Assistant: Simplifying Business Planning through AI-Powered Insights. Learn How
- 400+ Sample Business Plans
Business Plan Course
Strategic canvas templates, e-books, guides & more.
- WHY UPMETRICS?
Customers Success Stories
Business planning, financial forecasting, ai assistance, see how upmetrics works →, stratrgic planning, business consultants, entrepreneurs and small business, accelerators and incubators, educators & business schools, students & scholars.
- Sample Plans
Write the Competition Section: Business Plan Writing
11 Min Read
What is the Competition Section?
Your business plan includes a lot of operational sections. Every section holds different importance. In that case, competition is one of the most fundamental aspects of your business. And so, it needs to be added to your business plan. The section that explains your competition is your competition section.
While deciding where to add the competition section, pay attention to the flow of your business plan. Moreover, it also depends on the priority. So, it must come next to your objective, problem statement , product/services, and target audience.
Why do You Need a Competition Section in Your Business Plan?
The why of your business plan depends on your purpose-
If your purpose is to direct your business growth:
Your competition status can play as your reference point. Here, the competition section serves as a medium for understanding your competition. So, you can develop strategic positioning.
If your purpose is to create a business plan to seek investment:
You must add it to inform your investors about your competition, market position, and brand promise.
You need to describe the competition to reassure probable investors that you know and understand your competition. And that you are ready to take advantage of opportunities and avoid the pitfalls.
How to write a competition section in your business plan?
Regardless of your purpose mentioned above, you have to include all the steps mentioned below. Wherever there is the need for that ‘minor’ change, we will include it under the same step.
While following this step, we suggest you take action side by side. So, it becomes easier to implement. Moreover, before putting up your competition section, be ready with your competition data.
Also, make sure that you have conducted a competitive analysis and processed data of at least 5 competition companies. Once you have everything you need, you can go through the following steps-
1. Determining and Documenting Your Business Position
Regardless of your purpose, you will have to follow this step. And there isn’t any major difference here. You need to know your business position in the market and document it properly. However, we will first talk about the determining part. And then, document it for the competition part of your business plan.
How to determine your market position?
Gather crucial details for your company and your competitors’ company. When you have all the data, you compare them. And put it up on the competition graph.
The details you will need include:
- Sales Figures
- Profit margins
You can also add the marketing column if you find the need. Here, your goal is to make clear positions with respect to your target markets.
Position Mapping Graph
You can do this for 5 main aspects of your business-
- For product characters
- The quality of products/services
- The number of products/services
- For user/customer friendliness
You can either put all the points in the same graph or use a separate graph for each.
How to do this?
- Get graph paper and divide it into 4 quadrants
- Add your parameter(s)
- Start plotting your and your competition’s point
A competitive matrix is a method that helps you determine your competitive advantages. Usually, you put together this tool to note your market credibility. It is an industry analysis tool that compares the characteristics of you and your competition.
How to do it?
- You draw out a matrix
- Position your company and competitors, at the top, the horizontal blocks
- Put all the aspects you want to compete with, in the vertical blocks
- Put the tick marks to draw the competition
How to document in the competition section for your business plan?
Once you complete the determination, the documentation is quite easy. In fact, you can put the final graphs in your draft. It will not only give color and variety but also make it easy to understand.
While you put all the graphs together, you have to explain your competition and the parameters that you have selected. Moreover, you can go ahead and explain why the companies are your competition. And also explain why you picked particular parameters.
Mention the date and time frame in your graphs. It makes it easier to have a deeper knowledge of your competition.
Basically, the documentation is journaling the process of drawing the graphs. You may not want to add every detail. As that could make the entire section a little longer than expected. But at the same time, don’t leave out the important details.
Why is this step important?
2. determine and draft your competitive advantages, determining the competitive advantage.
This process may look hard. But it is not. In fact, it just includes one step to the above one. It can be done side by side while you are drawing the comparison and putting them together in different graphs.
Drafting your competitive advantage
You have to note down your bonus points and explain them in detail. You can use those graphs too for more clarity and variety. It is better that you make this up to the point. If you are writing for the investors, they might just want the rounded points after seeing the graphs.
With this step, you became assertive about your success and future in the market.
If brought in front of your investors, they quickly get a clear idea of whether to invest in your business or not. In a way, it helps you store their faith in your business.
3. Put in the customers’ review
This step is just like putting that final nail in the coffin! Plus, regardless of the purpose of your business plan, this step and section remain the same. Even more interesting, it takes less time than the two above-mentioned steps.
Here’s how you do it-
- Find out the reviews and ratings of all the competitors, you had begun the process with.
- Be discreet. Don’t only add the good points or the bad points. Add the good, the bad, and the average rating and reviews.
- In fact, you can go ahead and make three sections named- The Good, The Bad, and The average.
- Add 10-12 reviews in total and put them in the respective sections (3 or 4 in each).
- You can find reviews from search engines, social media, websites, forums, and magazines.
- If you want even authentic reviews and have enough time and resources, you can even run surveys. Or contact agencies that run unbiased surveys.
How to draft it-
- Put them just the way they are, even if they have typos. Try not to tamper with them.
- Add them at the end of the competition section for your business plan.
Why is this step important
- To add more clarity and favor to your business.
- Gives a chunk of customer points to view.
- Restores your, your team’s, and your investor’s faith in your company.
And that’s all about the competition section in the business plan. We hope we have given you all the information that you needed. However, regardless of how you find notes, we have listed the FAQs for the competition section for a business plan. You can refer to it for questions that look similar to yours.
FAQs for your competition section
What if we think that our business does not have competition?
Ideally, every business has competition. If not directly, then indirectly. Basically, there are three types of competition- Primary, Secondary, and Tertiary.
Primary: The business that has similar products/services as you and, serves the same target audience.
Secondary: The high-end or low-end services/products as you. There may be a slight change in the target audience, depending on the spending capacity location and more.
Tertiary: They have completely different products/services but satisfy the same need of your target audience.
So, if you think that you don’t have primary competition. Look closely, you may have a secondary or tertiary competition.
What if that time my competition changes?
Do we need a separate team to draw a competition analysis and draft it in the business plan, how long should the competition section be in the business plan, where else can we showcase this analysis.
Build your Business Plan Faster
with step-by-step Guidance & AI Assistance.
About the Author
Since childhood, I was in awe of the magic that words bring. But while studying computer science in college, my world turned upside down. I found my calling in being a copywriter and I plunged into a world of words. Since then, there is no looking back. Even today, nothing excites me to find out the wonders the words can bring!
What is a Competitive Advantage? Explained with Examples
Everything You Need to Know About Pricing Strategy
What is SWOT Analysis & How to Conduct it
Reach Your Goals with Accurate Planning
No Risk – Cancel at Any Time – 15 Day Money Back Guarantee
Hey there! Free trials are available for Standard and Essentials plans. Start for free today.
Competitor Analysis: What It Is and How to Conduct One
Discover the benefits of a competitor analysis and learn how to conduct one for your business.
No business operates in a bubble. If you’re a small business owner, chances are you think about your competition a lot. But what should you focus on, and what should you do with that information?
That’s where a competitor analysis can help. At any stage of your business, it’s worth taking time to conduct one. You’ll identify competitors, research their marketing strategies, and assess your brand’s strengths and weaknesses.
Before any big game, a good sports team spends time studying their opponent. Coaches will do research, watch game footage, and put together a scouting report on each opposing player. A competitor analysis is like a scouting report for your business—a tool for designing a game plan that helps your company succeed.
What is a competitor analysis?
A competitor analysis, also referred to as a competitive analysis, is the process of identifying competitors in your industry and researching their different marketing strategies. You can use this information as a point of comparison to identify your company’s strengths and weaknesses relative to each competitor.
You can do a competitor analysis at a high level, or you can dive into one specific aspect of your competitors’ businesses. This article will focus on how to conduct a general competitive analysis, but you’ll want to tailor this process to match the needs and goals of your business.
Why do a competitor analysis?
More often than not, small business owners find themselves juggling many tasks at once. Even amid a busy schedule, though, it’s worth taking the time to do a competitor analysis.
- Identify your business’s strengths and weaknesses
By studying how your competitors are perceived, you can draw conclusions about your own brand’s strengths and weaknesses. Knowing your company’s strengths can inform your positioning in the market, or the image of your product or service that you want members of your target audience to have in their minds. It’s essential to clearly communicate to potential customers why your product or service is the best choice of all those available.
Being aware of your company’s weaknesses is just as important in helping your business grow. Understanding where you fall short of your customers’ expectations can help you identify areas where you may want to invest time and resources.
You might learn that customers prefer your competitors’ customer service, for example. Study your competition to find out what they’re doing right, and see what you can apply to your business.
- Understand your market
While identifying competitors, you may find companies that you didn’t know about or that you didn’t consider part of your competition before. Knowing who your competitors are is the first step to surpassing them.
Conducting a thorough assessment of what your competitors offer may also help you identify areas where your market is underserved. If you find gaps between what your competitors offer and what customers want, you can make the first move and expand your own offerings to satisfy those unmet customer needs.
- Spot industry trends
Studying the competition can also help you see which way the industry as a whole is moving. However, you should never do something just because your competitors are doing it. Copying the competition without really considering your own place in the market rarely, if ever, leads to success.
If you see your competitors doing something that you’re not, don’t rush to replicate their offering. Instead, evaluate what your customers’ needs are and how you can create value for them. It’s often better to zag when everyone else zigs .
- Set benchmarks for future growth
When doing a competitor analysis, you should include companies that are both larger and smaller than your own. Studying well-established businesses in your industry can give you a model of what success looks like and a reference point against which to compare your future growth. On the other hand, researching new entrants into your industry tells you what companies may threaten your market share in the future.
Subscribe to get more marketing tips straight to your inbox.
By signing up, you are agreeing that we can use your email address to market to you. You can unsubscribe from marketing emails at any time by using the link in our emails. For more information, please review our privacy statement .
When should you do a competitor analysis?
Conducting a thorough competitive analysis is always a good idea when starting a new business. However, a competitor analysis isn’t just for startups.
Periodically revisiting and updating your competitor analysis, or conducting one from scratch, will help you identify new trends in the market and maintain a competitive advantage over other companies in your industry.
How to do a competitor analysis
Figuring out what to focus on when conducting a competitive analysis can be tricky. Below are 6 steps to help you get started. Before you begin your competitor analysis, consider what you want to get out of it. Add any other areas of research that align with these goals.
1. Identify your competitors
To create a list of potential competitors, consider where your customers would turn if they didn’t buy from your company. An easy way to start is to search your product name or category on Google or another search engine and explore the results. You can also survey or interview existing customers to ask them what alternatives they considered before deciding on your product or service.
When you finalize your list, aim to include a diverse set of companies to get an accurate assessment of what the market is like. You should consider businesses that fall into each of the 3 categories of competitors.
Direct competitors sell a similar product or service to a similar target audience. These are likely the companies that first come to mind when you think of your competition. For example, McDonald’s likely considers other fast food burger chains like Wendy’s and Burger King to be its direct competitors.
Indirect competitors sell a different product or service in the same category but target an audience similar to yours. For example, takeout pizza restaurants like Domino’s and Papa John’s are indirect competitors of McDonald’s.
Replacement competitors exist outside your product category, but they satisfy a similar customer need. For McDonald’s, replacement competitors could be any solution that consumers turn to when they’re hungry, including products such as frozen meals. Of the 3 types of competitors, replacement competitors are the hardest to identify.
When conducting a competitor analysis, you should focus most of your attention on direct and indirect competitors. Still, it’s worth briefly taking stock of potential replacement competitors that could threaten your business prospects.
2. Create a competitor matrix
Before you dive into your competitor analysis , take a moment to get organized. A competitor matrix, also known as a competitor grid, is a table or spreadsheet you can use to compile your research. This will make it easier to compare your findings across competitors and spot larger trends.
Start by devoting one row or column to each competitor that you’ve identified. On the other axis, list data points or categories of information you’d like to find out about each competitor. Don’t worry if you’re not sure what you should be looking for at this point. You can also always add more categories as you progress through your research.
3. Gather background information
Once you have a list of competitors to research, start learning about their businesses. Look for the most basic information first, and then build your way up from there. Start by looking at company websites, social media pages, and any news articles that have been published about them. Here’s some basic information that you may want to look for.
This includes information such as founding date, funding sources, and any mergers or acquisitions they have been involved with. You can often find this information by reading the “About” section of their website or browsing past press releases from the company. Studying how your competitors got to where they are today will give you a more complete understanding of their businesses.
This will vary greatly based on your industry. If you’re in the e-commerce business, you could be competing against companies that sell their products worldwide. For traditional brick-and-mortar businesses, your competition is likely highly localized. Either way, it’s always smart to know where your competition is based and where they sell.
How many people do your competitors employ? LinkedIn and Glassdoor are helpful resources for this kind of data. You’ll also want to look into how many customers your competitors have and how much revenue they generate. This information will likely be easily accessible online for larger companies. For smaller and privately held companies, you might have to make do with rough estimates. Knowing how large your competitors are will help you better contextualize the rest of the data you collect.
4. Profile your competition’s target customers
A company is nothing without its customers. Getting an idea of who your competitors sell to will tell you a lot about their businesses. To pinpoint the target customer for any business:
- Read their mission statement .
- Look at what kind of messaging they use.
- Track who they interact with on social media.
- See if they feature any existing customers in their content.
Use this information to construct a profile of who your competitors are trying to reach with their products or services. These customer profiles will probably resemble your own target customers—these are your competitors, after all—so make note of even small differences.
5. Focus on the 4 P’s
Now that you’ve identified the target customer for each competitor, it’s time to look into how they go about reaching that segment of the market. This will require a deep dive into their marketing strategies.
The marketing mix , also known as the 4 P’s—product, price, promotion, and place—covers the must-have elements when bringing a product to market. As part of your research, ask yourself the following questions for each competitor you’ve selected.
- What are they selling?
- What features are included in their product or service?
- What is most appealing to customers about the product or service? What are some weak points of the product or service? (Pro tip: Check out customer reviews.)
- What kind of pricing model do they use? Is it a one-time purchase or a subscription?
- How much do they charge for their product or service? Do they offer sales or discounts?
- How does their pricing reflect the quality, or perceived quality, of their product or service?
- How do they get the word out about their product or service? What advertising channels (social media, email marketing , print advertisements, etc.) do they use?
- What elements of their product or service do they emphasize? What’s their unique selling proposition ?
- What’s their company story? How do they talk about their brand?
- Where do they sell their product? Do they sell online or in brick-and-mortar locations?
- Do they sell to customers directly, or do they partner with retailers or third-party marketplaces?
These questions are meant to be a starting point. Feel free to expand on them and tailor your questions to your industry and the goals of your research.
You’ll likely find a lot of information. Try to condense your findings into short bullet points that you can easily reference later. Be sure to include quantitative data where appropriate if you’re able to find it.
6. Analyze strengths and weaknesses—yours and your competitors’
Using the information you’ve collected, consider the strengths and weaknesses of each of your selected competitors. Ask yourself why consumers choose a particular company’s product or service over the other available options. Record your conclusions in your spreadsheet.
Last, consider your own company’s strengths and weaknesses. How does your business compare to the competitors you’ve researched? Knowing what sets your business apart from the competition—and where it falls short of expectations—can help you better serve your target customers.
A competitor analysis sets you up for success
Completing a competitive analysis isn’t the end of your strategic planning—it’s just the beginning. Don’t let your hard work go to waste. Use the insights you’ve collected to guide your strategic decision-making.
Not sure where to start? It can be helpful to conduct a SWOT analysis , in which you evaluate your strengths, weaknesses, opportunities, and threats. This can help you sift through the information you collected during your competitor analysis and identify actionable next steps for your business.
Using a competitive analysis as part of your strategic planning is an ongoing process. You can always refer back to your research whenever you need to make an important decision for your business. To stay ahead of the competition, you should regularly revisit and update your competitor analysis.
Whether your company is big or small, well established or just starting out, it’s essential to keep your competition in mind. Conduct a competitor analysis today to set your business up for success.
Competitor Analysis FAQ
Competitor analysis is researching one of your competitors to analyze its products, sales, and marketing. Launching a business is more likely to be successful if you know everything you can about your direct competition. Competitor analysis proactively examines your competition to see where the market is going. A competitor analysis sets your business up for success.
Why do competitor analysis?
The competitor analysis definition includes analysis. After you gather information on your competitors, look at their digital content . What is working? If you were a customer, what parts of your competitor's social media presence appeal to you? Better yet, what would appeal to customers even more?
When you analyze your competitors, you will see their strengths and weaknesses. But the real advantage is the ideas the analysis stimulates. Jot down what you are thinking, and make a list of all the actionable items that you can implement.
A competitor analysis will:
You should do competitor analysis before you launch your business and whenever you make a strategic change. Ideally, you should do a competitor analysis at least twice a year. Some experts recommend monthly or quarterly analysis of your top e-commerce competitors.
What is the meaning of competitor analysis?
Competitor analysis lets you know what products and services they are offering, but also how they are marketing and selling those products. You can use the findings to find best practices, exploit competitors' weaknesses, and gain more customers.
How do you do competition analysis?
There are many ways to do a competitive analysis, but there are 4 basic steps:
- Identify your competition including direct competitors, indirect competitors, and substitute competitors.
- Gather information on products, services, pricing, service area, reputation, and marketing tactics.
- Compare the strengths and weaknesses of each competitor.
- Build on your competition’s strengths and weaknesses to create a competitive advantage.
Is competitor analysis the same as SWOT analysis?
SWOT analysis is a type of competitor analysis that looks at your competition's strengths, weaknesses, opportunities, and threats. Competitor analysis can go beyond SWOT to create new ways to increase market share.
Why do we do competitor analysis?
We do competitor analysis to understand the strengths and weaknesses of our competitors. Competitor analysis is proactive rather than reactive so that you can step out and lead the competition instead of trying to catch up.
What are the types of competitor analysis?
Types of competitor analysis include SWOT analysis, the customer journey map, and growth-share matrix . The customer journey is the story your customer creates with your branding, digital footprint, and products. A growth-share matrix is a visual tool to determine where to focus business activities.
What are the objectives of competitor analysis?
The objectives of competitor analysis are to study the changing market environment to predict market supply and demand. Then adjust your business strategy to optimize for the new conditions.
- Marketing Tools
- Product-Market Fit
- Business Inspiration
- Create Your Brand
- Launching a Business
- Search Search Please fill out this field.
- Building Your Business
- Becoming an Owner
- Business Plans
How to Write the Competitor Analysis Section of the Business Plan
Writing The Business Plan: Section 4
Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.
The competitor analysis section can be the most difficult section to compile when writing a business plan because before you can analyze your competitors, you have to investigate them. Here's how to write the competitor analysis section of the business plan.
First, Find Out Who Your Competitors Are
If you're planning to start a small business that's going to operate locally, chances are you already know which businesses you're going to be competing with. But if not, you can easily find out by doing an internet search for local businesses, looking in the online or printed local phone book, or even driving around the target market area.
Your local business may also have non-local competitors that you need to be aware of.
If you're selling office supplies, for instance, you may also have to compete with big-box retailers within a driving distance of several hours and companies that offer office supplies online. You want to make sure that you identify all your possible competitors at this stage.
Then Find Out About Them
You need to know:
- what markets or market segments your competitors serve;
- what benefits your competitors offer;
- why customers buy from them;
- as much as possible about their products and/or services, pricing, and promotion.
Gathering Information for Your Competitor Analysis
A visit is still the most obvious starting point - either to the brick and mortar store or to the company's website. Go there, once or several times, and look around. Watch how customers are treated. Check out the prices.
You can also learn a fair bit about your competitors from talking to their customers and/or clients - if you know who they are. Other good "live" sources of information about competitors include a company's vendors or suppliers and a company's employees. They may or may not be willing to talk to you, but it's worth seeking them out and asking.
And watch for trade shows that your competitors may be attending. Businesses are there to disseminate information about and sell their products or services; attending and visiting their booths can be an excellent way to find out about your competition.
You'll also want to search for the publicly available information about your competitors. Online publications, newspapers, and magazines may all have information about the company you're investigating for your competitive analysis. Press releases may be particularly useful.
Once you've compiled the information about your competitors, you're ready to analyze it.
Analyzing the Competition
Just listing a bunch of information about your competition in the competitor analysis section of the business plan misses the point. It's the analysis of the information that's important.
Study the information you've gathered about each of your competitors and ask yourself this question: How are you going to compete with that company?
For many small businesses, the key to competing successfully is to identify a market niche where they can capture a specific target market whose needs are not being met.
- Is there a particular segment of the market that your competition has overlooked?
- Is there a service that customers or clients want that your competitor does not supply?
The goal of your competitor analysis is to identify and expand upon your competitive advantage - the benefits that your proposed business can offer the customer or client that your competition can't or won't supply.
Writing the Competitor Analysis Section
When you're writing the business plan, you'll write the competitor analysis section in the form of several paragraphs.
The first paragraph will outline the competitive environment, telling your readers who your proposed business's competitors are, how much of the market they control and any other relevant details about the competition.
The second and following paragraphs will detail your competitive advantage, explaining why and how your company will be able to compete with these competitors and establish yourself as a successful business.
Remember; you don't have to go into exhaustive detail here, but you do need to persuade the reader of your business plan that you are knowledgeable about the competition and that you have a clear, definitive plan that will enable your new business to successfully compete.
By clicking “Accept All Cookies”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.