1. identify what you need to know

1.1. Find out what sort of people your potential customers are.

If you will be selling to individuals, you need to know their sex, age, marital status, occupation, income and lifestyle.

If you will be selling to businesses, you need to know their size, industry type, product-buying patterns and service requirements.

You also need to know what characteristics are common to all your customers and who makes or influences the buying decision.

1.2. Understand what they buy - and in what quantities.

For example, a printing firm should understand if its customer base will want a thousand postcards or a million brochures. A successful sandwich shop will predict its top-selling sandwiches and how many of each they expect to sell each day.

1.3. Find out when they buy.

Customers of a toy manufacturer will buy more towards the end of the year, so that they are fully stocked for the pre-Christmas trading period. A minicab firm will usually expect more business on Saturday evening than Monday evening.

1.4. Understand where and how they will buy.

A bookseller will know that, while many customers like visiting a shop, some also buy books via the Internet. Do a hairdresser's customers want to come to the salon, or would they rather have their hair done at home?

1.5. Define why they will buy from you.

Every new business has to know why customers will buy from them and not the competition. This will become a key part of your sales pitch, known as your 'unique selling proposition'.

See Market Your Business

2. Choose your research methods

2.1. Use 'quantitative' research to find hard data about your potential customers.

This research gives you hard facts and figures about the number of people or businesses you can target and how they spend their money. You can buy this from an existing source, get it done specially for you or carry out your own research. There are also several sources of free information.

2.2. Use 'qualitative' research to assess your potential customers' attitudes.

This focuses on how your potential customers think and behave. This can be bought, commissioned from a variety of sources, or you can do it yourself.

2.3. Remember that you will probably need a mixture of both types of research.

List all the elements you need to know about your potential customers - who, what, when, where, why and how - and whether you need to know facts and figures (quantitative) or about their attitudes and actions (qualitative) to fully answer your questions.

2.4. Identify the most reliable and cost-effective ways to obtain the information.

You may be able to use free resources (see section 3), buy the research you need (see section 4), do it yourself (see section 5) or pay a specialist company to do it for you (see section 6).

3. Use free sources of information

3.1. Check with relevant trade associations.

Trade associations often collect data from their members, which will give you a good insight into your industry. The Trade Association Forum has a searchable list.

3.2. Use libraries and universities.

Some large libraries and universities will have relevant statistics. University departments or experts working in your field are likely to have data they can provide free of charge (or at a low cost).

3.3. Find official figures.

Government databases are a useful source of statistics. The government-run Office for National Statistics can provide data on a variety of issues.

3.4. Source data specific to new and small businesses.

The Department of Trade and Industry's Small Business Service offers a variety of statistics.

3.5. Use the Internet - carefully.

You can find a wealth of freely available information on the Internet using search engines. But if you do, make sure the data is recent and from a source you think is reliable.

3.6. Use trade publications and websites.

Many specialist trade publications offer free subscriptions or unrestricted access to their websites.

4. Buy existing research

4.1. Identify specialist companies that may have carried out research on your industry or potential customers.

The British Market Research Association can offer pointers to relevant members.

You can use specialist websites that offer searchable databases of existing reports.

4.2. Check with Business Link.

Your local Business Link can provide advice on specialist research sources.

5. Carry out your own research

5.1. Remember that if you are carrying out your own research, it is likely to be qualitative.

It is unlikely that you will have the time or resources to definitively uncover the potential size of your market with authority and certainty.

For sources of quantitative research, see section 3 and section 4.

• For example, if you want to know how many males aged 25 to 40 there are in your area, you will need to find this information from your council or central government - you won't be able to count them yourself.

5.2. Be clear what you want to find out before you start.

Sometimes you will be looking to see if there is a market for your product or service, sometimes you will be assessing what price you will be able to charge, or what would make a customer buy from you and not a competitor. Have a definite idea (or a number of ideas) about what you want your research to prove or test.

5.3. Get potential customers to test your product or service.

Find a sample of your target market, get them to try your product or service and give their opinion.

To find out if people would use your service, you could contact relevant businesses and arrange a morning event for people to drop in for a coffee and a demonstration. Otherwise you could offer to drop in to see them.

Approach potential customers about test marketing your product. They may agree to use or sell a prototype of the product.

5.4. Consider how you want to use the answer to a question when forming it.

For example, if you are thinking of opening a high street flower shop, stopping people and asking them 'Would you like to see a flower shop here?' may provide you with a high positive response rate. But asking 'If there were a flower shop here, how often would you use it?' will provide more valuable results.

5.5. Decide whether to use open or closed questions.

Asking a closed question will gain a limited response. 'Did you like product X?' is likely to be answered with a simple 'yes' or 'no'.

Asking an open question is likely to get a more detailed response. 'What do you think can be improved?' will be interpreted as a request for more than a one-word answer.

• While these answers are easier to collate, they are not as useful in determining why the potential customer does or does not like your product or service.
• Open questions will allow you to find out more useful information. It is beneficial to find out if they found the product or service useful - but it is more useful to find out why.

6. Use professional or external help

6.1. Consider using a specialist, especially for surveys.

Specialists, such as market research companies or marketing consultants, have the time and the expertise to do a thorough job.

Customers sometimes find it difficult to voice complaints to the supplier of the product and might also worry that you are trying to sell them something.

You might find it difficult to be impartial.

6.2. If your budget is tight, consider using an individual to do the work for you.

You might ask someone suitable to carry out a telephone survey, for example. This approach will only be successful if the survey questionnaire is simple and well thought-out.

Provide a briefing and make sure the person fits the image that you want to convey to potential customers.

Remember that street interviewers need local authority licences and identity cards.

6.3. Check with market research industry associations.

Trade associations, such as the Chartered Institute of Marketing and the British Market Research Association, can provide advice on how to choose the right professionals for your purposes and your budget.

7. Analyse the competition and the market

7.1. Make sure you understand your competitors, their products and services.

Try their products or services. It is the easiest way of understanding the market and what you will face when you become part of it. Carrying out a detailed analysis of their strengths and weaknesses will give you an idea of what you can do to establish a niche in the market.

Look at the potential the competition has to improve its service or upgrade its product. Work out how you can stay one step ahead.

7.2. Consider if demand for the product or service will change over time.

Make sure you can provide customers with a need to keep coming back - this could be because your product has been updated, the old one has run out, worn out or because it is so good they want more.

Find out if the market is affected by external factors, such as the economy or legislation. Are there any protective measures you could put in place?

Anticipate potential problems: you might be able to develop your product for a wider selection of markets to increase its chances of survival.

8. Use your research fairly and accurately

8.1. Keep your distance.

Do not base market research on the opinions of friends and family. You risk hearing what you want to hear - rather than honest opinions.

Record any comments given or you might forget criticisms that would enable you to improve the product or service.

• If possible, hand the analysis over to someone who is not immediately involved in the project.

8.2. Do not take any negative comments personally.

You can often learn more from criticism - and improve your business because of it.

8.3. Do not allocate a fixed timeframe for your research.

It will only be finished when you have a clear understanding of your market and where you intend to position yourself in it.

8.4. Use research regularly.

Remember that once you are trading, continuing your research will allow you to keep on top of your customers' needs and stay ahead of the competition.

Keep looking out for new areas of growth, whether this is improvement of your product or potential new markets.