In the “new normal” as the impact of coronavirus on small businesses decreases, a fresh competitor analysis can help you rebuild and move forward. Although this important task does take some time, it’s a valuable tool that every business owner should consider. If you do have a staff, think about assigning certain sections to a qualified employee.
Here’s information you need to know to create a competitor analysis tailored to your unique business.
What is a competitor analysis?
A competitor analysis, also called a competitive analysis, is a way to identify competitors and understand their strengths and weaknesses in comparison to yours. This exercise helps to determin how to limit competitors and fine-tune your marketing strategy.
Why is a competitor analysis important?
The purpose of a competitor analysis is to understand your competitors' strengths and weaknesses in comparison to your own and to find a gap in the market. A competitor analysis is important because:
- It reveals how you can out-do your competitors in these areas to keep your customer attention
- Helps you understand your competitors’ strengths and weaknesses in comparison to your own and to find a gap in the market.
- Shows how to enhance your own business strategy.
- It will suggest how you can out-do your competitors in these areas to keep your customer attention.
- Results can be a significant competitive edge over others in your sector.
How can a competitor analysis help your business?
You probably put together a competitor analysis for your business plan before launching to survey the products and services you’re up against. It’s time to revisit this analysis and look at your industry landscape. There are few businesses without competitors, and you need to nail down yours. Here are questions you should answer after investigating businesses both big and small:
- Who sells products or services the same or like yours?
- Have your competitors expanded with new products or services in the last 6 months?
- What are the strengths and weaknesses of the competition?
- What marketing and sales strategies are used by each competitor to achieve their objectives?
- How does their website look and function?
- What’s the overall market outlook in your industry?
Steps to perform a competitor analysis
Step 1 - Choose top competitors
Pick 3 to 5 competitors and be realistic in the competitors you pick. Pick those businesses – large and small – that you come up against on a regular basis and where you have similar offerings. If your target audience is mainly local or regional, then select those competitors. In this instance, don’t compare yourself to national – or international – businesses.
Step 2 - Describe competitors
Choose attributes you can quantify and measure for your competitor description. The attributes you choose to define your competitors should be meaningful for your market and should help to understand what you're up against as far as general resources. For example, if you are a metal fabrication company, you might choose to describe your competitors based on manufacturing space, the number of machines, or quality certifications.
Most competitive analyses will include company size in employees and annual revenue as well. If you are analyzing a public company, be sure to include their critical financial metrics like gross margin, net margin, cash on hand, etc.
If your competitors are private companies who do not disclose financial information, a good rule of thumb to estimate annual sales is to take the number of employees and multiply it by $150,000 and $200,000 to get a bracket for annual net sales. Many private companies will share their employee count on their website, or you can get a pretty good estimate of employees on LinkedIn.
Some tools you can use to gather information about the competitor's business include data.com or D&B Hoovers. Both services are paid subscriptions.
Step 3 - Describe competitive products or services
Describing the offering is an easy step to do since most companies go to great lengths in describing their offering on their public websites. You can usually download brochures and spec sheets galore from any website to get a full understanding of the competitive offering. Be sure to list those products or services you also offer and those that you do not provide. This step is a good place for a table if it helps to clarify who offers what.
Step 4 – Review online presence
This includes paid ads, search position, social media activity, website, newsletters, and ordering process. This is the most important step of the competitive analysis. A competitive analysis online presence has the most potential for gaining or losing an advantage. Look into software tools if they fit into your budget. These can reveal the type of platform, ad tools, plug-ins, or marketing automation platform.
Step 5 - List strengths
With a good idea of your competitor's business attributes – both offerings and online presence - you can put together a list of strengths. Examples include company size, location, value proposition, specific target market.
Step 6 - List weaknesses
Weaknesses should be reviewed in context of the market where you operate. Examples of weakness include having a small or non-existent sales team, low gross margin, low net profit margin, low cash flow, high employee turnover, location, building size, etc.
Step 7 - Identify opportunities
Opportunities will surface based on the list of weaknesses you have compiled in the previous step. Some opportunities require lots of resources and other opportunities will require only time. It's a good idea to meet with your team to prioritize the opportunities you choose to pursue.
Step 8 - Identify threats
There will be some competitors who strengths can be a threat to your small business, like a similar business earning a top position for a paid keyword. Threats do not necessarily need a response, but don’t ignore those you can address.
If you’re having trouble getting started, look at your business plan. You should have included a section on competitors. As the pandemic times caused some businesses to screech to a halt, you might need to update the data based on how other businesses are reacting.
If you haven’t done a business plan, visit the SmartBiz Small Business Blog for guidance:
You’ll learn the elements and value of a comprehensive business plan. No business school required!