The reason startups and small businesses do not invest in market research are their inabilities to calculate ROI. They think it’s expensive, and using the same resources for marketing or advertising will generate a measurable return on investment.
The above is a typical approach among family businesses and short-sighted small businesses. Somewhat similar to not visiting the doctor before health issues would arise.
Why invest in market research? Is research a good investment?
Investing in market research is not an obvious business function like investing in marketing or IT services. Market research is not a solution for immediate business needs but a strategic investment in information and business intelligence.
There is a reason large corporations spend between 15%-25% of their marketing budget on research only. This reason is understanding markets and customers. To acquire sufficient information to make educated business decisions to develop better services, better marketing, and a better business overall. Market research ROI is measured based on the overall business improvements resulting from targeted actions on market research results.
Now let’s dive a bit deeper.
What problem do you want to solve with the market research insights?
Most companies do market research to solve or business challenges or prevent future issues. To make a market research campaign effective, one needs to have a specific scope or a specific set of questions. Below are a few examples:
- Why is the company not growing with the market?
- How can competitors charge more or sell more?
- What needs and expectations do customers have that we don’t satisfy?
- In what areas do our competitors deliver more value or better experience?
- What products or services can we develop to gain a competitive advantage?
How much does the problem cost today, or how much will it cost in the future?
Shortcomings in business intelligence might not generate direct costs but opportunity costs and indirect costs. Let’s see a few examples.
- Suboptimal products and services require more advertising and marketing investments to sell
- Unsatisfied customers will choose competitors
- Uncool companies need to spend significantly more on customer retention
- Missing out on market opportunities accounts for opportunity costs
It is easy to see how businesses that seemingly do well can accumulate various costs because of not having adequate business intelligence, or not taking appropriate action on the available market research data.
Even for small to medium businesses, these hidden costs can add up to the range of tens of thousands of dollars monthly. In the case of startups and new companies, these mistakes might sabotage the future of the business.
How much additional revenue do you expect to generate by solving the problem?
On a positive note, let’s see how successful companies routinely use market research.
- To improve existing products and services, boost conversion rates and reduce customer acquisition costs and reduce cost per conversion
- To identify customer dissatisfaction factors of competitors and attract customers by offering something better
- Develop their positioning and customer experience so existing customers will stick with them longer
- Tapping into unidentified market opportunities to win competitive advantage
The additional revenue, better utilization of marketing resources, and the competitive advantage a company can achieve are invaluable. Each business needs to quantify these on a case-to-case basis.
How much do you spend on research?
Compared to the commercial and financial benefits of successful business development activities, market research costs are insignificant.
The typical annual market research investment for small to medium businesses is between $10,000 and $15,000. This investment is usually split into multiple research campaigns, roughly $2,000 and $4,000 each. Research spending varies by sector, company type, and company size. Consumer electronics sellers and dropshipping businesses are among the biggest spenders.
How good your research data and information are?
A significant factor of successful market research is data quality. Prioritizing data quality over quantity or cost is self-explanatory. Among market research insiders, we differentiate data and information. What is the difference, and why does it matter? Let’s take a look.
Good quality data means:
- Data is well-organized
- Data is quantifiable
- Data is suitable for statistical analysis
Good quality information means:
- Data reflect relevant information
- Data was recorded according to market research objectives
- Data is segmentable by characteristics that matter for your research
Let’s see an example. Imagine the situation where you order a market research with the objective to measure brand awareness and brand perceptions among 21-26-year-old American women for a clothing company.
The market research company delivers excellent quality, well-organized data. That is data quality. Then you figure out that 90% of respondents were 25-26 years old, covering only 20%-25% of your target segment. That is poor information quality.
What insights and action plans do you make from your data?
Let’s assume that your market research company returned good quality data and relevant information for your research requirements. Now it is your time to read out insights and convert those into action items.
From this point onward, the ROI of market research depends on your ability to find solutions based on the insights of the research deliverables.
Most market research companies will be happy to provide assistance, but taking action in any form will be your responsibility.
How well did you implement the insights?
The return of investment from your market research project will materialize once actions have been taken. Assuming that you researched the right problems, interpreted the insights right, and took appropriate business decisions, results should follow shortly.
As described in the previous sections, measuring market research ROI is not as straightforward as measuring marketing spend, or return on digital ad spend (ROAS).
The research will yield the best results if you seek answers for important questions, ensure high relevancy and data quality, and manage to take appropriate action on the insights.
Investing in various forms of research can be a game-changer for new businesses and SMB-s, and thankfully more and more entrepreneurs realize it. Market Sampler is for these entrepreneurs.