How to Write the Competitive Analysis Section of a Business Plan

What this section must prove

It must show you understand the market, know the alternatives customers have and can win a defined share.

Readers of your plan, whether a banker, a funder or a partner, want three answers. Who is competing for the same customer? What do those competitors do well and badly? Why will your business win the customers you are targeting?

Avoid the weakest sentence in business plans: 'We have no competition.' Every business competes with something, even if it is the customer doing the job themselves or doing nothing. Naming alternatives shows you understand your customer. For a broader plan outline, see how to write a business plan.

Identify three kinds of competitors

List direct competitors, indirect competitors and substitutes. Customers choose among all three.

• Direct competitors sell the same thing to the same customers. Another HVAC company in your county is one.
• Indirect competitors solve the same problem differently. A smart thermostat company competes with a service technician for some customers.
• Substitutes and inaction include DIY, a cheaper product or putting up with the problem.

To find them, search the way a customer would, check maps and review sites, ask your own customers where else they looked and note who advertises in your area. Choose three to six competitors that matter most. A list of twenty reads as unfocused.

Gather facts, not impressions

Collect pricing, services, location, reviews, marketing and strengths and weaknesses for each competitor from public sources.

Use what is publicly visible: websites, price lists, menus, social profiles, review sites, job postings, which hint at growth, and local news. Call or visit as a customer if that is appropriate. Record what you find in a spreadsheet so comparisons are consistent.

Useful fields for each competitor include target customer, main offer, price range, location and hours, reputation themes from reviews, how they get customers and obvious gaps. Focus on patterns in reviews: if three competitors get repeated complaints about slow response, speed is an opening. The market research guide and market research tools list sources.

Put it in a comparison table

A table lets readers see at a glance where you are stronger, weaker or equal. Keep it to the factors customers actually weigh.

This example is invented to show structure. In your plan, use real competitors and verified facts. Be fair: show where competitors beat you. A plan that claims to win on every factor is not believed.

Write your positioning in plain words

State who you serve, what you do differently and why it matters to the customer. One short paragraph is enough.

Positioning is the answer to 'why you?' It should connect to a gap you found. Using the table above, the detailer might write: 'We serve busy professionals who want quality work without a three-week wait. Competitor A is cheap but rushed. Competitor B is excellent but slow and expensive. We offer mid-priced work at the customer's location, booked within a week.'

Avoid vague claims like best quality and great service. Use specifics a customer can check. If your edge is price, show how your costs allow it. If it is speed, explain the process that makes it possible. See also the four Ps of marketing for a framework.

Anticipate how competitors will respond

Say what you expect competitors to do when you enter or grow, and how you would handle a price cut or a copycat offer.

Good analysis looks forward. If you take customers, an incumbent might lower prices, add your service or increase advertising. Explain your plan: a loyalty program that makes switching less attractive, cost advantages that let you hold a price or a niche that is too small for a bigger player to chase.

Also acknowledge risks, such as a large chain entering, and show your response. Honest risk sections make the rest of the plan more credible to anyone assessing it.

Connect the analysis to your financials

Your price, volume and market share assumptions should come from this analysis. Funders read the two sections together.

If you claim to capture 5 percent of a local market, show how that translates into jobs per month and revenue, and why competitors' capacity allows it. If you price 10 percent above the average, explain what justifies it. Projections that ignore competition are the first thing a reviewer questions.

For businesses already operating, actual bank statements and revenue history carry more weight than any projection. ROI Funder reviews files from businesses with 500+ FICO, 6+ months in business and $20,000+ in monthly revenue, mainly on the application and three months of statements. A plan still helps you decide how much to raise and for what. Read how to write a business plan for a business loan for related guidance.