Market Research vs. Financial Modeling: Which is More Important for Your Business Plan?

 

Arguably, Market Research and financial modeling are two of the most vital components of your business plan but, which one is more important? That is not a question that is often asked but, it is one worth exploring. If you are new to business planning, you may not fully understand the potential and importance of market research or Financial Modeling. The first step is to understand these two tools and then compare their usefulness and overall contribution to your final business plan.

Market Research

Market research is the organized and intentional process of learning everything you can about your consumers. This spans from the macro level, looking at the entire market, to the micro level, answering specific questions about your well-defined target – also sometimes called niche – market(s).

Market research involves both qualitative and quantitative research. On the qualitative side, you may conduct focus groups or survey potential or existing customers. An example on the quantitative side is looking up statistics about the current value of the overall market. Both will generate invaluable insights that will help you make better decisions for your business.

Financial Modeling

Financial modeling is the process of creating representations of real-life numbers so you can see how they will be impacted under certain conditions and potential scenarios. They are interactive documents, usually created in a program like Excel, that allow you to put in multiple different inputs to see the result.

Financial modeling is sometimes confused with Financial Projections. However, financial modeling is an interactive process to see multiple variables in several scenarios. Financial projections on the other hand are static documents. Financial modeling will usually be used to determine your financial projections but, financial projections are the end result.

Market Research vs. Financial Modeling

So, which is more important to your business plan? A case can be made for either.

In terms of market research, it will be extremely difficult to generate any revenue if you don’t understand your client or how to reach them or have a handle on your competition. Market Research also informs financial modeling as it gives you a realistic range of your revenue potential.

On the other hand, you cannot run or plan a business well if you can’t understand – or visualize – how different decisions are going to financially impact a business. If your business can’t make a profit your business will not survive let along thrive and grow.

In the end, it’s really not a competition between the two. These elements act in tandem to create a solid, bullet-proof business plan. Without either of these valuable tools, or only having one, your business plan will just not be complete or well done. You need to utilize both market research and Financial Modeling to truly see the risks and potential of your business and plan accordingly.

If you are unsure of how to approach market research or how to effectively utilize financial modeling to plan your business, consider hiring a professional Business Plan firm like Joorney. This initial investment will be well worth it to have a successful and thriving business in the long run.