4 Types of Market Research and How it Ties into Financial Modeling

 

Market research is the process of gather information about your potential and target customers. Meanwhile, financial modeling is the process(es)/tool(s) you will use to determine your financial projections. Unlike projections, Financial Modeling is not static and is meant to be interactive to reveal financial impacts of various different scenarios. Market research often informs financial modeling.

There are four types of market research and each kind may tie into financial modeling in different ways.

1. Primary

Information you directly collect yourself is considered primary Market Research. It includes methods like surveys, polls, interviews, and even conducting focus groups. It is particularly useful because you are getting direct information from your target customer group.

This particular type of market research may not tie directly into your financial modeling as it may not relate to numbers. However, it may inform things like the price you set for your product or how frequently customers are likely to purchase your product/service.

2. Secondary

In contrast to primary research, secondary market research is that which is obtained indirectly. It is data collected from information that already exists. This includes data and insights that are typically presented as articles, white papers, and infographics.

While primary market research tends to focus on customer preferences, this type of market research is typically used to gather information about the overall market. Because of this, it is likely that you will conduct secondary market research prior to primary.

Secondary market research tends to be more number centric and therefor ties into financial modeling quite well. It reveals the total potential for selling your product or service. It may factor into making decisions about how to price your product, as well as how much business you can reasonably expect. Both will factor in highly to your Financial Modeling.

3. Qualitative

Simply, qualitative information deals with data that cannot be measured or meaningfully expressed in numbers. Primary or secondary market research can be qualitative or quantitative. This is not a distinct type of data but, rather another way to classify the data you are collecting.

When it comes to qualitative market research it may or may not play a role in your financial modeling. It’s important to note that even if a type of market research doesn’t contribute to financials, it will inform other vital aspects of your business plan. It will help you refine your products or services and start to truly understand what your target market wants. This will still contribute significantly to supporting and validating your overall business plan, even if it doesn’t directly relate to financial modeling.

4. Quantitative

As oppose to qualitative market research, quantitative market research is anything that can be measured and expressed in numbers. Again, this may be from primary or secondary market research sources.

Quantitative Market Research always deals with measurable data. Not surprisingly, that means it has a strong tie to financial modeling. It will inform many of the numbers that will go into your financial models. This includes things that have already been mentioned like setting your price and estimating the total potential sales. It can also include things like costs specific to your market or industry.