Business owners know this all too well—risks are part of the business. And while learning from mistakes can be healthy in real life, in business, it’s better to avoid slip-ups, especially costly ones.
Calculating risks becomes easier with the use of market research. This valuable tool provides business owners with a clear picture of the following:
- Which new ideas on products and services will create more profit
- Which existing products and services meet the needs and expectations of clients
- What the prevailing trends in your business niche are
- What customers need and want at this point and in the near future
Since market research is crucial to business success, it’s imperative to learn how to do it right. But that’s not enough, of course. A business owner should also track and measure progress to see how well their market research activities are working.
ROI: Focal Point of Market Research Success
The ROI or return on investment is the first thing that business owners evaluate before making any business decision. Their mindset: Invest only in those that would bring profit to the business. This includes market research.
The only problem is, market research doesn’t directly generate revenue, and this makes it a little more challenging to measure its success based on ROI. Still, business experts agree it’s the way to go. And why is that? ROI allows market researchers and business owners to:
- determine the size and scope of market research activities
- formulate a justifiable budget plan
- measure results and improve performance as necessary
In other words, ROI helps business owners see if their resources are put to good use with the type of market research they’re currently engaged in. If not, why waste time and money? ROI is the ‘evidence’ that market research supports the business objectives.
Ways to Measure Market Research Progress
How can business owners gauge if their market research activities are actually helping their company? Here are two aspects to consider.
- Risk management
Risk management, as it relates to market research, is about minimising losses and maximising profits. This is measured through Expected Value (EV). A particular outcome's EV can be computed by multiplying the financial return of that outcome by its probability. (Financial return could be any cost-related reward, such as a boost in profits, money savings, and being able to avoid losing funds.)
- How does market research figure in this? Findings from such activities allow business owners to make more accurate forecasts, resulting in a higher EV.
- Opportunity identification and realisation. Market research identifies new business opportunities. And, in response, companies create new products or take on new projects or markets. By tapping demand, most are able to bring in additional sales and generate greater profits.
- What proportion of the return is due the researcher? A helpful benchmark is the royalty deal between patent holders and the company that purchases the patent for commercial development. Under a royalty deal, the patent holder receives a certain percentage of all profit resulting from the patent.
- Market research helps business owners keep risks at bay and make smart investments that meet demand and bring in profits. While the research activities themselves do not generate revenue, they contribute to the company in more ways the one. You can gauge those contributions and their progress by looking at market research's value in risk management and opportunity identification and realisation.
With the right approach, using market research will be worth your time and money.
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