Practical Example of a Barbershop's Market Research & Business Planning

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A Practical Case Study: Barbershop Market Research and Business Planning

In this part, we offer a practical example of a barbershop's market research and business planning process. We'll analyze their strategies, discuss the challenges they faced, and draw lessons that you can apply to your own business planning process.

Practical Example of a Barbershop's Market Research & Business Planning – Transcript

 If you have a business idea in mind that you're considering turning into a reality, you don't need to walk into the unknown blindly. Conducting some research and doing some initial planning before getting started will greatly increase your chance of success. But if you look online, there's a lot of tips on how to conduct small business research. 

But after spending years and helping thousands of different businesses, we've come up with a definitive plan for how to conduct research for your next business idea, and we've put together the definitive order to move through your planning and research phase. In this video, we'll be using a barbershop as an example business for you to consider as you plan your own entrepreneurial undertaking. 

Hey everybody, Will Scheren here from Small Business Startup Guide by TRUiC. This video is part of a larger course dedicated to helping small business owners cut through the noise and get to the essentials of starting and operating their business. That sounds like it would be really useful to you, be sure to like and subscribe. 

In the last video, we gave you the ten steps that you should take in order to plan and research your small business idea. In this video, we're going to be applying these steps to the imaginary barbershop that we'll be building throughout the course in an effort to help you consider your small business. 

The first item that we need to consider is how much time and money that we're planning to allocate to researching and planning this business idea. We've consolidated the process of planning and researching a small business into ten steps, and we've provided a link for a downloadable document below this video that lists out all of the steps and ask them deeper questions that you could ask yourself when planning and researching your own business idea. 

For this video, we'll just allocate an 8-hour workday and won't be applying any funds to research it. But we'll be sure to interject with some opportunities that we could have considered had we decided to allocate a budget. 

Next, we need to calculate the barbershop's capacity. In an earlier video in the course, we noted that the barbershop wanted to make $250,000 a year in annual profit In less than five years. He was going to do this by cutting hair himself, adding more barbers to the shop and selling men's hair care products. 

Concerning the barber's ability to cut hair, he plans to offer three levels of haircuts a standard haircut, a haircut and beard trim, and a premium hot towel haircut and shave. The barber can provide three standard haircuts in an hour. He can do two and a half haircut and beard trims in an hour, and he can do two premium haircuts in an hour. Given that he's available to only cut 8 hours per day, he has the capacity to do 24 standard haircuts in a day, or 20 haircut and beard trims, or 16 premium cuts. However, he can't do all of these cuts in the same day. Based on his past experience, he estimates that he'll do 16 standard haircuts each day, he'll do five haircut and beard trims, and one premium service cut. 

Prior to doing competitive analysis, he estimates that he could charge $30 for a standard cut, $40 for a haircut and beard trim, and $50 for a premium haircut experience. This means that he could generate $730 maximum in revenue each day cutting hair himself. If the shop plans to be open five days a week and 52 weeks a year, the barber should multiply his daily revenue capacity by five and then 52 to see his annual capacity revenue of $189,800. 

In this model, there would be a total number of customer visits of 5,720. And for every affiliate barber that he adds to his shop, each barber would have the same capacity. 

Concerning men's hair products, The barber will sell a shampoo, a conditioner, a styling product and a beard oil. He’ll sell these products both in his shop and online. After talking to his supplier, he's found that he has access to 1,500 of each of these products per year. The barber plans to sell the styling products, shampoo, and conditioner for $20 each, and he'll sell the beard oil for $15 each. This means that he has a total revenue capacity of $112,500 for his men's care products. 

Below this video, you'll find a link to download a competitive analysis price value matrix spread. To use this spreadsheet, start by duplicating the tabs for each of the product categories your business will offer for which you would like to conduct competitive research. For the barbershop, we'll do price-value research on standard haircuts, haircut and beard trims, and premium haircut experiences. We'll also take a look at each of our four grooming product categories. 

After duplicating the sheets, I'll do a Google search on the market that the barbershop is located in to find all of the barbershops that service men's haircuts in that area, and I'll find the price for each of their services. Then I'll develop a method for making assumptions about the quality of their products and place them on a scale from 1 to 10. 

At the most elementary level, I can simply place how I feel about each competitor's product value, and for a more scientific understanding of each competitor's value in the marketplace, I can conduct surveys using any contacts that I have within the community, or I can solicit survey responses using paid advertising on social media platforms targeted towards that community. 

After placing pricing and value information, I need to develop a method of estimating each business's size within the market. It would be impossible to collect and organize revenue data from each of the barbershops. So for the haircut-related products, I'll estimate each shop’s size by simply counting the number of barbers that each barbershop employs. This information is readily available on each shop's website and provides some insight into how many haircuts each shop does each year. While this is not an entirely accurate way to size the competition, it provides a better visual representation than the one that I'm currently presented with. 

After placing and sizing each of the barbershop’s potential competitors on a price value matrix, we can see that we're currently placing our product directly next to the most expensive and high-value competition in the market. This could be a winning strategy for our brand if the market is not currently saturated, but we would need there to be space for us to gain a foothold here. 

However, as we get an understanding of our profitability in relation to our profit goals, we may want to consider finding an opportunity to create a more valuable haircut experience or offer haircuts at a lower price to distance ourselves from competitors. This would make it easier for us to grow our customer base. 

Concerning our hair care product line, a quick Google search on men's hair care products would tell me that this is a highly competitive and saturated market. Even attempting to find a complete list of potential competitors would be exhausting. Given this information, it's unlikely that the barber would be able to gain a competitive advantage by either being able to offer a higher value product at any given price point or offer a lower price point on similarly valued products while remaining profitable. So in highly competitive marketplaces, you should do enough research to find how to properly price your product in the market based on its value. 

However, it will be extremely difficult to step away from the crowd in this type of market. A small business is ability to survive in an oversaturated market, especially when there's big-box competition, will be completely dependent upon their ability to grow an audience within this marketplace and sell products to that audience with efficient marketing and salesmanship. We'll be talking about how to do this effectively when we take a deeper dive into small business marketing later in the course. 

Now let's Google and research general market information for the barbershop. After assessing competitive products, the barber should do some general research to see what data is available to him in terms of general market conditions. He should spend time googling or purchasing as much barbershop-related market information as he can while staying within his allotted time and budget and take notes on what he learned. 

While this information won't necessarily affect how you should operate your business as a new entrant within an industry, it will help you benchmark yourself against your competition. And it can make you aware of challenges that could threaten your business if they were otherwise unseen. 

As I quickly researched the barbershop industry, I found that in the United States, the total barbershop market ranged between $4.5 and $5 billion in revenue, and found that there are roughly 110,000 barbershops in existence in the United States. So if I divide $5 billion by 110,000, this would show me that the average revenue for a barbershop would leave this barber falling significantly short of his revenue goals. So he'll need to place his business in the upper quadrant of barbershops in the United States. 

Industry research also noted that, on the whole, demand for higher-end haircuts is on the rise. This would be a positive indicator for where our barber has decided he's going to place his products within the market. 

These pieces of information are only a sample of data that's easily searchable for this industry. Anyone wanting to do research for an industry they're considering entering should become a student of that industry and dedicate as much time as they're able to in doing so. 

After researching general market statistics, a small business should research the geographical population of the area that their products can service. This, again, is a simple Google search away. 

For the imaginary barbershop that we're building out In this course, it'd be safe to assume that the majority of the barbershop's customers would not be willing to drive more than 20 minutes to get a haircut, so they would need to research the population of their city, which is roughly 80,000. The barbershop also plans to sell men's hair care products online and will ship them anywhere in the United States. A quick Google search would tell the business owner that there are over 300 million people living in the USA. 

After gaining an understanding of the geographical population they'll service, a small business should begin to eliminate portions of the population that they believe would not statistically be interested in their products. 

Since the barbershop will be exclusively providing haircuts that would typically be considered masculine looking, they could use available census research on the Census Quick Facts website, which we've also linked to below this video, to eliminate 50.3% of the population as people who would be likely to purchase their products. 

As we scroll down just this single data table, we can see that 33% of the population is considered living in poverty. Since the barber will be offering a high-ticket haircut, they'd want to eliminate an additional 33% of the remaining population of potential customers. 

The barber would want to continue to dedicate as much time as they could to find sources of information about their industry and their market to continue to eliminate potential customers from their geographic population, leaving them with a more targeted population of people that they believe would be interested in their product or service. This will be important information for a business owner to consider as they make estimations on whether or not their market and geographical limitations would prevent them from reaching their goals. 

After using secondary data to limit their population size, a business owner should do something to survey a random portion of the remaining population to get a better understanding about their target audience and hear more about their problems. And find their target audience’s level of interest in having the company solve those problems for them. 

This can come in the form of interviews or surveys and could take place in person, over the phone, or on paid organic social media channels. The key to conducting strong primary research is to ensure that you're only sampling a portion of the population that isn't already invested in your success and would ask questions in a way that would lead the person that you're interviewing or surveying that would provide information that fills in a gap of your understanding of your target customer. 

If you're unsure of how to solicit people to take part in your primary research, your best options to explore would be paying a social media app like Facebook to push your survey questions to your target audiences. 

On average, it costs about $10 to ask about a thousand people on social media to take a survey, and you'll have the ability to target your ideal survey audience. Do your best to keep surveys short and ensure that you word the questions in a way that effectively communicates the question that you'd like answered for your business. Be sure to begin the survey with some qualifying questions to ensure that the person taking the survey meets the description of your target customer, and then ask more detailed product questions towards the end of the survey. If you need help strategically putting a survey together, you can use Surveymonkey.com. 

After conducting initial surveys, you may want to interview some of the survey respondents. Interviews are another way to conduct primary research with your target customer. They could take longer to execute and could be more expensive as well, so be sure to have qualified anyone that you're interviewing. Stronger information can be gathered through an interview, as they allow the interviewer to make notes about vocal inflections or even body language of the interviews face to face. This all helps the interviewer to better gauge the person's excitement or disinterest. 

After speaking to a few of your ideal customers, you need to begin to consider how effective you'll be in growing an audience of these potential customers and how well you'll be able to convert a portion of that audience into actual customers. 

We'll be covering marketing your small business in greater detail later in the course, but at the planning stage of your business, after gaining a better understanding of your ability to sell products, the size of your ideal customer base, and having interacted with that potential customer base through surveys and interviews to gain a better understanding of their potential excitement, you'll want to assess your ability and skills to interact with this audience and market your brand and products to them. 

What percentage of that potential customer base will you be able to reach? How will you reach them, and how many of them would you be able to convert to customers while maintaining a cost of acquisition per customer cost that would allow you to remain profitable? 

After having assessed the business’s, products, market size and demographics, and your ability to move and cause change within the market, anyone conducting research for the business should assess the opportunities and threats that could be caused by external economic factors. 

Using our barbershop as an example, the salon and barbershop industry was one of the hardest industries hit by the stay-at-home order caused by the 2020 global pandemic. Businesses that move from a cash-rich to a cash-poor position in the months before they were forced to close their doors likely found themselves in challenging times. And while the barbershop and salon industry is relatively unaffected in down markets, even in times of economic crisis, when customers become more selective with their money, luxury products are normally the first to feel the effects. And the imaginary barbershop that we're building in this course sells a premium luxury experience, and they're positioned in the top tier of their market. 

Doing your best to be aware of the external factors that could affect your business both positively and negatively, and organizing these opportunities and threats by their likelihood of happening, and assessing the percentage change that they could have on your business could guide some of your decision-making process as you plan your business's path to success. 

And finally, after having taken time to assess your business's capacity, having conducted competitive research, having conducted market size research, and considering what percentage of your potential market is consistent with your ideal customer, having considered your ability to effectively market and sell to that audience and having considered outside economic factors that could affect your business, you should sit down to begin to plan out the financial forecast for your business, to get a full understanding of your business idea and strategies, viability and set key performance indicators to track while you're trying to meet your business goals, which is exactly what we'll be talking about in the next video. 

This video is part of a step-by-step course that gives business owners all of the essential information to start and operate their business. We've provided a link for you to get access to all of the free and discounted business tools we mentioned in this course below this video. 

Be sure to like and subscribe to get more of this content. We'll see you in the next video, and if you have any questions, let us know.