Once you have thoroughly described your product or service, it is time to evaluate who your customer is. This is called the Market Analysis part of your business plan, not to be confused with the marketing plan. Whatever you are selling, there are groups of people that are much more likely to buy your product than others. You will want to spend your time selling to them, and spend your marketing dollars wisely.

So, how do you chop up the market to figure out which people or businesses are your target customers? This is called market segmentation. In your plan, you'll want to create groups (segments) of buyers for your product. You just need to group by something logical for what you are selling. For example, you might group by age or income levels, etc. Once you've segmented all the potential buyers you need to pick your "target" market.

There have been a lot of books written on the topic of market segmentation. I could tell you about all the ways to group people, but that would take too long, and you probably wouldn't remember it anyway. At its core, though, market segmentation is just good old fashion common sense. Ask yourself what your typical customer will look like. How old? Gender? Married? Kids? Where does he live? Income? What does he do on the weekends? What are his other marking characteristics?

Once you have answered all these questions, you have your target market. Good Job! Now you need to spend some time talking about this target market in your business plan. Describe the market and why you think it's your target.

I am going on the assumption you don't have the cash to hire a market research company to fully evaluate your target market. More data is better if it is quality, but you can find a wealth of information from competitors that do have a bunch of cash. For our coffee shop example, lets use Starbucks. You can search for Starbucks' target market and read their annual reports to gather information about their market segments. They have already figured out who spends the most on coffee away from home- no need to re-invent the wheel.