How to do market research: A guide for small businesses

Published Friday 31 October 2025

Table of contents

• What is market research
• Why market research matters for your small business
• Types of market research methods
• How to get started with market research
• Step-by-step guide to conducting your own research
• Essential questions to ask your target market
• Competitive analysis basics
• Market research tools and resources
• Turning research into action
• Keep research focused and actionable
• Take control of your market research
• FAQs on market research

Key takeaways

• Start with secondary research using free government data, industry associations, and competitor analysis to understand your market landscape before conducting primary research with actual customers.

• Conduct primary research through one-on-one interviews, surveys, or focus groups with real prospects (not family or friends) to gather direct feedback about your product, pricing, and positioning.

• Focus your research questions on two critical areas: product development (what problems you solve, pricing expectations, feature importance) and marketing optimization (messaging, competitor preferences, where customers look for solutions).

• Launch with essential insights about your target customers and pricing, then refine your approach based on feedback from paying customers rather than trying to research every detail upfront.

What is market research?

Market research means gathering information about your target customers and market. It helps you understand who your customers are, what they need, and how your business can meet those needs.

For small businesses, this isn't about big budgets or complex reports. It's about making smarter decisions to help you grow. Learn more about market research for small businesses.

Why market research matters for your small business

You want customers to choose your business over competitors, again and again. Market research helps you understand exactly what your customers need.

Market research helps you ensure:

• Product-market fit: your product or service meets your target customers' needs
• Effective messaging:your marketing connects with target customers in the right way

Research reveals who you're selling to, what they value, how they make buying decisions, and what they think of your competitors.

Types of market research methods

You can use two main types of research methods. Using both gives you a clearer picture of your market.

• Primary research: This is new research you conduct yourself. Think surveys, interviews, or focus groups with your target audience. It gives you direct, specific feedback about your business.
• Secondary research: This involves using existing data from sources like government reports, industry articles, or competitor websites. It helps you understand broader market trends and identify your competition.

How to get started with market research

Secondary research gives you market context before you talk to customers. Start with existing data to understand your industry landscape and identify knowledge gaps.

Begin with these research sources:

• Government data: national and local organizations provide market size and demographic information; for example, the Bureau of Labor Statistics (BLS) provides reports on over 100 industries.
• Industry associations: trade groups share trends and benchmarks specific to your sector, and publicly available resources can provide listings for over 100 industries to help you find them.
• Consumer groups: reveal customer preferences and buying behaviors
• Research companies: offer regional insights and competitive analysis, with some data tools providing market indicators and forecasts for over 60 countries.

Define your target customers early. Consider age, gender, profession, and income level. Focus your research on these groups, but do not rely only on online data – other people's research has limits.

Step-by-step guide to conducting your own research

Primary research means collecting data directly from your target customers. Always provide value in exchange for their time – for example, incentives, useful information, or early access to your product.

Choose from these research methods:

• One-on-one interviews: gather detailed insights and ask follow-up questions. Avoid family and friends – you need honest feedback from real prospects
• Focus groups: collect multiple perspectives in 1-2 hours and observe group dynamics
• Online surveys: reach many people quickly with standardized questions for statistical reliability
• Customer communities: build ongoing relationships through Facebook groups or email lists for continuous feedback
• Beta testing: let customers try your product in exchange for detailed feedback and improvement suggestions

Essential questions to ask your target market

Focus your questions on two areas: product development and marketing optimization.

Product development questions

• What problems does this solve for you?
• What would you pay for this product or service?
• What features are most/least important?
• How does this compare to what you use now?

Marketing and positioning questions

• Which name or packaging option appeals most to you?
• What do you like and dislike about competitors?
• Which tagline or message resonates with you?
• Where do you typically look for products like this?

Competitive analysis basics

Understanding your competition is an important part of market research. It helps you find gaps in the market and see what makes your business unique. Stay observant and look for ways to stand out.

Look at what your competitors offer, how they price their products or services, and how they talk to their customers by using research databases that can retrieve detailed company information on over 43 million companies. This can give you valuable insights into what works in your industry and where you can stand out.

Market research tools and resources

You do not need expensive tools to get started. Many resources are free and easy to access. Use a mix of these to get a clear view of your market.

• Online survey tools: Use free or low-cost platforms to create and send surveys to your audience.
• Social media: Pay attention to conversations and trends related to your industry. You can also ask questions directly to your followers.
• Government data: Websites like the U.S. Small Business Administration (SBA) offer free data on industries and customer demographics.

Turning research into action

Gathering information is only the first step. Use your research to make better business decisions. It can help you refine your product, adjust your pricing, or improve your marketing messages.

Look for patterns in the feedback you receive. Use these insights to create a plan with clear, actionable steps that will help you better serve your customers and grow your business.

Keep research focused and actionable

Focusing on essential information helps you launch successfully. Prioritize the details that directly impact your launch decisions.

Need to know (research first):

• Who will buy your product and why
• What price point works for your market
• How customers currently solve this problem

Nice to know (research later):

• Detailed competitor analysis
• Secondary market opportunities
• Advanced feature preferences

Launch with essential insights. Then, use feedback from paying customers to improve. Real customers give you better data than research subjects.

Take control of your market research

Effective market research doesn't require big budgets or complex tools. Follow this proven approach to get the insights you need.

Your research action plan:

1. Start with free online research to understand your market
2. Define your target customer clearly
3. Talk directly to potential customers using interviews, surveys, or focus groups
4. Focus on essential questions first, details later
5. Launch with core insights, then refine based on real customer feedback

Track your research expenses and measure results against business outcomes. Xero accounting software helps you monitor research costs and calculate the return on investment (ROI) of your market insights, so you can make informed decisions about future research.

Ready to put your research into action? Get one month free and start tracking the financial impact of your market research.

FAQs on market research

Review these common questions and answers most small business owners might have about conducting market research.

Can I use AI for market research?

Yes, artificial intelligence (AI) tools can help you analyze data, spot trends, and draft survey questions. Use AI to support your research, but always talk directly to customers for the best insights.

How much should a small business spend on market research?

There is no set amount. Many research methods are free, such as using social media or analyzing government data. Start with low-cost options and focus on your most important questions. As your business grows, consider if you need to invest more.

How do I know if my research is accurate?

For a small business, accuracy comes from talking to the right people – your actual or potential customers. Cross-check what you learn from different sources. If your survey results, interviews, and secondary research all point in the same direction, you can be confident in your findings.