Almost half of the businesses that open close before their fifth birthday. The difference between those that last and those that don't is almost never in the product: it's in having chosen the right area and the right customer before signing the lease. That's a market study, and the method is the same whether you open in Madrid, Paris, Lisbon, Milan or Berlin: the data sources change, not the way of thinking.
What a market study is (and what it isn't)
A market study is the documented answer to four questions: who you're going to sell to, what the area where you want to open is like, how much competition there is and whether demand is enough to sustain your business. It exists so you can make the most expensive decision of the project (the location) with data in hand, not on a hunch that "I like this unit".
It isn't a formality to apply for the loan, it isn't a slide deck to show the family and it isn't a hundred-page document full of filler charts. It's a decision-making tool: if the numbers don't add up, it's better to find out in a document than with the unit already leased.
The 5 steps, in order
These are the steps that genuinely change the decision. Skipping one isn't a shortcut: it's taking a risk blind.
- Define your ideal customer. Age, income level, habits and why they would buy from you. If your customer is "everyone", they're no one.
- Study the area with official data. Population, income, education level, average age, density. All of it from the official statistics institutes, never from hearsay.
- Map the competition. How many businesses like yours there are within a 5-10 minute walk, how they're positioned and what gap they leave for you.
- Estimate real demand. How many people who match your profile live in or pass through your catchment area and how many could become customers once a month.
- Compare areas and decide. Never choose a unit by looking only at that unit. Put two or three options in a table with the same criteria and the decision becomes obvious.
The area: official data, not intuition
"This neighbourhood has a good vibe" is not a data point. What you need to assess an area seriously are four figures: how many people live there, what their average income is, what age and what level of education. In many European cities this is published for free: it's produced by the country's statistics institute, sometimes alongside regional and municipal portals.
Cross those four figures with the customer profile you defined in step 1. If your speciality coffee shop is aimed at people aged 30-45 with a mid-to-high income and the area has low income and an ageing population, no product can fix that. The reality of the area weighs more than your plan.
The competition: direct, indirect and the one that hasn't opened yet
List the businesses that do exactly the same as you (direct competition) and then the ones that solve the same need in a different way (indirect competition: a supermarket with a coffee section is indirect competition for a coffee shop). Look at reviews, prices and opening hours. You'll find the methodological detail in the guide on how to analyse the competition.
Two warning signs: if your area has more than one identical business for every 1,000 inhabitants of the target profile, the area is saturated. If there are none, before you celebrate, ask yourself why nobody has tried to open one yet.
An illustrative example: a coffee shop in a European city
Let's take an illustrative case: you want to set up a speciality coffee shop for a young audience with mid-to-high spending power. The numbers that follow are made up purely to show the method; you always get the real ones from the statistics institute and the city council of your own city. You compare three types of area:
- Established central area: high density, income clearly above the city average and a good share of the population with higher education. It fits your customer perfectly, but the commercial rent is going to hurt.
- Neighbourhood in transition: income somewhat above average, a young profile and real neighbourhood life. There's competition, but also genuine demand for speciality coffee, and the rents are still more manageable.
- Residential outskirts: income around the city average and less direct competition, but also fewer people matching your profile passing by the door.
To see it in figures, imagine you download the data and put together something like this (round numbers, purely for teaching): the central area is around 45,000 inhabitants with income 40% above average; the neighbourhood in transition, about 30,000 inhabitants and income 18% above; the outskirts, about 25,000 inhabitants and income close to average. We insist: pull these three numbers from the official tables for your city, don't copy them from here.
With that table in front of you, the conversation stops being "where would I like to open?" and becomes "which combination of cost, potential customers and competition leaves me a sustainable business?". That's a market study.
5 mistakes that invalidate the study
- Working from memory. If you can't cite the source of each figure, it's not a data point: it's an opinion. Opinions don't pay rent.
- Studying a single area. Without comparing there's no decision, only justification of something you already wanted to do. Three options minimum.
- Forgetting indirect competition. The old-fashioned bar is still competition for your coffee shop, even if it looks nothing like it. Your customer only has one breakfast a day.
- Using old data. In areas undergoing gentrification, income may have changed by 30% in five years. Always push for the latest published figure.
- Confusing footfall with customers. Lots of people walking past the door is not the same as lots of people coming in to buy. A street of offices is not the same as a residential street.
How much does it cost and how long does it take?
Three real options, with their timescales and their prices:
- Doing it yourself with public data. 20-40 hours of work between downloading tables from your country's statistics institute, cross-referencing coordinates, mapping competitors on Google Maps and building the comparison. Cost: €0. Risk: getting lost in the data or ending up comparing each area with different criteria.
- Commissioning a consultancy. Report delivered in 4-8 weeks. Cost: between €3,000 and €15,000 depending on the city and depth. Useful if you need a bankable document; slow if what you want is to decide this week.
- POINOVA. You draw the area and it gives you back population, income, age, competition and a score in minutes. €59 a month, or €49 a month billed yearly, comparison across several areas included. Built for people who have to decide, not for people who have to hand in an 80-page PDF.
Try the analysis on a real area
Draw the neighbourhood you're interested in and see whether the numbers fit your business before signing anything.
Try for free