|What can be learned from
Household Spending Data?
The Statistics Canada Survey of Household
Spending is the only comprehensive Canadian consumer survey that is
accessible to new entrepreneurs and small businesses.
There are certainly a number of other more
detailed and brand specific databases but all of them are priced for the
corporate market. Some charge more than double the entire advertising
budget of a small business.
How much should you spend on research?
While market data is valuable for assessing
market conditions and planning business expansion, it is not prudent or
effective to spend your entire advertising budget on research!
The rule of thumb for marketing research
budgets in Canada is 3%-4% of your entire advertising budget. On average
Canadian Small Businesses spend $5000 on advertising annually and so their
research budgets should be in the $150 - $200 range. What can you get for
$200? Not much!
It is therefore important for small
businesses to spend their limited budgets wisely. Fortunately the
Statistics Canada Survey of Household Spending provides an economical way
to access consumer spending pattern data. Combined with other easily
available market data an entrepreneur can compile a detailed assessment of
their local market size and potential.
How many households make a purchase?
First and foremost the survey provides you
with the percentage of households that reported purchasing your product or
service. As an example we will assess the market potential for the
photographic film and film processing business in Sidney B.C. Both
nationally and in B.C., the percentage of households reporting such a
purchase has remained relatively stable over the last three years. However
in the metropolitan area of Victoria there has been a significant decline
in the % of households reporting a purchase.
PERCENTAGE OF HOUSEHOLDS REPORTING
Using the Victoria Census Metropolitan Area
figures (the most appropriate for Sidney B.C.), we can therefore expect
that approximately 71.7% of households in Sidney will make a photographic
film and film processing purchase in a year. According to the publication
"Canadian Markets" (by the Financial Post), Sidney has 5583 households in
2002. That means that the potential market size in households can be
estimated at 4003. The publication "Canadian Markets" is available in many
major libraries and business resource centres.
For household estimates covering
sub-municipal areas use the latest 2001 Census results:
This FREE online database allows you to search be street name or street
intersection and retrieve dwelling counts by geographical areas as small
as a Census Dissemination Area (Small area composed of one or more
neighbouring blocks, with a population of 400 to 700 persons. ). With this
local geographic unit you can determine the number of households in a
NB: Make sure you use the help feature to make sure you are getting
everything available out of the database.
How much does each household spend?
In addition to the percentage of households
that make a purchase the Survey of Households Spending also tells us how
much on average households spend in a year on photographic film and film
AVERAGE ANNUAL EXPENDITURE OF ALL HOUSEHOLDS
This figure represents the average of all
households whether they made a purchase or not so be aware it can
oftentimes appear a little low. In other words on average every household
in Sidney spends $83 a year on film and film processing.
You will note that in addition to the drop in
the % of households reporting, there has also been a substantial drop
(-19.4% or $20) in the average annual expenditure per household over the
last three years. Between 1997 and 2000 the photographic film and film
processing market in Victoria has weakened dramatically. If we want to
determine the overall the market size for a local area, simple take this
average of all households ($83) and multiply it by the total number of
households in the market (5,583). The film and photo finishing market in
Sidney is therefore estimated at $463,389 ($83 x 5,583) .
How much do purchasing households spend?
Beyond the average expenditure of all
households the Survey allows us to further examine the average expenditure
of only those households who reported a purchase.
AVERAGE ANNUAL EXPENDITURE OF PURCHASING
Therefore the average actual customer in the
metropolitan area of Victoria will spend $116 a year on film and film
processing. This figure helps us to estimate the number of regular
customers we will need for our store to be even viable.
How many customer households do you need
for your business to be viable?
If we look at the Performance Plus database
at the Industry Canada web site (http://www.sme.ic.gc.ca/)
we see that the most profitable small business Camera and Photographic
Supply Stores fall into the $102,000 - $259,000 range. This means that to
earn $180,000 (average of revenue range) in revenue ($11,000 profit), we
need 1551 regular customers annually. (Total Revenue ($180,000) / Average
Annual Customer Expenditure ($116))
You can then compare this figure with the
number of purchasing households in your market and the number of
competitors currently servicing them. Continuing with our Sidney example
we know from the above calculation that there are potentially 4,003 (All
households (5,583) x % reporting a purchase (71.7%)) households that
purchase film and film processing services in this market.
We now need to look at the revenue sizes of
our competitors. By using a business directory such as InfoCanada (http://www.infousa.com)
which provides sales-range estimates of specific businesses we can get an
idea of the market share of our competitors. Please see BR Newsletter Vol
4 No 10 (http://www.gdsourcing.ca/newsletter/newsletter4-10.htm#art1)
for more details on counting competitors with this database.
We find that there are two businesses in
Sidney with photo-finishing as a primary or secondary line of business.
One has a revenue size of $30,000 to $500,000 while the other has a
revenue size of $500,000 to $1 million. Using the average annual
expenditure of $116 their potential combined market coverage is between
4,568 (($30,000 + $500,000)/ $116) and 12,931 (($500,000 + $1 million)/
Of course the above calculation is somewhat
deceptive in the case of film and photo finishing because both businesses
have more than photo finishing as a source of revenue (e.g. camera
equipment sales, frames, other photographic supplies etc.). Other
expenditure categories included in the Survey of Household Spending match
business types more closely allowing for this calculation to be more
representative (e.g. hair grooming, childcare etc.).
Despite the over-estimation of market
coverage, it still appears that this market is currently well served. This
does not necessarily mean that a new business is not viable but it does
suggest that a new start-up will face strong competition and market
What we know so far:
Film & film processing market in Sidney B.C.
Number of Households in Market: 5583
Number of Purchasing Households: 4003
Estimated Market Size (value):
Market Growth in households
(1997-2000): drop of 5.1% of households rpt
Market Growth in Average Annual
Expenditure (1997-2000): -19.4%
Number of Regular Customers needed to
earn $180,000: 1551
Number of primary competitors: 2
Percentage of market under-served:
Please note: all of these figures are not
meant as exact numbers. They cannot be taken as such because they are
based on averages and estimates. However they can be used as a quick and
inexpensive test of market viability and opportunity.
If your market is located outside on a major
metropolitan area, use the most appropriate provincial averages.
What is the income profile of your best
Beyond an overall market profile, the Survey
of Household Spending can also reveal more information on the best
customers in your market. First of all it allows for segmentation by
income quintile. A quintile is arrived at by dividing all households into
5 equal income groupings.
So for example in B.C. each quintile has
303,410 households. The annual income ranges of each quintile are as
||Less than $20,400
||$20,400 - $36,300
||$36,300 - $55,320
||$55,320 - $81,000
Data for average household expenditures on
films and film processing and the percentage of households reporting a
purchase is available for each quintile at a provincial level:
Clearly for this particular expenditure
category income is a very influential factor as to whether or not
households make a purchase and how much on average they spend. Nearly 9
out of 10 households with income over $81,000 purchased film and film
processing with the average expenditure for this income range being $160 a
year or more than one and a half times that of the average household in
You will find for nearly every expenditure
category that households with higher income spend more. The key piece of
information you are looking for is the discrepancy between the 5 quintiles
as well as the market share by value and number of households. For film
and film processing there is a very significant jump in the % reporting as
well as average expenditure between the 3rd and 4th/5th quintiles. (e.g.
$90 vs. $131/$160 & 78.9% vs 88.8%/87.8%)
This discrepancy is further reflected in
income quintile market share by value:
E.g. for every dollar spent on film and film
processing, 36.3 cents are from households in the highest quintile income
The market share in number of households is
E.g. for every 100 households that purchase
film and film processing, one quarter (25.9%) are from the highest
quintile income range.
Keep in mind that a quintile divides all
households into 5 equal groupings. Therefore for a product such a
groceries the household market share is 20% for all quintile groupings
because all households report groceries as a purchase.
What is your local market potential - PART
You now want to compare this data to the
demographics of your market. Current household income data can be
challenging to find. 2001 Census data will not be fully released until the
end of 2003 so for the time being 1996 Census figures are the best we have
Looking at the data for Sidney it is clear
that households tend towards the bottom three quintile ranges. This
suggests that the income resources of this market are too thin to support
another film and film processing firm .
# OF HOUSEHOLDS IN SIDNEY B.C. - 1996 CENSUS
|Less than $20,000
|$20,000 - $40,000
|$40,000 - $60,000
|$60,000 - $80,000
You can locate 1996 Census data in most major
libraries. Some municipal web sites also have data online. In B.C.,
detailed community profiles are available at the B.C. Stats web site:
Ideally you want your local market to have a
higher than average representation in the best income quintiles for your
Remember the overall provincial standard is
that each income quintile has the same number of households. The bottom
three quintiles should therefore represent 60% of the market. However in
Sidney they represent 75.6%
Put another way, according to the market
share table above, 49.7% of the total number of the film & film processing
households are in the top two income quintiles, yet in Sidney, these
quintiles represent only 24.4% of households.
Of course before we make too many conclusions
from 1996 Census data we need to assess more current income levels in
The Financial Post publication Canadian
Markets does not provide household income range data, however it does
indicate average household income. In 2002 it is estimated that the
average household income in Sidney is $47,500. The provincial average is
According to the 1996 Census the average
household income in Sidney was $45,001 while for B.C. it was $50,667. The
income resources of Sidney have not strengthened significantly since the
In fact while the provincial average
household income grew by 8%, Sidney lagged behind at 5% growth. We should
therefore not anticipate that income conditions of this market have
improved since 1996.
What is the household profile of your best
In addition to income data, the Survey of
Household Spending provides household type segmentation. This is yet
another tool to help identify your best customers and estimate local
The value and number of households market
share for film & film processing breaks down as follows:
Market Share (value)
Market Share (households)
|Husband-Wife Family with
|Husband-Wife Family without
|One Person Households
|Lone Parent Households
Clearly (and not surprisingly) husband-wife
families with children control the highest market share both in value and
sheer numbers of households. 45.1 cents of every dollar spent on film and
film processing is by a husband-wife with children household.
They also represent 39.9% of all customers.
In fact 83.8% of husband-wife with children households reporting a
photographic film & film processing expenditure in 2000. On average they
spent $110 per year ($131 per household actually reporting a purchase).
What is your local market potential - PART
Using the 1996 Census we find that the
households make up of Sidney is as follows:
|Husband-Wife Family with
|Husband-Wife Family without
|One Person Households &
|Lone Parent Households
Again the Sidney market segmentation does not
encourage the opening of a new film & film processing business.
The Financial Post publication "Canadian
Markets" does not estimate the number of husband-wife families with
children in 2002 but it does indicate the average number of sons/daughters
at home: 0.7. This figure is identical to Census average in 1996.
Therefore there is no reason to assume there has been an increase in the
husband-wife with children segmentation.
In addition to a lack of husband-wife
families with children, Sidney also has a high percentage of singles
senior households. In fact in 1996, 19.8% of all households in the
community had a senior living alone. While there are many product/service
categories which are frequently used by seniors, the Survey of Households
Spending reveals that photographic film and film processing is not one of
In 2000, only 29% of one person senior
households reporting making such a purchase with an average annual
expenditure of $18. Husband-wife senior households reported higher
purchase levels (61.2% reporting a purchase with a $49 average annual
expenditure) however they are still far below the Victoria metropolitan
area average (71.7% reporting a purchase with $83 average expenditure).
In 1996, seniors represented 31% of the
population of Sidney. In 2002, "Canadian Markets" estimates that this
figure has dropped to 26.5%. While this suggests an improvement in film
and film processing market conditions, the lack of increase in the
presence of children is not encouraging. (NB: age segmentation is limited
to seniors and non-seniors in the Survey of Household Spending.)
When we look further at the PSYTE
psycho-demographic categories in the "Canadian Markets" publication we
find that our suspicion of an older, average to lower income market is
confirmed. The following categories segment the population of Sidney in
Nesters and Young Homesteaders: (30.8% of
Old singles and couples, some younger
couples and small families. Older neighbourhoods in towns and smaller
cities outside of Quebec. Dwellings are mixed row housing and low-rise,
single-detached. Mostly rented.
High-rise Sunsets: (18.3% of Sidney
Older households, empty nesters and
retired, living in high-quality, high-rise apartments on arterial roads
in larger urban areas across Canada. A good proportion are singles.
Old Leafy Towns: (16.0% of Sidney population)
Established stable neighbourhoods of older,
single-detached, owned dwellings in the nicer residential areas of towns
and townships. Maintainer age has a strong skew to 55+. Education and
occupational status are quite mixed. Younger families with children are
starting to move in.
Small City Elite (16.0% of Sidney population)
Small, traditional families and older
couples headed by middle-aged, well-educated managerial/executive
maintainers. Children are typically over 6.
Aging Erudites: (14.5% of Sidney population)
Older, well-educated singles, couples and
small families. Managerial and upscale white collar occupations.
Single-detached and other predominantly '50s dwellings; 68% owned; 10%
apartments. Mortgages are small. These people soak up culture.
Aged Pensioners: (4.5% of Sidney population)
Largely very old singles, some couples,
renting small apartments, flats and other dwellings in in-town areas of
small and medium-sized Canadian cities.
While a market certainly exists for
photographic film and film processing in Sydney B.C. it appears that there
is not a great deal of potential for a new business to open. The two
existing businesses can clearly cover market demand. The age of the
population, lack of husband-wife families with children and the
community’s financial resources do not encourage a new start-up in this
The only opportunity would be if there was a
great deal of market dissatisfaction with both competitors. Even then
considering that the overall market has dropped between 1997 and 2000 both
in average expenditure and % of households reporting caution would be
As you can see from the above example, the
Survey of Household Spending is a wealth of information. Once it is
compared with existing data such as that provided by the 1996 Census and
the Financial Post publication "Canadian Markets" (both of which are
available in most major libraries) a detailed assessment of local market
potential can be made.