Understand your competition

Knowing who you compete with tells you whether there is room in the market, what customers will pay and where you can do something better. Do the research before you set prices or write your marketing, and repeat it every few months, because competitors change their prices and new ones appear.

Find your competitors

No single search finds everyone, so build the list from several directions.

• Search for what you sell plus your area, and look at the paid adverts as well as the ordinary results.
• Check map listings and the local and trade directories that your customers use.
• Read the member lists that trade associations publish.
• Walk round trade shows and exhibitions to see who exhibits and how they pitch.
• Ask people in your target market what they already use and what else they have considered, because their answers include the indirect competitors a search will miss.

Pick five to ten main competitors to study closely and keep a shorter note on the rest.

Record what you find

Keep one spreadsheet with a row for each competitor and a column for each question above. Note the date and source beside every price, so you know how old it is. Where you can, buy from them, visit them or ask for a quote as an ordinary customer, because their marketing rarely shows delivery times, service or how busy they are.

Check how they are doing

Filed accounts show a limited company's assets and debts and, for larger companies, its turnover and profit.

Sole traders and ordinary partnerships file no public accounts, so judge their size from their staff, premises, time in business and how busy they appear.

Customer reviews show what competitors do well and where they let people down. Read recent reviews on Google, Trustpilot and any site your trade uses, note the complaints that come up more than once, and see how the competitor replies to a bad review. Every repeated complaint is something you can do better.

Compare prices like for like

Set prices side by side for the same specification, including delivery and extras, so that a low headline price does not mislead you. Note the lowest, the usual and the highest price, and decide where you want to sit.

Check whether competitors' prices include VAT. Once your taxable turnover goes over the VAT registration threshold of £90,000, you must register and charge VAT. A customer who cannot reclaim it will either pay more or cut into your margin, so allow for that if a competitor is below the threshold and you are not.

Choose where to position yourself

Place your competitors against the things customers weigh, such as price and quality, or specialist and general. Look for a need that customers have and nobody serves well: better service, faster delivery, a narrower specialism or a more convenient location. Compete on price only if your costs are genuinely lower, because a price war cuts everyone's margin.

Then write one sentence that says who you serve, what they need, what you offer and how you differ from your nearest competitor. For example: "For small restaurants that need reliable equipment repairs, we are a specialist catering engineer who attends within four hours. Unlike national contracts with next-day response, we guarantee an engineer on site the same day." Use it to test your prices and your marketing.

Stay within competition law

Using public information about competitors is lawful. Agreeing prices with them is not. Do not agree with a competitor what you will charge or that you will not undercut each other, and do not discuss your pricing plans with them. The rules apply to small businesses as well as large ones. The Competition and Markets Authority can fine a business up to 10% of its turnover, and individuals can face personal fines, director disqualification and prison.