Market Research Edge

Using Business Failure Rates

1. Industry and area failure rates track the percentage of establishments which cease operation over the course of an analysis time period (usually three years in BizMiner Market Research Profiles). The Failure Rate compares the number of “survivor” establishments to those which were in operation at the beginning of the period.

2. Unlike most other vitality measures, low Failure Rate scores do not always reflect positive levels of growth and activity:

* Among industries, sectors with large fixed assets (like manufacturing) generally have lower levels of establishment failure, regardless of industry vitality.

* Among local areas, many with relatively low growth vitality also exhibit low failure levels, reflecting low local competitive pressures rather than area strength. This is particularly true since most firms rely on local service and retail markets.

* Conversely, vibrant industries and areas with high levels of entrepreneurship can exhibit relatively high failure rates, often reflecting healthy (and in some cases, excessive) levels of competitive churn.

3. As a result, it is best to read failure rates in conjunction with other conditioning measures. For example, a high failure rate in industries or areas with high entrepreneurial startup activity rates and good growth patterns is not by itself a negative sign. However, if marketing research indicates high failure coupled with low new growth patterns, caution is suggested in targeting resources in your marketing plan to that particular area or industry.

4. In general, failure rates (offered industry-wide and for small business, startup and branch industry segments in BizMiner Market Research Profiles) are most useful in understanding risk factors for entrepreneurs and in assessing the stability of target markets.

5. Conclusion: Failure Rates in BizMiner Market Research and Area Profiles are useful as a barometer of stability. As vitality indicators, they should be read in conjunction with other measures to enrich interpretation of marketing plan data.

Business failure rates are included in every one of BizMiner's 900,000 online Market Research Profiles, available for over 15,000 business segments. Market Research Reports are available in both national and local versions covering over 250 US metropolitan areas.


Available online at www.bizminer.com/market-research-report.asp.