Porter's Five Forces in English: model, examples, and template
The Five Forces explain where your profitability is being squeezed from — and what you can do about it. Here are the five forces explained in English, with examples from SMEs and a methodology that leads to concrete strategic goals.
Published · Updated · 7 min read
In short
- The five forces: competition, new entrants, customers, suppliers, and substitutes.
- Define the industry narrowly — otherwise all assessments will be “medium”.
- Identify the two forces that pressure you the most, and choose a countermeasure for each.
- The analysis is only complete when the countermeasures are goals with an owner and KPI.
What are Porter's Five Forces?
Porter's Five Forces is a model by Michael Porter that explains why some industries are more profitable than others. The model doesn't look at individual competitors, but at five forces that together determine how much profit remains in the industry — and who gets it.
The model is powerful because it shifts focus from “what is our closest competitor doing” to “where is our profit being squeezed from”. For a Danish SME, the answer is often customers' bargaining power or suppliers' price increases — rarely just the competitor around the corner.
Use the Five Forces as an external analysis alongside PESTEL and a competitor analysis. The conclusion should lead to choices: which customers, which services, and which position you will focus on.
The Five Forces
Assess each force as low, medium, or high, and write down the most important consequence for you for each.
1. Industry Rivalry
Competition
Number and strength of competitors, market growth, and how easily customers switch.
Examples: Many equal players and a stagnant market = price wars and squeezed margins.
2. Threat of New Entrants
Barriers to Entry
How difficult is it to start up in your market? Capital, approvals, know-how, brand.
Examples: Low barriers mean that good margins are quickly competed away.
3. Bargaining Power of Buyers
Buyer Power
Few large customers, transparent prices, and low switching costs give customers power.
Examples: If two customers account for 50% of revenue, they effectively set the price.
4. Bargaining Power of Suppliers
Supplier Power
Few alternative suppliers or unique components push up your purchase price.
Examples: Exclusive distribution agreements and material shortages shift the margin to the supplier.
5. Threat of Substitute Products or Services
Substitutes
Other ways to meet the need, often from a completely different industry.
Examples: Software replaces manual labor; renting replaces buying; internal solutions replace purchasing.
How to use the model in practice
1. Define the industry precisely
“Construction” is too broad. “Technical installations for municipal buildings in the Central Denmark Region” can be analyzed.
2. Assess each force with an argument
Set low, medium, or high — and always write the justification in one sentence, so the assessment can be discussed.
3. Identify the two strongest forces
There are always one or two forces that genuinely squeeze profitability. The strategy must address these.
4. Choose a countermeasure per force
Against buyer power: diversify the customer base or lock in with service agreements. Against new entrants: build barriers such as specialization, certification, or data.
5. Translate into goals and KPIs
E.g., “no customer over 15% of revenue by the end of next year”, measured monthly with the owner in sales.
Five Forces vs. other analysis models
| Model | Focuses on | Used for |
|---|---|---|
| Porter's Five Forces | Industry structure and earning potential. | Understanding where profitability is squeezed from and choosing a position. |
| PESTEL | Societal conditions: political, economic, social, technological, environmental, legal. | Detecting changes in the external environment early. |
| SWOT | Internal strengths and weaknesses versus external opportunities and threats. | Consolidating analyses into a decision-making basis. |
| Competitor Analysis | Individual competitors and customer selection criteria. | Finding specific gaps in the market. |
Common mistakes
- The industry is defined so broadly that all five forces become “medium”.
- The model is used as a description instead of a basis for choices.
- Only competition is assessed, while customer and supplier power are skipped — these are often what eat into the margin.
- No link to goals: the analysis ends in a slide, not in the strategy.
Frequently asked questions
What are Porter's Five Forces?
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Porter's Five Forces is an analysis model that assesses five forces in an industry: intensity of rivalry, threat of new entrants, bargaining power of buyers, bargaining power of suppliers, and threat of substitute products. Together, they show how attractive the industry is and where profitability is being squeezed from.
How do you conduct a Five Forces analysis?
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Precisely define the industry, assess each of the five forces as low, medium, or high with a justification, identify the two forces that pressure you the most, choose a countermeasure for each, and translate the countermeasures into strategic goals with KPIs and owners.
What is the difference between Five Forces and SWOT?
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Five Forces analyzes the industry's structure and earning potential from an external perspective. SWOT combines both internal factors (strengths and weaknesses) and external factors (opportunities and threats) into a decision-making basis. Five Forces is typically an input to the external side of SWOT.
Is Five Forces suitable for small and medium-sized enterprises?
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Yes, if the industry is narrowly enough defined. For an SME, the most valuable realization is often that customers' bargaining power or suppliers' pricing pressures profitability more than competitors do.
How often should the analysis be updated?
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Once a year during the strategy process, and additionally when a force changes significantly — for example, due to a major customer's tender, an acquisition in the industry, or a new digital player.
Related guides
These guides are closely connected to porter's five forces and are natural next steps in your strategy work.
- Competitor analysis: template and methodSix steps from mapping competitors to concrete strategic choices.
- PESTEL analysis: model and templateSix external factors that shape your market, with practical examples.
- SWOT analysis: guide and templateStrengths, weaknesses, opportunities and threats — with TOWS to turn insight into action.
- Strategy process for SMEs in 6 stepsFrom analysis to an agreed strategy — without a six-month project.
More strategy guides
Analysis and environment
Goals, KPIs and performance
Strategy process and planning
Turn analysis into strategy
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