MARKET SIZE
The “market size” is made up of the total number of potential buyers of a product or service within a given market, and the total revenue that these sales may generate. What is market size? Market size is the total number of potential clients or buyers in a particular market segment. It’s helpful for an organization or small business to determine its market size before launching a new service or product to ensure it reaches its expected audience. In various careers, such as marketing, sales and business consulting, such analysis is a critical part of business planning, as many investors conduct market sizing analysis before venturing into a new business. Knowing you’ve done your research also helps these professionals understand your goals and proposals. Market sizing is the act of approximating how many people use a certain service or product, an estimation that evaluates the potential reach of your brand. When market sizing, try to identify these three quantifiable standards: Units: The total quantity of products and clients in the market Value: The total value of products or clients in the market Market share: The percentage of products sold and clients gained by a specific organization Market size vs. Market value Market size describes the number of customers a business might attract over a specific period and the amount of money it can expect to generate from this hypothetical customer base. For example, a grocery wholesaler that sells to small- and medium-sized businesses in a particular city could calculate its market size by considering the number of small- and medium-sized grocery stores within the city limits. If there are 12 such stores in the city, that would factor into the wholesaler’s market size. Market value, or market capitalization, describes how much an organization, business or asset is worth in the financial market. You can calculate the market value of a business by multiplying the number of its outstanding shares by the market’s current price. Both market size and market value are important measures to know and use in your business. The former suggests your organization’s potential reach, while the latter points to how much money you can generate from your business. Add Your Heading Text Here Market Sizing Methods 1.Top-down- In the top-down method, you first determine the size of the entire market, figure out how much of that market you control and then compute the amount your business may earn from that share of the market. Factors such as your location and size, the population of your segment and the age and income of your target audience play a role in top-down market sizing. For example, if you estimate your business to control 10% of a market containing 500,000 consumers, the top-down analysis would calculate a market size of 50,000 potential customers. .2.Bottom-up- The bottom-up method is sizing that you determine by considering the major variables of your business, such as where you sell your products, the number of potential customers and the historical numbers of competitors’ products sold. For example, if you manufacture motorcycles, you might look into the number of motorcycle dealerships in the country, how many of them would be interested in carrying your brand and how many motorcycles each dealership has sold on average per period, among other factors. trends. However, you’ll get a more realistic and accurate assessment of your market’s potential. How to calculate market size 1. Define your target consumers- Your target consumers are those most likely to buy your products or services. Often, your target consumers share a common trait, such as: Age range Gender Location Education Income bracket You can determine your target consumers by examining who’s currently purchasing your offerings and analyzing their characteristics. For example, a store that specializes in basketball apparel might have customers in all age ranges but find that it’s mostly 20- to 30-year-old basketball fans buying its products. That would be the manufacturer’s target consumer. 2. Quantify your target customers- Once you’ve defined who your target customers are, you can consult statistical resources to determine how many you might reach. Public databases can reveal the number of people in your defined range who fit your target criteria. You can also conduct market research to estimate the percentage of the total target audience that would be interested in your brand. For example, the owners of the earlier mentioned basketball apparel store might mail questionnaires to those aged 20 to 30 years to rate their level of interest in basketball and basketball apparel. 3. Determine available market and demand- Your research might reveal the approximate number of consumers who are interested in buying your product or service, but the number of people who actually can or plan to follow through with a purchase may be much lower. This smaller subset of the target customer base is the available market. For example, a sneaker manufacturer might identify 100,000 people interested in its product, but research on income and accessibility shows that only half of them have the means to follow through with a purchase. In that case, the available market is 50,000 potential customers. Knowing your available market, you can then multiply that figure by the total number of sales you can expect from each customer over a specific period. This is your demand. The same sneaker manufacturer might expect only one purchase for every potential customer, whereas an olive oil producer with the same number of potential customers might expect 12 purchases per year. With the former, its demand would be 50,000 units per year. For the latter, it would be 600,000 units per year. 4. Multiply demand by market value- Finally, to determine your market size, you can multiply the demand you’ve calculated by the value of each unit you sell. For the sneaker manufacturer, the price of one pair of its sneakers might be $250. To calculate its market size, multiply its demand of 50,000 by the unit price of $250. The result is a market size of $12,500,000. FAQs Why is understanding market size important?