Determining The Market Size for your Business

 

It is essential in any type of business that an entrepreneur can determine the market size for the intended business. Why? Because knowing so allows the entrepreneur to have a clear vision of how he can prepare an effective business plan to create the necessary guidelines in running the business.

Whether an entrepreneur starts it big or small, understanding the market potential is very important. Various reasons include product development, possible partnership, how the product should be distributed in the market. And creating an effective organizational design that will affect the individual roles of each employee.

What does market size mean?

A market size determines the number of individuals in a particular market who are potential buyers and/or sellers of a product or service. Every entrepreneur is interested in knowing this because this would be a basis on how his product or service will stand in the market alongside other similar products or services.

How To Identify The Market Size

It is not as easy knowing that the product or service you intend to provide is something that the public would be availing. You need to be specific on how you can make your product and service stand out and know how it can become the target of your buyers.

Here are some guide questions to help you:

1. What problem are you trying to solve?

The main concern of entrepreneurs is to look at how their product or service can benefit the people. The product or service you choose to offer should be something that people would genuinely patronize. You should be able to create something of real value to be appreciated by the people.

Some startups have become too excited about launching their product, thinking they have great things to offer. Only to find out that they have failed to penetrate the right market simply because they believe they can just sell anything. While this is possible, it is essential that the product or service offered is not just a fad so that the business can survive.

2. Do you have a specific target market in mind?

Indeed, so many people walk in and out of the malls, stores, or shops each day. But how many of these people leave these establishments with something they have bought? Providing whimsical products is an excellent offering to the younger generation. And if that is what you have in mind, you need to locate your business in a place with many young individuals. This means that no matter how much you think your products can become a head-turner, your business will surely die if you fail to identify the right market.

3. How big is your target market?

With the help of some available resources, you may easily estimate the number of target customers. Check how many individuals are living or working near your location. Positioning your business in a crowded place is strategic.

4. How will you monitor the movement of your products and how your market responds to what you offer (penetration rate)?

Most massive companies have their own software to determine the necessary data to improve their business. These are important in creating better business planning for the development of the industry. On the other hand, small companies may rely such data using surveys, whether made online or offline.

The penetration rate is the percentage of consumers in a particular period of a target market. It also determines a certain company’s sales as a percentage of all product sales. For example, if your company determines your Product A has a market of 2 million people, and of those 200,000 people purchased it, then the market penetration would be 10%. (200,000/2,000,000=0.01).

A 10% market penetration is relatively low, which means that your company may have quite stiff competition. Therefore, this would become the basis for formulating and investing in better marketing strategies to increase your sales.

5. How can you calculate the volume vs. value of your product?

To know the market volume of your product, multiply the number of target customers to the penetration rate.

Multiply the market volume to your price expectation (average weight) to calculate your market value. Your business provides office supplies, and your primary product is paper of various kinds. You are thinking of offering it to multiple banks in Metro Manila. For example, there are 200 existing banks in Metro Manila. However, it may not be possible for all of them to become your clients. Therefore, we just assume that only 60% of the 200 banks would be interested in engaging business with you.

You can now somehow understand how big your market size is. Remember that the market size or value may not be constant. Therefore, you must also look into the worst-case scenarios.

Having a step-by-step approach to building your business comes in handy. Since it allows you to minimize errors and help you have a broader perspective on managing your business.

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You may contact Armando “Butz” Bartolome for questions and more information.

Email: [email protected]

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Website: https://www.butzbartolome.com