Every business person needs to know how to gauge its market size to see its worth in making a profit. It also helps one determine how many people are out there for them hence can be able to approach investors confidently.
Through the right determination of a startup market size, you can develop a relevant plan for your business. A proper entrepreneurship procedure is crucial in winning more funds and success for a business through promising investments. It is because such entrepreneurship attracts investors.
Why is it important to know how to determine market size?
With this knowledge, one can easily estimate the amount of business in the market. Where you share the startup investment, all of you must know each member’s venture’s worth. Doing so is essential because it helps you determine whether your investment is viable and profitable.
What Market Size is Ideal?
The ideal market size for a viable business is estimated to be about billions. With less than that, it is difficult to attract even the least number of investors. Most critical times, such as when funding is needed for startups, market size is the saving angel. It is the only digit an investor will look at to make their decision.
The above reasons are sufficient to show you how important it is to calculate your market size. However, many entrepreneurs do not know how to go about it. Doing it the wrong way can cause you to make huge mistakes that can blow up the whole business. Below is a guide on how to estimate the market size.
How to Estimate Market Size Of A Product
- Determine The Target Client
The target client is vital for any business’s success, whether a startup business or an already established one. These are the people trading or have the potential of trading with a specific company. Not everyone in the world is a target client. As an entrepreneur, one must conduct a thorough analysis to determine the target prospects.
One can use demographics, such as gender, location, age, and salary levels. These characteristics can help you target the right clients. In addition to that, firms can also use psychographic information such as likes, interests, lifestyle, expenditure levels, and values to determine their clients. These are some basics on how to determine market size by firms.
- Find Out The Number Of Target Customers
There are several ways to determine the number of target customers for a business. In some countries, entrepreneurs can use caches offered from bureaus, such as the statistics department. This information can help one determine potential clients depending on the type of data.
Entrepreneurs can check for customers with similar profiles to those of the company. Another way on how to determine the market size is through the use of online social networks. The majority of the people worldwide have social media accounts where they display much information about themselves. The number of followers a company page has can help determine its market size.
Social media followers can also display their feelings about a particular product, helping firms determine areas to improve. It can help increase the market size by providing the right services to the clients.
- What Is The Penetration Rate?
Companies can use the penetration rate, which is a function of the nature of the services provided. It can help refine the market capacity by assuming the penetration rate. Goods and services under the mission-critical have a higher penetration rate than those controlled by regulation due to technical purposes.
Companies can calculate the rate by taking the number of clients that purchase their product instead of purchasing other products similar to theirs. For already established companies, it is easier for them to know how to estimate the market size of a product compared to startup businesses. Startup businesses can determine the rate by analyzing statistics from competitor companies.
Businesses should ensure that they have well-defined services to be able to have a higher penetration rate. Having a small niche reduces the penetration rate. For example, more people will look for event planners rather than wedding planners.
- Derive The Market Potential
It is easy for companies to come up with estimated market potential. It is the number of people purchasing the product at a specific time. Firms can reach value by multiplying the number of people buying by the amount purchased by a standard buyer, then take the total and multiply it with the price of the product.
Deriving the market potential helps entrepreneurs get an excellent unique value proposition. It is an essential aspect that all companies must determine to succeed. Firms should tell people about the services and the brand of the company.
- Make Use Of The Market-Size Data
Continue researching the market size each time an idea changes. During the period, the first estimation done examines all types of assumptions and changes that may occur. Calculate the best case and worst-case scenarios that are as a result of the change. It will help maximize the usefulness of the exercise.
After the change, ensure that you monitor the initial assumptions’ progress and compare them with the current ones. This move will enable one as a business person to either modify or maintain the business ideas.
Conducting this process helps to estimate the total market potential for services or products. It is important to note that there are two types of clients. The early clients will likely be in the company in the first one or two years, while the late may be clients after 20 years or later.
It is not easy to develop a well-estimated market size, especially for beginners and other business owners who do not know how to calculate it. If you are in this category, you may wonder what will happen if one does not handle this pressing need.
It is a relief to know that you can let someone who knows how to estimate the market size handle the task for you. There are multiple Professional marketers such as 24Task today to help you out. Search it online and hire a freelance marketing consultant of your choice.
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