How big is your market?
Knowing your market size will help you understand the potential of your business
If there aren’t simply enough customers in the market to support the fantastic business that you’ve built, you’ll run at a loss. Most professional business owners know how to calculate market size. They conduct market sizing prior to starting a business or as a part of their business planning.
Do you know your market size?
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To understand what market size is, the first step is to understand what a market is.
A market, in the most basic sense, is a set of potential customers who are connected by common needs and are willing to buy a given set of products or services. Now that we’ve crystalized what a market is, let’s understand what a market size is. The “market size” is the total number of potential buyers of a product or service within a given market segment. In simpler terms, it means the number of potential customers that you could sell your product or service to.
It is something that companies determine before they launch their product or service.
Sizing the market lets them estimate the potential of a market which includes:
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Before going on how to calculate market size, let’s understand why market sizing is so valuable to your business. Market size is one of the most essential components of strategic marketing planning. With an in-depth knowledge of the size of your target market, you can analyze potential market opportunities and accordingly plan a wise business approach.
Estimating the market size is a critical first step for any new product development initiative. It helps entrepreneurs, investors, and other decision makers to make the right decisions by giving them a sense of the potential return that the market offers. Sizing a market is important for so many reasons, such as:
Importance of market sizing
Market sizing allows decision makers to estimate the growth potential of a particular market, identify relevant market segments, set sales performance goals, and identify promising geographies and customer types. Whether you’re a seasoned market researcher or not, you will come across different approaches ton how to calculate market size. Regardless of the approach you use, the steps to calculate a potential market size remain the same:
The top-down methodology
The bottom-up methodology