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Market sizing is the process of understanding your target market, its size and volume and the potential financial returns that it is likely to generate. Market sizing serves as a risk analysis by providing valuable information to show if the investment in a venture is worth the returns.
It helps in understanding what your customers are like, what are their needs and wants and how can you serve them best in order to ensure good return on investment .
So, market sizing helps you with the “how many “and “what type of “customers you are serving.
Why should you as a company try to invest time, effort and money into getting a hold of your market?
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Predicts return on investment: Investing in developing any product or service is a risky activity. With the current dynamic nature of the market and the high uncertainty that comes with it, it becomes increasingly difficult to assure yourself of good returns.
In such a business environment, conducting a pre-analysis of your market, its size and getting an estimate of how much potential returns it can generate can help reduce the risk factor for an investor and give them an idea of the feasibility of their investment.
Understanding your target market: It is imperative that a company knows the kind of people they are offering their products and services to. Designing value offering without understanding what the customers will be looking for and whether the product satisfies any of their needs or not, exposes the company up for failure. It is a matter of prudence to first understand what the brand means for a customer, what are their requirements and then coming up with an offering tailored to their specific want.
Assessing resource and personnel requirement: After gaining knowledge about the customers and their volume, brands can assess their own inputs and resources with respect to what the market asks for. Any insufficiency in this regard can be pointed out and fixed.
For example: After conducting thorough market research, a company may find that a particular segment of the market needs to be educated more about the brand and its offerings. An internal evaluation may suggest that their current investment and manpower in marketing and promotion isn’t enough to cover the entire segment. In order to increase brand awareness and position the brand properly, investment and recruitment of new personnel can be increased in advance to meet the future needs.
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Define your target market: A company is more guaranteed to generate good sales when the products are suited to their target customer’s needs. For this, the company needs to first be clear about what they are, their values, vision and mission. This will provide them a clearer understanding of the type of people that will be best suited for their value offerings.
Try to create a customer profile by listing out the criteria that you are looking for in your customers.
Estimate the number of customers: Find out the number of people who are part of your target market. Contact business organization, public agencies and data providers to know the size of the target market. This information will give you an idea about the number of customers you’ll be serving if you decide to enter this market.
Cross- check to see if each of the departments is equipped enough to serve this size of customers.
Gather customer opinion: This is the part where you see if the customers you have picked out are actually interested in buying your product. The entire target market may not be interested in buying your product. Try to bifurcate between those who are interested and those who aren’t, by using market research methodologies.
Check to see if what you are offering suits them. Ask questions like:
Conduct thorough market research using focus groups, surveys and interviews to gather meaningful market intelligence. The better the research, the more accurately you’ll be able to predict customer needs.
Estimate volume: The results of this research will show you an estimate of that part of the market which is interested in your solutions and which you can tap.
For example: After conducting a survey of 500 people, you find that 300 people are interested in your product. This stands for 60% of the total size of the potential market. This means if your target market consists of 50,000 people (roughly), the interested market is 60% of 50,000 i.e. 30,000 people.
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Predict potential revenue generation: Now you know what part of your target market will reciprocate the interest that you have shown in them. This, obviously, is just an estimate and the actual number may be less or more. To incorporate variations, try to calculate the worst and best case scenarios to make sure that even if this number goes downfall, you exactly know how much it will benefit or lose you.
For example: we predicted that 30,000 people are interested in buying the product that we offer them. Assuming that every person generates an average revenue of 2000 (let’s say for an FMCG company), then the potential revenue that can be generated is 30,000×2000=6, 00, 00,000.
This marketing, developing and distribution costs of these products may be 1,00,00,000 .
Comparing the two figures gives a clarity that investing a huge sum in the company can prove to be beneficial as it will likely generate a good amount of revenue. It shows that the FMCG market is a good avenue for investment and you can decide to move forward with it.