Market Size Estimation Techniques for Decision Making

Market Size Estimation Techniques for Decision Making

Market Size Estimation Techniques for Decision Making

What is market size and why does it matter?

How to calculate market size to help your business make informed decisions.

Every business has a market. From businesses like Amazon, whose audience could be anyone, to niche businesses selling specialized, custom products, knowing your market is essential to establishing a successful business. Many organizations believe their product is so novel or useful that their market is everyone, but more often than not, the customer base will actually exclude certain demographics. If your product is extremely expensive, that means the product is probably only going to be bought by people in a certain income bracket. If your product can only be used in certain areas (like boats as opposed to cars), you’ll likely only sell that product regionally. This is why it’s important to understand your target audience and estimate your market size and type when setting up your business and marketing plans.

What is Market Size?

Market size can be simply defined as “the number of people likely to buy a product or service.” Many businesses have a rough idea of who their market is or how many individuals it might involve, but it’s important to accurately estimate market size in order to plan for things like budgets, sales goals, marketing efforts, and staffing. Knowing how large your market can be directly proportional to your business efforts. Using smart market size estimation techniques is an important planning step.

How to Evaluate Market Size

There are several kinds of market sizing techniques that businesses should consider and use in their market size analysis. The most important step, before considering anything that will help you estimate your market, is having good data that accurately paints the picture of the marketplace or industry. Having good data and research is necessary to understanding how to estimate your market size. Before working with any market size estimation techniques, make sure you have solid information to draw from and analyze. With good data, you can:

  • Look at the competition: Are you the only provider of your business or service locally? Regionally? Nationally? This will tell you a lot about the potential size of your market. If you have a lot of competition, you know you are competing with other businesses for customers, effectively reducing or limiting your potential market.
  • Understand your product: Be realistic about things that will affect who will buy your product. Things like cost, usefulness, reliability, or availability will influence how many people are truly in your market.
  • Understand your customer: Similar to understanding your product, you must know something about your customer when doing market size calculation. Are your customers likely to be male? That tells you something about your market. Are they likely to be college-educated? Found in cities? Make a certain salary a year? Knowing your target customer always leads to helping you estimate your market size.

Estimating your market size is an important step in establishing and growing your business, including planning budgets, forecasting goals, and creating marketing plans. In addition to being something businesses should do as they launch, it should also be reevaluated regularly as your business gains customers and recognition. Customer market size is never a static thing and can grow, change, and shrink based on anything from the economy to available technology, so always be mindful of market size for your business.

Marianne Chrisos
Marianne Chrisos
Born in Salem, Massachusetts, growing up outside of Chicago, Illinois, and currently living near Dallas, Texas, Marianne is a content writer at a company near Dallas and contributing writer around the internet. She earned her master's degree in Writing and Publishing from DePaul University in Chicago and has worked in publishing, advertising, digital marketing, and content strategy.

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