How to Estimate Your Market Size

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In addition to developing exceptional products for your enterprise, and hiring the right staff, you also need to also do ample study about the market. One part of this research is determining the size of your market. If you do not know the size of your market, there is a danger of focusing on a market that is small, making it almost impossible to drive sales. So, how do you determine the size of your market?

Define Your Market

The first method of determining your market size is defining it. The market size can be viewed based on the Total Available Market (TAM), Share of Market (SOM), and Served Available Market (SAM).

  • Total Available Market (TAM) refers to the combined revenue in a specific market. As a marketer or investor, you will need to establish the total available market for the specific geo area.
  • Served Available Market (SAM) is the percentage of the total available market (TAM) that your business can serve based on the product under consideration, technology and geographical constraints.
  • Share of Market (SOM) is a percentage of SAM which your brand currently serves or aims to serve. Note that SOM should always be smaller than SAM unless your enterprise is a monopoly in the niche.

Use a Bottom-up Analysis

You can also estimate the size of your market by determining where you are going to sell the business products, the number of dealers who will stock them, and how many comparable products are already on sale. When doing a bottom-up analysis, it is very important to be objective in order to establish where your business could enjoy realistic growth in the next three-five years. Finally, compare the numbers with the total addressable market. If you get about 1-5% of the market, consider it realistic.

Take a Closer Look at the Competition

You can also estimate the size of a business market by looking at your competitors. Here, you need to establish how crowded your niche is, and the leading brands in the market. For example, if you are the only steel producer for a specific area, as demonstrated here, you should target to win a market share of about 50%. But if the market is crowded, you can only enjoy a smaller market.

Analyze the Static Market

If you are doing running business in a static market, you should anticipate high competition from other traders. You and your competitors are vying for the same clients’ pool. In such a case, it is important to understand customer behavior and make your products to look more appealing. So, focus on strengthening your brand and building a community that clients can associate with.

When you establish the size of your market, it becomes easier to know the needs of customers and outdo competitors. Remember that no matter the current market share, you need to work progressively towards growing it over time.

 

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