What is market size? How to estimate market size

Setting the right direction, a suitable strategy, and analyzing and researching the market are all necessary in business. To do that, businesses need to learn and accurately determine their market size. Let's go through Mona Media look at how to determine market size the right way in the content below.

What is market size?

Market size is the total number of customers who have bought a product, the total sales revenue and the potential customers that the business has measured in a given period. Studying market size carefully helps a business take the initiative when launching services and products.

Why determine market size

Understanding why market size matters in business gives a company some clear benefits. Specifically:

Finding potential markets

The more detailed your market analysis, the easier it is to find the fertile markets and know which ones bring in the most revenue. It also takes your brand and products closer to where consumers are.

Creating a competitive edge

Clear market size analysis helps you find market segments and customers' habits and product-use behavior, a stepping stone to many competitive advantages and a chance to put your earlier strategy to work.

See more:

• How to identify your business’s competitive advantage
• Competitor analysis in 7 steps

Helping a business increase profit

The larger the market, the greater the chance of profit. Market size analysis tells a business how much customers need its services and products. From there it can pin down the number of consumers who could buy and predict revenue.

Identifying consumer trends

Analyzing market size regularly helps you identify and follow consumption trends. You will know whether the number of customers using your product is rising or falling, so you can plan adjustments quickly. See also: How to find the right customer insight HERE!

Building an effective business strategy

Building and analyzing the market helps you create a business strategy of your own and lays a solid foundation for the next steps of your business.

Market size analysis strongly affects a business's sales revenue. So this analysis plays an important role: it helps a business understand its customers and competitors and choose the most reasonable solutions.

A simple way to determine market size

To work out the size of a market, you can use these 4 approaches:

Based on structural characteristics

This looks at export and import statistics for a few specific products over a set period, which lets you analyze the size of the market.

With this method, keep in mind that no statistic is perfectly accurate, because illegally imported goods and counterfeits are not counted.

Based on product consumption

The bigger the market, the more demand there is for the product. With this method, you need to collect complete data on customer behavior, shopping habits and buyer characteristics. From there, you can identify which market segment are larger.

This method requires the business to run quantitative research by surveying customers directly. It is most often used in fast-moving consumer goods markets.

Based on production

With this method, you can determine the exact capacity of the market from production volume. You can also see how many competitors are currently in the market.

Next, add up all of these figures and multiply them by the average product value. The result shows how big the market you want to enter really is.

Based on sales

A market that consumes a large volume of goods gives you high sales, and the reverse is also true. So when sizing a market, look at business sales.

Determining market size in 3 steps

Below, we walk through a simple, effective process for sizing a market.

Step 1: Top-down market analysis

Top-down analysis is the first step in sizing a market. At this step, draw up a detailed plan by researching the overall market for the product your business sells.

Next, estimate the share you could take of that market. The more detailed the market researchmarket and competitor data, the more accurate your estimate will be.

Step 2: Bottom-up market analysis

Unlike top-down analysis, this step sets aside almost all macroeconomic conditions. The business also needs to plan realistic growth in sales and product consumption. A few points to keep in mind:

• Sales channels (retail, wholesale, online, etc.)
• Data on competitors' projected growth and sales revenue.
• Number of points of sale (online sales channels, physical stores)

Step 3: Analyze the market through competitors

Market size depends on the number of direct competitors your business has to face. If competitors use outdated products, offer poor customer service or charge high prices, your business can win potential customers, and the opposite also holds. If competitors are too strong, you should think twice about entering that market.

Once you understand the concept of what market size is and why sizing it accurately matters for your business, you can build your business strategy with more confidence. We hope the information above helps.

See more:

• Build a successful market entry strategy
• Market forms and functions