How to Calculate Market Size

In calculating market dimension, one should notice three vital details to keep away from an usually irritating expertise. First, the precise market dimension quantity doesn’t exist. Second, the scale estimate is rarely appropriate, however directionally correct is ample. Lastly, estimating the scale of a market is each an artwork and a science.

The one technique to calculate an actual greenback determine for the market dimension is to roll up the entire items bought by the businesses taking part within the specified market. Nonetheless, firms don’t report gross sales with particular product and market breakouts. For instance, suppose one is estimating the scale of the hearth extinguisher market. In that case, there is no such thing as a requirement that every one firms promoting hearth extinguishers need to report their complete gross sales to a single entity that aggregates the information and publishes an total market dimension. Such a database doesn’t exist.

Concerning the accuracy of market dimension estimates, a plus or minus ten % needs to be acceptable, because the market dimension is usually used to calculate market share or assess market attractiveness. So, if a market is between $5 billion and $5.5 billion, the $.5 billion dimension variation can have little influence on share estimates or total market attractiveness. As we regularly ask shoppers, “if the market dimension is $5 billion as a substitute of $5.5 billion, would it not be any much less engaging, or would it not change your strategic course?” The reply is usually no.

The assorted strategies of calculating a market dimension require a number of conventional advertising expertise, akin to secondary knowledge assortment, main knowledge assortment, segmentation, data-driven assumptions, and the appliance of sound logic.

There are numerous strategies for sizing a market, and the selection of technique will depend on the supply of information, the complexity of the market, the obscurity of the market phase, and the aim of the evaluation. Listed below are some normal strategies:

Prime-down: This technique estimates the market dimension by beginning with a broader market dimension estimate after which narrowing it all the way down to the particular goal market phase. For instance, suppose you’re sizing the marketplace for pre-made double-hung home windows. In that case, you would possibly begin with the general market dimension of pre-made home windows, then slim it all the way down to the phase that makes use of double-hung home windows (i.e., new building and residential remodels).

Backside-up evaluation: This technique estimates the market dimension by beginning with the variety of potential prospects and multiplying it by the typical income per buyer. Once more, for pre-made double-hung home windows, one would possibly start with the variety of potential prospects (i.e., new building and residential remodels). Then the typical variety of double-hung home windows per home and the share of pre-hung home windows.

Buyer surveys: Some surveys are sometimes wanted to offer a stable foundation for market assumptions and directional knowledge. In our window instance, surveys and interviews could also be useful in estimating what number of double-hung home windows are in a typical home and what number are pre-hung home windows. This technique entails amassing knowledge from potential prospects to find out present market circumstances, estimates of quantity, and so on.

Market analysis reviews: This technique makes use of revealed market analysis reviews that present knowledge on market dimension, development charge, developments, and buyer segments. This could be a good place to begin for estimating the market dimension however could require further customization to mirror your market phase.

Aggressive evaluation: This technique entails analyzing your opponents’ market share and gross sales knowledge (if obtainable) to estimate the market dimension. You possibly can estimate the potential market dimension by understanding your opponents’ market place and product choices.