Imagine your business of 5 years is running great, your idea is loved, your product is the best, your employees are working dedicatedly, the marketing team is giving its 100%, also customers love what you do but still your business is not making profit to run your business or make more investments as your circle is small and there are not enough people who know about you and that’s why the customers are also less and you may have to shut your business down. Felt devastated, right?
This is why entrepreneurs and investors conduct market research and market sizing isometrics to reach wide and right customers and also it gives them right information regarding investing into the product or business. Market sizing has now become a part of business planning. In the article, we will help you know how market sizing is done and how it can help you take better decisions.
What is Market Sizing?
“Market Sizing” can be defined as the total number of prospective customers of the mentioned product or service and how much revenue the company can generate in the given market.
Some reasons why market sizing should be done:
Methods of Market Sizing
- Entrepreneurs with the help of market sizing calculate how much profit they can make by investing in the given product.
- It assists in developing a marketing strategy to analyse the growth aspects of the market.
- The major beneficial thing market sizing can do is help you analyse how much employees and departments you have to start building when you start a company or a service. It will help you to sort it down beforehand thus optimising your approach and you won’t feel pressure in the long run.
Top-down and Bottom-up approach are two methods of market sizing. The top-down approach is slightly more optimistic and irrelevant while bottom-up approach is time consuming but more effective.
Actually, top-down approach is simple which checks the market size and how much the company can earn from it without analysing it properly. Take an example of a digital marketing agency. For example, you are running an app development company, the research displays there are about 10,000 local brands who can get recognition with the app. Also, one app development will generate US 10,000$ and you can generate a revenue of about 70-80,000$. But this is hypothetical and implies only “if” the market approaches to you. Therefore, top-down approach is not a perfect way to make decisions.
In bottom-up approach, market research is done, e.g. how many companies want the app, etc. You done depend on forecasts and generalised insights, you do your own market research and analyse what the market wants and then predict the “right” profit amount which is achievable.
Our article will help you to use bottom-up approach better.
Calculation of Market Size
Steps through which you can use bottom-up approach are
Define Your Target Market
Target market defines the people for whom the product is meant to be. The product or service always solves a problem or fulfil the requirement and you have to define the customers for whom you can solve the problem and how you can reach them. Reaching the right audience is as crucial as developing the service as there is no point of marketing if people are not aware of it or they are in no need of your product.
Market segmentation in whole market research is a way to give you an outlook and categorises the product among different groups. Market segmentation, thus, assists in divided the product and gives you an understanding that your product will be relevant for which age group. When you have catered your product or service based on different segments, you can focus on one group which can give you better results as per analysis.
For instance, as you are starting a digital marketing agency, where you develop apps and websites for your clients, you need to research if there are enough stores who want to build website or not. Are they enough motivated to invest a large amount in the app. So, after researching about these aspects, you get to know in your region, there are almost 20,000 local marts and stores interested and then you start the next step.
Use Market Research to Assess Interest in Your Product
Not everyone in the target market will buy your product, therefore, having a realistic approach of interest is important. Focussing on competitors can build a profitable insight. You need to research for their market share and how much are there annual sales turnover, about their growth aspects for their services.
Now, you can’t get all the information with this, as different competitors work on different projects and their business groups are also different which can contribute in their revenue too.
Therefore, another method is online and offline surveying, taking interviews, asking questions, etc. This approach is also called secondary research, where questions are being asked to a specific group about, what do you think this product should have? What are your expectations from the product? Or if you are developing an app, which features do you want in the app? Which features you think are not necessary and should be excluded?, etc. This approach helps you in taking the feedback and ideas from the customer itself. You know what is there in the mind of your customer, therefore, benefitting you in the final service or product.
Calculate Potential Customers
When you calculate the potential sales which the company can achieve, you can get more realistic figure of how much earning you can do. As you have gathered the data now, develop a financial model, based on the market strategies of scenario analysis, Monte Carlo Analysis, etc. This data will help you get the approach of how much risk you have to take and investment you have to make before getting the results.
For instance, You have researched that 2000 local brands are willing to develop an app, which costs you 25,000$. If your research fulfils with 100% result, you will get the return of 2,50,000 $. Therefore, just a 10% of risk can help you achieve greater revenues. Thus, it is a low risk and can give higher returns even if your 100% target is not completed.
Thus, market sizing can assist you in determining real and achievable targets.