Market size is a measure that is frequently mentioned in the business world, but what exactly is it and what does it mean?
There are numerous misconceptions regarding the true definition of the term, which can lead to people making poor decisions or being unable to maximize the effectiveness of their plans.
If you can precisely estimate the size of your market, you will have a substantial edge from the start. It enables you to make smarter investments, make sound decisions, and avoid being trapped in a program with no future.
Here we'll go over the fundamentals of market size and teach you how to calculate it and separate it from other ideas.
What is Market Size?
Market size is the maximum total number of sales or consumers that your company can generate in a given year. Before establishing a new product line or line of the company, knowing the prospective market size can help you determine whether it's a good investment of both your time and money. A similar term is market share, which refers to the overall portion of the market that a company possesses as sales or customers.
Why is Market Size Crucial?
There are numerous reasons why you must be concerned with your market size and how to effectively calculate it. Here are a few of the most important reasons:
- Build a Strong Marketing and Business Plan
Understanding who your market is, how big it is, and the amount of money it represents provides a solid basis for developing a strategy and establishing clear future objectives.
- Develop Better Budget
Utilize your R&D budget effectively by learning more about your customers, what they desire, and how you can provide it.
- Rising Investments
The size of the market reflects the possibilities for any new firm, product, or service. It will be considerably easier to acquire investment if you can demonstrate that you possess a strong probability of producing money and precisely how much.
- Make A Budget And Hiring Strategies
Evaluating your prospective growth trajectory allows you to budget more precisely and select the correct personnel for the job at hand.
How to Understand Market Size?
How do you determine the size of your market? There are numerous approaches to this:
- Conduct market research to determine the amount of interest in your offering- whether will people purchase it or not.
- In a given year, calculate the total revenue earned in that sector of the economy.
- Determine your product or service's target market.
- Collect information about the number of prospective clients and transactions per year. There are numerous supplementary resources available to assist you with this.
Understanding Serviceable Obtainable Market
Understanding your entire market size is only the first step, and this knowledge is only marginally useful.
You can only reach a limited number of prospective consumers. No company has the marketing capabilities, scale, or budget to attract the interest of everyone in their market. And that's before you even get into opponents. You'll never be able to control a full market, and the best you can aspire for is a tiny portion.
This is when a key statistic known as serviceable obtainable market (SOM) is helpful. SOM describes the number of prospective consumers (and money) that you may reasonably expect to reach given your marketing tools and budget.
How to Evaluate SOM?
There are various methods for calculating your SOM.
Top-Down: This strategy is based on market analysts' predictions, forecasts, and assumptions. It is frequently dependent on assumptions and estimations. It's adequate for a broad overview of the scenario, but it's a little unclear and can be difficult to determine the proportion of the market you can actually dominate.
Bottom-Down: Begin by determining your price and the number of units you can reasonably expect to sell.
The number of customers you can reach + how much is each sale= your SOM
Value Theory: This third technique is less specific, but it is still beneficial. It entails assessing the value your product or service brings in comparison to alternatives and calculating how much buyers are willing to pay for that added value.
It may sound right to utilize a combination of these three ways to acquire the most comprehensive picture of your SOM and deliver as much knowledge to your stakeholders or investors as necessary.
Calculating market size is a critical stage in establishing a profitable business or introducing a new product or service. However, this is merely the first step. The measure isn't worth much until you can also demonstrate how much of that market you can access and fight for.
Author's Detail:
Aparna Dutta / LinkedIn
Experience in Blog creation, Article Submission and Blog posting. I specialize in writing engaging blog posts for Market research and business insights. A person who believes in the principle of time and works towards perfection.
Author's Detail:
Aparna Dutta /
LinkedIn
Hello, I am a content writer with 3.5 years of experience. I have experience in various fields of content writing. For example, I have worked in a market research organization where I had to write content related to the reports that the company used to generate to improve their Google ranking. Other than that, I have also worked in website content as well as technical content for print and digital media magazines. Apart from this I am very flexible as a person and can adjust easily.
