Before launching your idea, hoping it will disrupt the market and attract the public’s attention, it’s paramount to do market sizing to ensure your concept is worth investing in.
Market size is a metric you should pay great attention to when venturing into the world of business. What does it mean?
If you’re new to this world, you might find it confusing and probably have several misconceptions about its meaning. But it’s important to grasp its meaning to avoid making the wrong decisions or failing to meet your strategies. When you accurately determine the market size, you gain a competitive advantage from day one of launching the product or business. Why? You can make more effective plans, secure your investment better, and avoid developing strategies that won’t support your success in the long run.
This article is meant to help you understand what market size is and why it’s different from other concepts in the sector.
What is market size?
The most basic definition of market size is that it provides information about the total number of potential buyers for a product. However, quite often, people confuse the concept with the total population of an area. Therefore, it’s advisable to size your market because while there’s a high population density in your area, it doesn’t guarantee that your business launch will be successful. Only because you start a business in a large city doesn’t mean they also want to buy your products, so the market might be smaller than expected.
Some experts also use the term market sizing to refer to the total potential revenue opportunity you have for a service or product. If you want to launch a disruptive idea, it’s a vital tool to size the market because it helps you predict business growth and set specific goals. However, it’s challenging to do it yourself, so it’s advisable to hire a company that can use several methods like customer interviews, surveys, and sector analysis.
The type of product or service you offer will highly impact the method used to estimate the market size. However, market sizing is a tool all kinds of businesses can use, regardless of their size, especially when they want to enter a new market or introduce a new product to the audience.
What is market sizing important?
When running a business, understanding the size of the market you enter is essential for several reasons. Suppose the sales growth doesn’t progress from where it’s for a couple of months, the primary explanation is that the size of the market doesn’t allow it. Therefore, you should consider another strategy because investing in the existing market won’t support your success.
When planning to enter a new market, you should first try to understand its size because you will have to make several decisions depending on how many buyers there are. Suppose the pool of ideal clients is low; launching a product will most likely mean you’ll lose both time and money.
Market sizing also helps you identify a market’s potential when you compare markets to pick the best targets for your launch. Successful businesses pick markets rich in prospects because it allows them to reach their goals and make a return on their investment. If you understand a market’s potential you find it easier to develop pricing strategies, pick distribution channels, and create marketing campaigns and strategies. It’s less risky to launch a product in a market large in size because you can make strategic investments.
Here are the main reasons businesses rely on market sizing:
Gain knowledge about investment potential – the market size provides information about the market’s potential in terms of buyers. You can better understand its potential to allow you to make money.
You can create a solid business strategy and marketing campaign – when you know who your ideal audience is, and the size of it, you can easily decide how much money you want to spend on strategizing, according to your corporate goals.
You can manage resources – once you know your business’ growth trajectory you can establish the budget necessary for launching a new product and can allocate resources.
You can allocate your budget more effectively – because you understand who your customers are, you can identify their needs and deliver them exactly what they’re looking for. Therefore, you can manage expenses more effectively.
The main steps in identifying your market size – like a pro
Market sizing doesn’t offer exact information, but when you estimate it with the right methods, it will have some level of accuracy.
Clearly define the type of product you sell
It’s vital to clearly define the product or service you want to bring on the market because businesses should do their best to differentiate their offerings, in the current competitive market. Differentiation might make sizing the market more challenging, but it will also turn beneficial in the end because it provides information about the ideal client. You can segment the market to identify the addressable group.
Develop an estimation model by breaking down the issue – the most effective methods for estimating the market size imply breaking down the issue into smaller ones, and combining them in different ways to identify an accurate market size.
Run research
Gathering data implies running primary and secondary research and analysis because you need to access existing industry data, statistics, news, company information, product data, questionnaires, surveys, and expert interviews. Considering you lack experience and the right tool to do it yourself, you could better opt for Savanta market research as the company is specialized in the process. Once you gather data you must analyze it to figure out what the market’s needs are.
Validate the results
Your job isn’t done once you gather data; you must also validate it. The process implies two steps: you have to review the model used during research and analyze the sources, calculations, and assumptions. Segmentation and definitions are only two of the essential factors you should pay attention to. Then, it would help if you used triangulation, which combines two or three methods to estimate a variable. This way, you increase the accuracy and reliability of your data and can make decisions based on it.
Sizing the market will help you effectively position your services and products, establish growth goals, and make informed decisions about your business’s future.
