How To Find Target Market Size

When almost businesses forecast their revenue goals, they first calculate their total addressable market, which is the full marketplace need for their manufacture's products or services. Put just, it's the maximum corporeality of acquirement a business organisation could generate if they captured their entire marketplace.

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Still, unless you're a monopoly, yous near likely can't capture the total addressable market for your products or services. Even if y'all just have one competitor, it would nevertheless be extremely difficult to convince an entire market to only buy your products or services.

That's why it'southward crucial to calculate the maximum amount of revenue you can possibly generate by selling your products or services to the customers who would realistically benefit from buying your solutions.

This amount of potential revenue is called your market size or serviceable addressable market, and you lot can use it to accurately mensurate your business' potential for growth.

Market Size

Your marketplace size, or serviceable addressable market (SAM), is the maximum amount of revenue you can possibly generate past selling your products or services to the potential customers who would realistically benefit from buying your solutions. This metric helps you accurately measure your business' potential for growth.

How to Calculate Market Size

Start with the total addressable market place (TAM), and then figure out your target market place within that total number, which varies depending on geography and other logistical factors.
Take your target market, and determine the penetration potential of your target market.
Multiply target marketplace by penetration charge per unit to find your market size.

Market place Size Example

Permit's walk through an example to explore how you'd decide market size.

A Startup Vino Visitor

Let'south say you wanted to start your wine company. Hither's how you would calculate market size: First, you'd want to determine how many liquor stores are in the Usa — this helps you effigy out the full market to which you could theoretically sell your production.

After your enquiry you determine at that place are 50,000 liquor stores in the United States. Of that total list, you only want to sell to the New England area — including Massachusetts, Maine, and Rhode Isle.

You determine your target market place includes the 1,000 liquor stores in the New England area. From here, you conduct research and speak with booze distributors to determine there'southward a roughly forty% success rate for wine distribution.

Using this as an case, nosotros'd summate market size using the following formula:

1,000 liquor stores ten forty% = 400 liquor stores

Then, if you assume each liquor store will result in $20,000, you lot can effigy out potential revenue using the following formula:

400 liquor stores 10 $xx,000 = $8,000,000

This ways you lot stand to make $eight million if you penetrate 40% of the total market in the New England expanse — even so, this doesn't take into business relationship your competitors' wine, or all the other liquors available in any liquor store. For this reason, you'll want to remain conservative when guessing how much of the market place size you'll win.

how to calculate market size

How to Apply Estimated Market Size

Okay, y'all have your estimated market size — at present what?

Market size helps your business organisation answer the following questions:

How much potential revenue can we earn from this item market? In other words … is it even worth our time and energy?
Is the marketplace big plenty to interest us?
Is the market growing? Will there still be opportunities to earn revenue from this marketplace in three, 5, 10 years?

Market size is a critical number to know when you're looking for funding. Investors are going to need to know how much money you have the potential to brand from a given market. Additionally, it'south vital to recognize whether the potential acquirement yous can make outweighs your business' costs.

Once you have market size, y'all'll besides want to consider how saturated the marketplace already is with your competitors' products. Ultimately, you can't capture the full addressable market (TAM) — some of those people volition choose competitors' products over yours. So you lot'll need to determine whether you have a shot at earning plenty consumers out of the TAM to make this a worthwhile venture.

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