ABSOLUTE ESSENTIAL 2: Sizing Markets Easily
To be successful in any business, Step #1 after deciding upon a product or service is assessing whether you will sell enough of it to make your business "go." This article explains how to step through such an assessment simply, without loads of information and in as little as 10-20 minutes. Try it out or get a SCORE person to help walk you through it. No charge, of course.
SIZE YOUR MARKET – EASILY & PRECISELY
Here is a proven, simple approach that can be used to accurately forecast the market-for and sales-of your product or services. It consists of 5 easy steps. Follow them and arrive at a good estimate of your opportunity. Your market and your share.
It is always best to begin by sizing a market locally. (Once you get a handle on the local market, you can scale up to regional, national and international markets, as and if you wish.)
Begin by having a product (or service) and a typical buyer/user in mind. This is your “stake in the ground.” Then initiate your market forecasting process with a “guess” of roughly how many overall people/customers are in your market (your city or county or whatever local group you desire). For example, perhaps there are 100,000 people in your area that might buy your product.
Next, take a guess at how many of these people/customers might buy items similar to YOUR product from any and all sellers every month. Consider this by month, every month, for a year or so. I recommend you begin by doing this for 6 months then expand your “forecast” to 18 months, when comfortable.
- Step 3, do a similar mental exercise, but on another line. Write down how many customers will buy from you (per month) over the same period of time. With this exercise you are in fact generating unit sales projections over time and estimating your “share” of the market. This is the basis for everything you need to do in your business. It is fundamental and most critical.
- If needed, you can now begin to scale up your estimate to the number of cities or locales or customer groups or geographic areas you intend to serve. Since we began considering by 100,000 potential customers in your area, you can simply multiply your first guess by 10x for the market in a city of 1,000,000, and so on. Bottom line, start with something you can get your arms around, then extend it.
The next step is to begin refining the information in your market forecast. That is, repeating the process with better information.
For example, you can try to find a more precise population number for the city you are serving, if that is your defined market. Or, it may be the coffee drinkers in your area. Or the bikers, or the mothers or the men or the wealthy consumers… The point is that once you have estimated how many potential customers are in your defined market (or group), you can consistently refine it, make estimates of how many will buy a product like yours from all sellers, and finally, how many will buy from you.
This done, you can also begin to add your product price information to perform sales dollar forecasts by month.
Beginning with a simple guess, you can and will have a preliminary market size and product sales forecast for any product or service you define. That is, if you are careful and have done it smartly. It’s that easy.
Copyright © 2009 Gregory Tomsic