At the beginning of the market analysis, the first question arises that, how to determine market size? The study of the market size and the market volume is very important to estimate the demand or the future possible sales. So, these both values must be in a realistic relation to market size and market volume.
Let’s have a look on the definition of size of the market quickly,
Definition of market size,
When we describing the targeted market, it’s about determining the market size. The market size describes the turnover that will be generated in your target market in a certain amount of time.
But, again the question arises that, is there any specific market size formula or how to determine market size?
So, let’s have a look on that.
How to Determine market size and market volume
As a first step in the market analysis, is to determine the size of the market. And, the market size of any industry is the turnover of that industry. Also, the market volume describes the number of units sold.
As simples is that!
These both factors, the market size, and the market volume are also important for future sales planning and thus these are the elementary areas of the business plan.
The size of the market and the volume of the market has great importance also for potential investors, to assess the potential and the attractiveness of the market.
Now, here are some steps which you should understand to know how to determine the market size and market volume of any industry.
Let’s check it out!
1. Market description
Similar to the analysis of the target group, start with the market size definition of your targeted market.
You can describe your targeted market by answering the following questions. These questions are as below:
- Product area: WHAT do you offer, and what range of products do you have?
- Sales area: WHERE will you offer your products/services, and which cities, regions or countries are relevant?
- Customer area: WHO buys your product/service and whom you are targeted to?
Now, consider as you have defined the targeted customers under targeted group, so you can simply get your target group definition.
Describe your target market as accurately as possible. The clearer the definition, the easier it is for you to determine market size and market volume.
A detailed description also helps in the other areas of the market analysis and the business plan.
Example for the description of a target market:
You want to sell a mixed beer drink (what), in Bavaria (where).
The product is aimed at all men and women of average income who are between 18-35 years old and do not want to miss out on a trendy, fruity-fresh mixed beer drink at party time (target group).
2. Quantify market Size
Determining the market density is usually not easy, so we recommend the following procedure:
1- Use existing industry data
The easiest way is, of course, if the market size data already exists.
Under Industry Tips, we have summarized various sources of information for you, where you can search for the market size.
2- Estimate market size using existing data
If you did not find industry tips, then you need to estimate the mark size. Use existing data for orientation.
For example, you may not have any sales figures for a particular federal state, but often there is information on the market size. Based on the existing data, you can then estimate or calculate the market size.
Market Size Example: You know the generated sales of Germany in the field of drinking milk. But you did not find any sales figures for NRW (your target market).
Nevertheless, you can use the number of inhabitants in NRW to calculate the market size for NRW approximately.
3- Estimate market size for a new market
If you find no relevant market size data, you must estimate the market size. You can do this using the formula:
Number of buyers x Buy frequency x Price = The market size
Tip: Compare the result of your calculation of the market size with other comparable industries to verify your result for the market size.
Once you have determined the market size, it will also be easier for you to determine the market volume.
3. Determine market volume
In particular, the market volume is relevant for your sales planning. The market volume does not describe the turnover of the industry (for example in Euros), but the quantity sold.
Based on the volume sold – the market volume – then you can calculate the consumption per capita, which helps you, among other things, when creating the financial plan.
Example: The graphic below shows how you can divide the overall market for beer drinks into individual segments and determine their market volumes.
This allows you to systematically narrow your market and determine the value of the relevant market volume.
Step by step to the relevant market volume. From the total market volume (beer consumption in Germany) to the regional market volume (beer consumption Bavaria) and finally to the market volume of the sub-segment “mixed beer drinks in Bavaria”.
The goal is…
… That you can clearly describe and quantify the market size and market volume in your business plan. Both numbers form the basis for the next part of the market analysis, the market dynamics.
Problems with determining market size and market volume? Take advantage of the sponsored start-up coaching. We are looking for the right coach for you for free!