Marketing Strategy

The value of knowing your market size

Market size is a key component of strategic marketing planning. Knowledge of the size of your target market allows you to fully assess opportunities and accurately plan your approach and your investments – wisely.

Take the time to assess market size and you may find answers that reveal how to achieve the level of growth you need. When you know your market size, you can more easily determine how you invest your R&D budget for the year. It can also help you to determine a wise level of sales and marketing investments – in the right areas. Marketing strategies become clear. You don’t want to spend too much in a market when return will be low, but you also don’t want to under invest in a high growth, fast moving market. But be careful not to base investment decisions on rumour or expert opinions.

Market size is a measurement of the total volume of a given market. Calculating market size accurately, can be challenge, so it’s important to be clear on what you are measuring. Variables are often dynamic, so they must be clearly defined. Size can also be based on consumption or production figures, so it is important to know what approach you will take.

How you approach your research will depend on your budget, time and your requirements of the information.  The important step is to be clear what you want to know and how you want to use the data. Consider the following questions during your research:

  • What is the level of growth in the market? How has the market changed in the last couple of years? Is it shrinking which may require you to apply caution to any expansion plans or is it growing?
  • What time period are you looking at? Market sizing is usually assumed for a period of one year, but you could look at any timeframe that suits your business.
  • What geographic regions does your market sizing cover?  Are you selling locally, nationally or  internationally.
  • What issues are affecting the market? Is there anything, such as regulations, that might provide barriers to the market, or factors that might change buying habits in the future?

How to Determine Market Size

There are many methods that you can use to calculate market size. But be forewarned, some methods, could be more wrong that right! Data can be sourced from a variety of different sources and its often useful to use a variety to corroborate your numbers.

Review competitive Sales 

A bottom-up approach to calculating market size is far more time-consuming but it is more accurate. This approach involves a number of interviews with all suppliers of a given product to determine quantities sold by each company in the set period. These are added together to give the total market size. For obvious reasons, it is always best to use an outside agency to gather this data.

Quite often, research firms will use a top-down approach, which is based on a series of competitive interviews where each competitor is asked for an estimate of the market size. These estimates are sometimes weighted and then averaged for the market size calculation.

Other methods for determining market size – but proceed with caution

Government Statistics The Central Statistical Office Guide ( lists all the government’s publications of data. Sometimes, these stats can be questionable because of the accuracy in how data is gathered. Nonetheless, it can be an easy starting point. But, we advise that you don’t stop here. Validate the numbers through other research methods.

Trade associations can be useful for market size, although check different categories of membership as many can include students and those no longer active in the field. They can be particularly useful sources for state of the market surveys.

Media packs of trade publications, particularly controlled circulation titles, will often contain a segmented breakdown of their readership. Caution – this is just readership, and numbers will be exaggerated.

Companies House can supply accounts of large companies’ reports and accounts, and financial information can be found in annual reports and in the trade press.

Customer Demand or market potential Market size measurements based on customer demand and market potential tend to be overly optimistic – on the high side because both methods extrapolate for all customers from a small sample what an ideal customer should buy.  The potential market for your product can be determined by finding the number of people that have a profile similar to your target customer. This figure would need to be combined with an estimated market penetration rate to calculate the market volume.

Current Rates of Production This method is debatable as current levels of production are rarely well coordinated with sales levels. 

Next Steps

Once you’ve calculated your market size, you then need to determine how you will use market size calculations in your strategic marketing planning. Market size alone, does not present a full picture. The information needs to be used in conjunction with other strategic tools including SWOT analysis, PORTER’s Five Forces and Ansoff Matrix to present a full picture of your market and the size of the opportunities open to you. Know your strengths, your weaknesses and where you are positioned in the market. Combine this knowledge with market sizes, you may find obvious answers to how your achieve your sales growth this year.

You can learn more about these strategy tools by reading our blog posts. Use this page to find out more.  If you require help and support, contact us on 01206 646 006.

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