Legal & Business

How to Size Your Market

By Heather Serden On March 29, 2016
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           The point of business is to make money, right? So before you pursue that new venture, take time to evaluate what the financial opportunity looks like. The first thing to do when figuring out the potential of the opportunity is to size the market.

            Sizing the market means determining the total annual revenues generated by your industry. If you are the only provider in your industry, then this gives you an idea of the most money you could ever possibly make in a year (assuming the market size doesn’t grow). There are plenty of research databases, such as IBISWorld or Hoovers , that tell you the annual revenue of common industries, but sizing the market can sometimes be more of an art than a science.

            For starters, it is often difficult to pin down exactly which industry you belong in. Secondly, some industries have extensive operating history, lots of published data, and reliable sources for annual revenue numbers, but other industries are new, undocumented, and much more subjective when it comes to revenue reporting. The only companies that are required to disclose annual revenues are public companies – so unless your industry is made up of only public companies (only 0.1% of all companies are public), you are probably using numbers that can’t be officially verified, by you or anyone else. So cut yourself some slack when sizing your market – use as much research and common sense as you can, but there is no perfect answer.

            What investors, business partners, lenders and you should care about when looking at the market size is the process you went through to determine that value. Is it a very straightforward industry, such as Furniture Stores? Then great, that market size is not so debatable, and easy to find. But are you trying to size the market for Online Bridesmaid Dress Rentals? In this case you need to look at industries that are similar, such as Bridal Stores or Wedding Services in the US. If you believe the market size for your industry has the potential to be the same as a related industry, then just use the number for the related industry (Online Bridesmaid Dress Rental ≈ Bridal Store). If there is no possible related industry, then just assume you are a portion of a larger industry (Online Bridesmaid Dress Rental ≈ 2% Wedding Services in the US). As a founder who understands your business better than anyone, you are the best person to determine which industries are similar to, or encompass your own.

           Because the market size can be subjective, expect people to question you and push back on whatever number you put before them. Stick to your guns, trust yourself, and remember that while other people may sound more confident, they don’t necessarily know your business and your market better than you do.

thumbnail photo on previous page: Maria Sossa

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