Market sizing

Market sizing can be approached utilizing the eight following steps:

-step1: Defining target market
It is important to distinguish between the addressable and available markets. The addressable market is the total revenue opportunity for your product or service. The available market is the portion of the addressable market for which you can realistically compete. This is based on many factors, including geography, resources, capacity constraints, etc.

-step2: Determining needs of target market
The key questions to answer are: What are benefits of the product or service? Which problem does itsolve? Why do costumers need the product or service?

-step 3: Identifying information for market sizing
After identifying the target market and hypothesizing about its demand for the value proposition, it is important to determine what information do you need to develop your estimates. Some valuable information would be:
- The age distribution within the geographic area he serves;
- The number of households with children in that area;
- The distribution of family income in that area;
- Home market values in the area;
- Educational attainment and college enrollment rates for graduating high school students;
- How many competitors, direct (other financial planners and insurance agents) and indirect (stock brokers, banks with financial planning services, etc.) are serving the market; and
- What financial planning services people buy and how much they pay.

-step 4: Identifying sources of information
So where to find information about the target market? These days, there is such a wealth of published statistics about almost every industry and market segment, that a combination of library and online research can fulfill most of your information needs. In some cases, if looking for very specialized information, the startup may need to conduct its own primary research (surveys, focus groups, etc.) to get what the needed insights.

-step 5: Data collection
One of the first things to consider in this stage is how the research participants are going to be contacted. There was at time when survey questionnaires were sent to prospective respondent via the postal system. As you might imagine, the response rate was quite low for mailed surveys, and the initiative was costly. Surveys are one of the most common market research tools. Most surveys emphasize either a qualitative or a qualitative design, but both approaches can be used in a single survey. Also, n-depth interviews are one of the most flexible ways to gather data from research participants. 

-step 6: Data analysis
The amount of data that can be collected and assembled in a market research study can be astronomical. Data organization and data reduction are two very important aspects of data analysis that is seldom highlighted. Very often, advanced statistics and decision models are used to maximize the information that can be extracted from research data.

-step 7: Derivation of market estimate
To find the overall market potential (that is, the potential market volume), multiply your number of target customers by the penetration rate:
Market volume = Number of target customers × Penetration rate

-step 8: Applying the estimates
The aim of this final step is to estimate the market share and how much money can be earned.To calculate the monetary value of the market, multiply the market volume by your average value (that is, price expectations).
Market value = Market volume × Average value

The two last steps lead to estimates that are by no means an exact science. Still, there are ways to maximize the effectiveness of this exercise. When making the first estimate, one should examine each assumption and what would cause it to change. Calculate best-case and worst-case scenarios in addition to your expected scenario.

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