industry size in business plan

What Is an Industry Size Business Plan?

An industry size business plan is necessary for budgeting and marketing, especially for those who will seek third-party financing. 3 min read updated on September 19, 2022

An industry size business plan is necessary for budgeting and marketing, especially for those who will seek third-party financing. Most venture capitalists want to know the potential size of the market for the businesses they're investing in. Ultimately, the size of the potential market for the products or services your business is offering determines the value of your business, and to most venture capitalists, the larger that market, the better.

TAM, or Total Available Market, refers to the maximum size of the market for a business's offerings, and it may include both people and revenue. SAM, or Served Available Market, refers to the segment of the TAM consisting of people who will be able to use the business's solution. The SAM will be the business's target market.

Market Size Presentation

The section of your business plan pertaining to market size can be presented in any number of ways. One of the easiest ways to do this is with a simple columnar format that outlines the TAM and SAM now and in five years. This will allow the investor to quickly determine the potential size of the market and its growth over the course of your business plan.

While sizing of the market is important, it is only a plan. The market size section of your business plan can only provide an educated guess at how large the available market will be. This is your opportunity to demonstrate your plans for a successful launch and continued growth.

Available Data and Statistics

Market sizing is largely based on trade association data and any other available statistics. Begin with verifiable base data, including government statistics when available. Cross-reference your information with alternative sources whenever possible. Make sure that your findings make sense.

You should also be specific. For example, you wouldn't want to say, "There are millions of properties in the world with pools, and if we take a small percentage of that, our business plan will work." Rather, keep the industry definition very narrow.

Your analysis will differ depending on whether or not you're dealing with a pre-existing market or a new market. If you're dealing with an existing product, there will be industry and market data available to you. If you're dealing with a new product , you may need to conduct market research, consult with potential customers, and go from there.

Determining Your Market Size

Determining your market size will help you make a clear distinction between two categories:

• Addressable market - the total revenue opportunity for your product or service
• Available market - the portion of the addressable market you can realistically compete with

If you don't have a firm grip on your market size, you'll put your business's success at risk, both in these early stages and through its life cycle.

Estimating Your Market Size

Market sizing will allow you to gain a sense of current market trends. It can help you uncover the drivers of demand, since movements or changes in the market tend to continue for a period of time. Furthermore, studying these trends can reveal whether there's another product on the way that could potentially affect your market size.

When estimating market size, the best place to start is to consider the problem you intend to solve and how much value your product or service will have to consumers. This is actually something many entrepreneurs tend to overlook because they become engrossed in the product they've developed and not its benefits to the audience.

To estimate your market size, follow these steps:

• Clearly define the customer you're targeting.
• Estimate how many customers you will be targeting.
• Figure out your penetration rate.
• Calculate both the volume and the value to your potential market size.
• Apply the data.

Determining Your Market Potential

It doesn't matter if you're seeking third-party financing or not. Understanding the potential for your market will help you in the following areas:

• Product development
• Organizational design
• Distribution
• Partnerships
• Employee skills

Beyond this, understanding your market potential will help you address more mundane issues, such as selecting a bank, hiring an account, or seeking legal counsel .

If you need help with your industry size business plan, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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How to Conduct an Industry Analysis? Steps, Template, Examples

Appinio Research · 16.11.2023 · 41min read

Are you ready to unlock the secrets of Industry Analysis, equipping yourself with the knowledge to navigate markets and make informed strategic decisions? Dive into this guide, where we unravel the significance, objectives, and methods of Industry Analysis.

Whether you're an entrepreneur seeking growth opportunities or a seasoned executive navigating industry shifts, this guide will be your compass in understanding the ever-evolving business terrain.

What is Industry Analysis?

Industry analysis is the process of examining and evaluating the dynamics, trends, and competitive forces within a specific industry or market sector. It involves a comprehensive assessment of the factors that impact the performance and prospects of businesses operating within that industry. Industry analysis serves as a vital tool for businesses and decision-makers to gain a deep understanding of the environment in which they operate.

Key components of industry analysis include:

• Market Size and Growth: Determining the overall size of the market, including factors such as revenue, sales volume, and customer base. Analyzing historical and projected growth rates provides insights into market trends and opportunities.
• Competitive Landscape: Identifying and analyzing competitors within the industry. This includes assessing their market share , strengths, weaknesses, and strategies. Understanding the competitive landscape helps businesses position themselves effectively.
• Customer Behavior and Preferences: Examining consumer behavior , preferences, and purchasing patterns within the industry. This information aids in tailoring products or services to meet customer needs.
• Regulatory and Legal Environment: Assessing the impact of government regulations, policies, and legal requirements on industry operations. Compliance and adaptation to these factors are crucial for business success.
• Technological Trends: Exploring technological advancements and innovations that affect the industry. Staying up-to-date with technology trends can be essential for competitiveness and growth.
• Economic Factors: Considering economic conditions, such as inflation rates, interest rates, and economic cycles, that influence the industry's performance.
• Social and Cultural Trends: Examining societal and cultural shifts, including changing consumer values and lifestyle trends that can impact demand and preferences.
• Environmental and Sustainability Factors: Evaluating environmental concerns and sustainability issues that affect the industry. Industries are increasingly required to address environmental responsibility.
• Supplier and Distribution Networks: Analyzing the availability of suppliers, distribution channels, and supply chain complexities within the industry.
• Risk Factors: Identifying potential risks and uncertainties that could affect industry stability and profitability.

Objectives of Industry Analysis

Industry analysis serves several critical objectives for businesses and decision-makers:

• Understanding Market Dynamics: The primary objective is to gain a comprehensive understanding of the industry's dynamics, including its size, growth prospects, and competitive landscape. This knowledge forms the basis for strategic planning.
• Identifying Growth Opportunities: Industry analysis helps identify growth opportunities within the market. This includes recognizing emerging trends, niche markets, and underserved customer segments.
• Assessing Competitor Strategies: By examining competitors' strengths, weaknesses, and strategies, businesses can formulate effective competitive strategies. This involves positioning the company to capitalize on its strengths and exploit competitors' weaknesses.
• Risk Assessment and Mitigation: Identifying potential risks and vulnerabilities specific to the industry allows businesses to develop risk mitigation strategies and contingency plans. This proactive approach minimizes the impact of adverse events.
• Strategic Decision-Making: Industry analysis provides the data and insights necessary for informed strategic decision-making. It guides decisions related to market entry, product development, pricing strategies, and resource allocation.
• Resource Allocation: By understanding industry dynamics, businesses can allocate resources efficiently. This includes optimizing marketing budgets, supply chain investments, and talent recruitment efforts.
• Innovation and Adaptation: Staying updated on technological trends and shifts in customer preferences enables businesses to innovate and adapt their offerings effectively.

Importance of Industry Analysis in Business

Industry analysis holds immense importance in the business world for several reasons:

• Strategic Planning: It forms the foundation for strategic planning by providing a comprehensive view of the industry's landscape. Businesses can align their goals, objectives, and strategies with industry trends and opportunities.
• Risk Management: Identifying and assessing industry-specific risks allows businesses to manage and mitigate potential threats proactively. This reduces the likelihood of unexpected disruptions.
• Competitive Advantage: In-depth industry analysis helps businesses identify opportunities for gaining a competitive advantage. This could involve product differentiation, cost leadership, or niche market targeting .
• Resource Optimization: Efficient allocation of resources, both financial and human, is possible when businesses have a clear understanding of industry dynamics. It prevents wastage and enhances resource utilization.
• Informed Investment: Industry analysis assists investors in making informed decisions about allocating capital. It provides insights into the growth potential and risk profiles of specific industry sectors.
• Adaptation to Change: As industries evolve, businesses must adapt to changing market conditions. Industry analysis facilitates timely adaptation to new technologies, market shifts, and consumer preferences .
• Market Entry and Expansion: For businesses looking to enter new markets or expand existing operations, industry analysis guides decision-making by evaluating the feasibility and opportunities in target markets.
• Regulatory Compliance: Understanding the regulatory environment is critical for compliance and risk avoidance. Industry analysis helps businesses stay compliant with relevant laws and regulations.

In summary, industry analysis is a fundamental process that empowers businesses to make informed decisions, stay competitive, and navigate the complexities of their respective markets. It is an invaluable tool for strategic planning and long-term success.

How to Prepare for Industry Analysis?

Let's start by going through the crucial preparatory steps for conducting a comprehensive industry analysis.

1. Data Collection and Research

• Primary Research: When embarking on an industry analysis, consider conducting primary research . This involves gathering data directly from industry sources, stakeholders, and potential customers. Methods may include surveys , interviews, focus groups , and observations. Primary research provides firsthand insights and can help validate secondary research findings.
• Secondary Research: Secondary research involves analyzing existing literature, reports, and publications related to your industry. Sources may include academic journals, industry-specific magazines, government publications, and market research reports. Secondary research provides a foundation of knowledge and can help identify gaps in information that require further investigation.
• Data Sources: Explore various data sources to collect valuable industry information. These sources may include industry-specific associations, government agencies, trade publications, and reputable market research firms. Make sure to cross-reference data from multiple sources to ensure accuracy and reliability.

2. Identifying Relevant Industry Metrics

Understanding and identifying the right industry metrics is essential for meaningful analysis. Here, we'll discuss key metrics that can provide valuable insights:

• Market Size: Determining the market's size, whether in terms of revenue, units sold, or customer base, is a fundamental metric. It offers a snapshot of the industry's scale and potential.
• Market Growth Rate: Assessing historical and projected growth rates is crucial for identifying trends and opportunities. Understanding how the market has evolved over time can guide strategic decisions.
• Market Share Analysis: Analyzing market share among industry players can help you identify dominant competitors and their respective positions. This metric also assists in gauging your own company's market presence.
• Market Segmentation : Segmenting the market based on demographics, geography, behavior, or other criteria can provide deeper insights. Understanding the specific needs and preferences of various market segments can inform targeted strategies.

3. Gathering Competitive Intelligence

Competitive intelligence is the cornerstone of effective industry analysis. To gather and utilize information about your competitors:

• Competitor Identification: Begin by creating a comprehensive list of your primary and potential competitors. Consider businesses that offer similar products or services within your target market. It's essential to cast a wide net to capture all relevant competitors.
• SWOT Analysis : Conduct a thorough SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis for each competitor. This analysis helps you identify their internal strengths and weaknesses, as well as external opportunities and threats they face.
• Market Share Analysis: Determine the market share held by each competitor and how it has evolved over time. Analyzing changes in market share can reveal shifts in competitive dynamics.
• Product and Pricing Analysis: Evaluate your competitors' product offerings and pricing strategies . Identify any unique features or innovations they offer and consider how your own products or services compare.
• Marketing and Branding Strategies: Examine the marketing and branding strategies employed by competitors. This includes their messaging, advertising channels, and customer engagement tactics. Assess how your marketing efforts stack up.

Industry Analysis Frameworks and Models

Now, let's explore essential frameworks and models commonly used in industry analysis, providing you with practical insights and examples to help you effectively apply these tools.

Porter's Five Forces Model

Porter's Five Forces is a powerful framework developed by Michael Porter to assess the competitive forces within an industry. This model helps you understand the industry's attractiveness and competitive dynamics.

It consists of five key forces:

• Threat of New Entrants: This force evaluates how easy or difficult it is for new companies to enter the industry. Factors that increase barriers to entry include high capital requirements, strong brand loyalty among existing players, and complex regulatory hurdles. For example, the airline industry has significant barriers to entry due to the need for large capital investments in aircraft, airport facilities, and regulatory approvals.
• Bargaining Power of Suppliers: This force examines the influence suppliers have on the industry's profitability. Powerful suppliers can demand higher prices or impose unfavorable terms. For instance, in the automotive industry, suppliers of critical components like microchips can wield significant bargaining power if they are few in number or if their products are highly specialized.
• Bargaining Power of Buyers: The bargaining power of buyers assesses how much influence customers have in negotiating prices and terms. In industries where buyers have many alternatives, such as the smartphone market, they can demand lower prices and better features, putting pressure on manufacturers to innovate and compete.
• Threat of Substitutes: This force considers the availability of substitute products or services that could potentially replace what the industry offers. For example, the rise of electric vehicles represents a significant threat to the traditional gasoline-powered automotive industry as consumers seek eco-friendly alternatives.
• Competitive Rivalry: Competitive rivalry assesses the intensity of competition among existing firms in the industry. A highly competitive industry, such as the smartphone market, often leads to price wars and aggressive marketing strategies as companies vie for market share.

Example: Let's consider the coffee shop industry . New entrants face relatively low barriers, as they can set up a small shop with limited capital. However, the bargaining power of suppliers, such as coffee bean producers, can vary depending on the region and the coffee's rarity. Bargaining power with buyers is moderate, as customers often have several coffee shops to choose from. Threats of substitutes may include energy drinks or homemade coffee, while competitive rivalry is high, with numerous coffee chains and independent cafes competing for customers.

SWOT Analysis

SWOT Analysis is a versatile tool used to assess an organization's internal strengths and weaknesses, as well as external opportunities and threats. By conducting a SWOT analysis, you can gain a comprehensive understanding of your industry and formulate effective strategies.

• Strengths: These are the internal attributes and capabilities that give your business a competitive advantage. For instance, if you're a tech company, having a talented and innovative team can be considered a strength.
• Weaknesses: Weaknesses are internal factors that hinder your business's performance. For example, a lack of financial resources or outdated technology can be weaknesses that need to be addressed.
• Opportunities: Opportunities are external factors that your business can capitalize on. This could be a growing market segment, emerging technologies, or changing consumer trends.
• Threats: Threats are external factors that can potentially harm your business. Examples of threats might include aggressive competition, economic downturns, or regulatory changes.

Example: Let's say you're analyzing the fast-food industry. Strengths could include a well-established brand, a wide menu variety, and efficient supply chain management. Weaknesses may involve a limited focus on healthy options and potential labor issues. Opportunities could include the growing trend toward healthier eating, while threats might encompass health-conscious consumer preferences and increased competition from delivery apps.

PESTEL Analysis

PESTEL Analysis examines the external macro-environmental factors that can impact your industry. The acronym stands for:

• Political: Political factors encompass government policies, stability, and regulations. For example, changes in tax laws or trade agreements can affect industries like international manufacturing.
• Economic: Economic factors include economic growth, inflation rates, and exchange rates. A fluctuating currency exchange rate can influence export-oriented industries like tourism.
• Social: Social factors encompass demographics, cultural trends, and social attitudes. An aging population can lead to increased demand for healthcare services and products.
• Technological: Technological factors involve advancements and innovations. Industries like telecommunications are highly influenced by technological developments, such as the rollout of 5G networks.
• Environmental: Environmental factors cover sustainability, climate change, and ecological concerns. Industries such as renewable energy are directly impacted by environmental regulations and consumer preferences.
• Legal: Legal factors encompass laws, regulations, and compliance requirements. The pharmaceutical industry, for instance, faces stringent regulatory oversight and patent protection laws.

Example: Consider the automobile manufacturing industry. Political factors may include government incentives for electric vehicles. Economic factors can involve fluctuations in fuel prices affecting consumer preferences for fuel-efficient cars. Social factors might encompass the growing interest in eco-friendly transportation options. Technological factors could relate to advancements in autonomous driving technology. Environmental factors may involve emissions regulations, while legal factors could pertain to safety standards and recalls.

Industry Life Cycle Analysis

Industry Life Cycle Analysis categorizes industries into various stages based on their growth and maturity. Understanding where your industry stands in its life cycle can help shape your strategies.

• Introduction: In the introduction stage, the industry is characterized by slow growth, limited competition, and a focus on product development. New players enter the market, and consumers become aware of the product or service. For instance, electric scooters were introduced as a new mode of transportation in recent years.
• Growth: The growth stage is marked by rapid market expansion, increased competition, and rising demand. Companies focus on gaining market share, and innovation is vital. The ride-sharing industry, exemplified by companies like Uber and Lyft, experienced significant growth in this stage.
• Maturity: In the maturity stage, the market stabilizes, and competition intensifies. Companies strive to maintain market share and differentiate themselves through branding and customer loyalty programs. The smartphone industry reached maturity with multiple established players.
• Decline: In the decline stage, the market saturates, and demand decreases. Companies must adapt or diversify to survive. The decline of traditional print media is a well-known example.

Example: Let's analyze the video streaming industry . The introduction stage saw the emergence of streaming services like Netflix. In the growth stage, more players entered the market, and the industry saw rapid expansion. The industry is currently in the maturity stage, with established platforms like Netflix, Amazon Prime, and Disney+ competing for market share. However, with continued innovation and changing consumer preferences, the decline stage may eventually follow.

Value Chain Analysis

Value Chain Analysis dissects a company's activities into primary and support activities to identify areas of competitive advantage. Primary activities directly contribute to creating and delivering a product or service, while support activities facilitate primary activities.

• Primary Activities: These activities include inbound logistics (receiving and storing materials), operations (manufacturing or service delivery), outbound logistics (distribution), marketing and sales, and customer service.
• Support Activities: Support activities include procurement (acquiring materials and resources), technology development (R&D and innovation), human resource management (recruitment and training), and infrastructure (administrative and support functions).

Example: Let's take the example of a smartphone manufacturer. Inbound logistics involve sourcing components, such as processors and displays. Operations include assembly and quality control. Outbound logistics cover shipping and distribution. Marketing and sales involve advertising and retail partnerships. Customer service handles warranty and support.

Procurement ensures a stable supply chain for components. Technology development focuses on research and development of new features. Human resource management includes hiring and training skilled engineers. Infrastructure supports the company's administrative functions.

By applying these frameworks and models effectively, you can better understand your industry, identify strategic opportunities and threats, and develop a solid foundation for informed decision-making.

Data Interpretation and Analysis

Once you have your data, it's time to start interpreting and analyzing the data you've collected during your industry analysis.

You can unlock the full potential of your data with Appinio 's comprehensive research platform. Beyond aiding in data collection, Appinio simplifies the intricate process of data interpretation and analysis. Our intuitive tools empower you to effortlessly transform raw data into actionable insights, giving you a competitive edge in understanding your industry.

Whether it's assessing market trends, evaluating the competitive landscape, or understanding customer behavior, Appinio offers a holistic solution to uncover valuable findings. With our platform, you can make informed decisions, strategize effectively, and stay ahead of industry shifts.

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1. Analyze Market Size and Growth

Analyzing the market's size and growth is essential for understanding its dynamics and potential. Here's how to conduct a robust analysis:

• Market Size Calculation: Determine the total market size in terms of revenue, units sold, or the number of customers. This figure serves as a baseline for evaluating the industry's scale.
• Historical Growth Analysis: Examine historical data to identify growth trends. This includes looking at past year-over-year growth rates and understanding the factors that influenced them.
• Projected Growth Assessment: Explore industry forecasts and projections to gain insights into the expected future growth of the market. Consider factors such as emerging technologies, changing consumer preferences, and economic conditions.
• Segmentation Analysis: If applicable, analyze market segmentation data to identify growth opportunities in specific market segments. Understand which segments are experiencing the most significant growth and why.

2. Assess Market Trends

Stay ahead of the curve by closely monitoring and assessing market trends. Here's how to effectively evaluate trends within your industry.

• Consumer Behavior Analysis: Dive into consumer behavior data to uncover shifts in preferences, buying patterns, and shopping habits. Understand how technological advancements and cultural changes influence consumer choices.
• Technological Advancements: Keep a keen eye on technological developments that impact your industry. Assess how innovations such as AI, IoT, blockchain, or automation are changing the competitive landscape.
• Regulatory Changes: Stay informed about regulatory shifts and their potential consequences for your industry. Regulations can significantly affect product development, manufacturing processes, and market entry strategies.
• Sustainability and Environmental Trends: Consider the growing importance of sustainability and environmental concerns. Evaluate how your industry is adapting to eco-friendly practices and how these trends affect consumer choices.

3. Evaluate Competitive Landscape

Understanding the competitive landscape is critical for positioning your business effectively. To perform a comprehensive evaluation:

• Competitive Positioning: Determine where your company stands in comparison to competitors. Identify your unique selling propositions and areas where you excel.
• Market Share Analysis: Continuously monitor market share among industry players. Identify trends in market share shifts and assess the strategies that lead to such changes.
• Competitive Advantages and Weaknesses: Analyze your competitors' strengths and weaknesses. Identify areas where you can capitalize on their weaknesses and where you need to fortify your own strengths.

4. Identify Key Success Factors

Recognizing and prioritizing key success factors is crucial for developing effective strategies. To identify and leverage these factors:

• Customer Satisfaction: Prioritize customer satisfaction as a critical success factor. Satisfied customers are more likely to become loyal advocates and contribute to long-term success.
• Quality and Innovation: Focus on product or service quality and continuous innovation. Meeting and exceeding customer expectations can set your business apart from competitors.
• Cost Efficiency: Strive for cost efficiency in your operations. Identifying cost-saving opportunities can lead to improved profitability.
• Marketing and Branding Excellence: Invest in effective marketing and branding strategies to create a strong market presence. Building a recognizable brand can drive customer loyalty and growth.

5. Analyze Customer Behavior and Preferences

Understanding your target audience is central to success. Here's how to analyze customer behavior and preferences:

• Market Segmentation: Use market segmentation to categorize customers based on demographics, psychographics , and behavior. This allows for more personalized marketing and product/service offerings.
• Customer Surveys and Feedback: Gather customer feedback through surveys and feedback mechanisms. Understand their pain points, preferences, and expectations to tailor your offerings.
• Consumer Journey Mapping: Map the customer journey to identify touchpoints where you can improve engagement and satisfaction. Optimize the customer experience to build brand loyalty.

By delving deep into data interpretation and analysis, you can gain valuable insights into your industry, uncover growth opportunities, and refine your strategic approach.

How to Conduct Competitor Analysis?

Competitor analysis is a critical component of industry analysis as it provides valuable insights into your rivals, helping you identify opportunities, threats, and areas for improvement.

1. Identify Competitors

Identifying your competitors is the first step in conducting a thorough competitor analysis. Competitors can be classified into several categories:

• Direct Competitors: These are companies that offer similar products or services to the same target audience. They are your most immediate competitors and often compete directly with you for market share.
• Indirect Competitors: Indirect competitors offer products or services that are related but not identical to yours. They may target a slightly different customer segment or provide an alternative solution to the same problem.
• Potential Competitors: These companies could enter your market in the future. Identifying potential competitors early allows you to anticipate and prepare for new entrants.
• Substitute Products or Services: While not traditional competitors, substitute products or services can fulfill the same customer needs or desires. Understanding these alternatives is crucial to your competitive strategy.

2. Analyze Competitor Strengths and Weaknesses

Once you've identified your competitors, you need to analyze their strengths and weaknesses. This analysis helps you understand how to position your business effectively and identify areas where you can gain a competitive edge.

• Strengths: Consider what your competitors excel at. This could include factors such as brand recognition, innovative products, a large customer base, efficient operations, or strong financial resources.
• Weaknesses: Identify areas where your competitors may be lacking. Weaknesses could involve limited product offerings, poor customer service, outdated technology, or financial instability.

3. Competitive Positioning

Competitive positioning involves defining how you want your business to be perceived relative to your competitors. It's about finding a unique position in the market that sets you apart. Consider the following strategies:

• Cost Leadership: Strive to be the low-cost provider in your industry. This positioning appeals to price-conscious consumers.
• Differentiation: Focus on offering unique features or attributes that make your products or services stand out. This can justify premium pricing.
• Niche Market: Target a specific niche or segment of the market that may be underserved by larger competitors. Tailor your offerings to meet their unique needs.
• Innovation and Technology: Emphasize innovation and technology to position your business as a leader in product or service quality.
• Customer-Centric: Prioritize exceptional customer service and customer experience to build loyalty and a positive reputation.

4. Benchmarking and Gap Analysis

Benchmarking involves comparing your business's performance and practices with those of your competitors or industry leaders. Gap analysis helps identify areas where your business falls short and where improvements are needed.

• Performance Benchmarking: Compare key performance metrics, such as revenue, profitability, market share, and customer satisfaction, with those of your competitors. Identify areas where your performance lags behind or exceeds industry standards.
• Operational Benchmarking: Analyze your operational processes, supply chain, and cost structures compared to your competitors. Look for opportunities to streamline operations and reduce costs.
• Product or Service Benchmarking: Evaluate the features, quality, and pricing of your products or services relative to competitors. Identify gaps and areas for improvement.
• Marketing and Sales Benchmarking: Assess your marketing strategies, customer acquisition costs, and sales effectiveness compared to competitors. Determine whether your marketing efforts are performing at a competitive level.

Market Entry and Expansion Strategies

Market entry and expansion strategies are crucial for businesses looking to enter new markets or expand their presence within existing ones. These strategies can help you effectively target and penetrate your chosen markets.

Market Segmentation and Targeting

• Market Segmentation: Begin by segmenting your target market into distinct groups based on demographics , psychographics, behavior, or other relevant criteria. This helps you understand the diverse needs and preferences of different customer segments.
• Targeting: Once you've segmented the market, select specific target segments that align with your business goals and capabilities. Tailor your marketing and product/service offerings to appeal to these chosen segments.

Market Entry Modes

Selecting the proper market entry mode is crucial for a successful expansion strategy. Entry modes include:

• Exporting: Sell your products or services in international markets through exporting. This is a low-risk approach, but it may limit your market reach.
• Licensing and Franchising: License your brand, technology, or intellectual property to local partners or franchisees. This allows for rapid expansion while sharing the risk and control.
• Joint Ventures and Alliances: Partner with local companies through joint ventures or strategic alliances. This approach leverages local expertise and resources.
• Direct Investment: Establish a physical presence in the target market through subsidiaries, branches, or wholly-owned operations. This offers full control but comes with higher risk and investment.

Competitive Strategy Formulation

Your competitive strategy defines how you will compete effectively in the target market.

• Cost Leadership: Strive to offer products or services at lower prices than competitors while maintaining quality. This strategy appeals to price-sensitive consumers.
• Product Differentiation: Focus on offering unique and innovative products or services that stand out in the market. This strategy justifies premium pricing.
• Market Niche: Target a specific niche or segment within the market that is underserved or has particular needs. Tailor your offerings to meet the unique demands of this niche.
• Market Expansion : Expand your product or service offerings to capture a broader share of the market. This strategy involves diversifying your offerings to appeal to a broader audience.
• Global Expansion: Consider expanding internationally to tap into new markets and diversify your customer base. This strategy involves thorough market research and adaptation to local cultures and regulations.

International Expansion Considerations

If your expansion strategy involves international markets, there are several additional considerations to keep in mind.

• Market Research: Conduct in-depth market research to understand the target country's cultural, economic, and legal differences.
• Regulatory Compliance: Ensure compliance with international trade regulations, customs, and import/export laws.
• Cultural Sensitivity: Adapt your marketing and business practices to align with the cultural norms and preferences of the target market.
• Localization: Consider adapting your products, services, and marketing materials to cater to local tastes and languages.
• Risk Assessment: Evaluate the political, economic, and legal risks associated with operating in the target country. Develop risk mitigation strategies.

By carefully analyzing your competitors and crafting effective market entry and expansion strategies, you can position your business for success in both domestic and international markets.

Risk Assessment and Mitigation

Risk assessment and mitigation are crucial aspects of industry analysis and strategic planning. Identifying potential risks, assessing vulnerabilities, and implementing effective risk management strategies are essential for business continuity and success.

1. Identify Industry Risks

• Market Risks: These risks pertain to factors such as changes in market demand, economic downturns, shifts in consumer preferences, and fluctuations in market prices. For example, the hospitality industry faced significant market risks during the COVID-19 pandemic, resulting in decreased travel and tourism .
• Regulatory and Compliance Risks: Regulatory changes, compliance requirements, and government policies can pose risks to businesses. Industries like healthcare are particularly susceptible to regulatory changes that impact operations and reimbursement.
• Technological Risks: Rapid technological advancements can disrupt industries and render existing products or services obsolete. Companies that fail to adapt to technological shifts may face obsolescence.
• Operational Risks: These risks encompass internal factors that can disrupt operations, such as supply chain disruptions, equipment failures, or cybersecurity breaches.
• Financial Risks: Financial risks include factors like liquidity issues, credit risk , and market volatility. Industries with high capital requirements, such as real estate development, are particularly vulnerable to financial risks.
• Competitive Risks: Intense competition and market saturation can pose challenges to businesses. Failing to respond to competitive threats can result in loss of market share.
• Global Risks: Industries with a worldwide presence face geopolitical risks, currency fluctuations, and international trade uncertainties. For instance, the automotive industry is susceptible to trade disputes affecting the supply chain.

2. Assess Business Vulnerabilities

• SWOT Analysis: Revisit your SWOT analysis to identify internal weaknesses and threats. Assess how these weaknesses may exacerbate industry risks.
• Financial Health: Evaluate your company's financial stability, debt levels, and cash flow. Identify vulnerabilities related to financial health that could hinder your ability to withstand industry-specific challenges.
• Operational Resilience: Assess the robustness of your operational processes and supply chain. Identify areas where disruptions could occur and develop mitigation strategies.
• Market Positioning: Analyze your competitive positioning and market share. Recognize vulnerabilities in your market position that could be exploited by competitors.
• Compliance and Regulatory Adherence: Ensure that your business complies with relevant regulations and standards. Identify vulnerabilities related to non-compliance or regulatory changes.

3. Risk Management Strategies

• Risk Avoidance: In some cases, the best strategy is to avoid high-risk ventures or markets altogether. This may involve refraining from entering certain markets or discontinuing products or services with excessive risk.
• Risk Reduction: Implement measures to reduce identified risks. For example, diversifying your product offerings or customer base can reduce dependence on a single revenue source.
• Risk Transfer: Transfer some risks through methods such as insurance or outsourcing. For instance, businesses can mitigate cybersecurity risks by purchasing cyber insurance.
• Risk Acceptance: In cases where risks cannot be entirely mitigated, it may be necessary to accept a certain level of risk and have contingency plans in place to address potential issues.
• Continuous Monitoring: Establish a system for continuous risk monitoring. Regularly assess the changing landscape and adjust risk management strategies accordingly.

4. Contingency Planning

Contingency planning involves developing strategies and action plans to respond effectively to unforeseen events or crises. It ensures that your business can maintain operations and minimize disruptions in the face of adverse circumstances. Key elements of contingency planning include:

• Risk Scenarios: Identify potential risk scenarios specific to your industry and business. These scenarios should encompass a range of possibilities, from minor disruptions to major crises.
• Response Teams: Establish response teams with clearly defined roles and responsibilities. Ensure that team members are trained and ready to act in the event of a crisis.
• Communication Plans: Develop communication plans that outline how you will communicate with employees, customers, suppliers, and other stakeholders during a crisis. Transparency and timely communication are critical.
• Resource Allocation: Determine how resources, including personnel, finances, and equipment, will be allocated in response to various scenarios.
• Testing and Simulation: Regularly conduct tests and simulations of your contingency plans to identify weaknesses and areas for improvement. Ensure your response teams are well-practiced and ready to execute the plans effectively.
• Documentation and Record Keeping: Maintain comprehensive documentation of contingency plans, response procedures, and communication protocols. This documentation should be easily accessible to relevant personnel.
• Review and Update: Continuously review and update your contingency plans to reflect changing industry dynamics and evolving risks. Regularly seek feedback from response teams to make improvements.

By identifying industry risks, assessing vulnerabilities, implementing risk management strategies, and developing robust contingency plans, your business can navigate the complexities of the industry landscape with greater resilience and preparedness.

Industry Analysis Template

When embarking on the journey of Industry Analysis, having a well-structured template is akin to having a reliable map for your exploration. It provides a systematic framework to ensure you cover all essential aspects of the analysis. Here's a breakdown of an industry analysis template with insights into each section.

Industry Overview

• Objective: Provide a broad perspective of the industry.
• Market Definition: Define the scope and boundaries of the industry, including its products, services, and target audience.
• Market Size and Growth: Present current market size, historical growth trends, and future projections.
• Key Players: Identify major competitors and their market share.
• Market Trends: Highlight significant trends impacting the industry.

Competitive Analysis

• Objective: Understand the competitive landscape within the industry.
• Competitor Identification: List direct and indirect competitors.
• Competitor Profiles: Provide detailed profiles of major competitors, including their strengths, weaknesses, strategies, and market positioning.
• SWOT Analysis: Conduct a SWOT analysis for each major competitor.
• Market Share Analysis: Analyze market share distribution among competitors.

Market Analysis

• Objective: Explore the characteristics and dynamics of the market.
• Customer Segmentation: Define customer segments and their demographics, behavior, and preferences.
• Demand Analysis: Examine factors driving demand and customer buying behavior.
• Supply Chain Analysis: Map out the supply chain, identifying key suppliers and distribution channels.
• Regulatory Environment: Discuss relevant regulations, policies, and compliance requirements.

Technological Analysis

• Objective: Evaluate the technological landscape impacting the industry.
• Technological Trends: Identify emerging technologies and innovations relevant to the industry.
• Digital Transformation: Assess the level of digitalization within the industry and its impact on operations and customer engagement.
• Innovation Opportunities: Explore opportunities for leveraging technology to gain a competitive edge.

Financial Analysis

• Objective: Analyze the financial health of the industry and key players.
• Revenue and Profitability: Review industry-wide revenue trends and profitability ratios.
• Financial Stability: Assess financial stability by examining debt levels and cash flow.
• Investment Patterns: Analyze capital expenditure and investment trends within the industry.

Consumer Insights

• Objective: Understand consumer behavior and preferences.
• Consumer Surveys: Conduct surveys or gather data on consumer preferences, buying habits , and satisfaction levels.
• Market Perception: Gauge consumer perception of brands and products in the industry.
• Consumer Feedback: Collect and analyze customer feedback and reviews.

SWOT Analysis for Your Business

• Objective: Assess your own business within the industry context.
• Strengths: Identify internal strengths that give your business a competitive advantage.
• Weaknesses: Recognize internal weaknesses that may hinder your performance.
• Opportunities: Explore external opportunities that your business can capitalize on.
• Threats: Recognize external threats that may impact your business.

Conclusion and Recommendations

• Objective: Summarize key findings and provide actionable recommendations.
• Summary: Recap the most critical insights from the analysis.
• Recommendations: Offer strategic recommendations for your business based on the analysis.
• Future Outlook: Discuss potential future developments in the industry.

While this template provides a structured approach, adapt it to the specific needs and objectives of your Industry Analysis. It serves as your guide, helping you navigate through the complex landscape of your chosen industry, uncovering opportunities, and mitigating risks along the way.

Remember that the depth and complexity of your industry analysis may vary depending on your specific goals and the industry you are assessing. You can adapt this template to focus on the most relevant aspects and conduct thorough research to gather accurate data and insights. Additionally, consider using industry-specific data sources, reports, and expert opinions to enhance the quality of your analysis.

Industry Analysis Examples

To grasp the practical application of industry analysis, let's delve into a few diverse examples across different sectors. These real-world scenarios demonstrate how industry analysis can guide strategic decision-making.

Tech Industry - Smartphone Segment

Scenario: Imagine you are a product manager at a tech company planning to enter the smartphone market. Industry analysis reveals that the market is highly competitive, dominated by established players like Apple and Samsung.

Use of Industry Analysis:

• Competitive Landscape: Analyze the strengths and weaknesses of competitors, identifying areas where they excel (e.g., Apple's brand loyalty ) and where they might have vulnerabilities (e.g., consumer demand for more affordable options).
• Market Trends: Identify trends like the growing demand for sustainable technology and 5G connectivity, guiding product development and marketing strategies.
• Regulatory Factors: Consider regulatory factors related to intellectual property rights, patents, and international trade agreements that can impact market entry and operations.
• Outcome: Armed with insights from industry analysis, you decide to focus on innovation, emphasizing features like eco-friendliness and affordability. This niche approach helps your company gain a foothold in the competitive market.

Healthcare Industry - Telehealth Services

Scenario: You are a healthcare entrepreneur exploring opportunities in the telehealth sector, especially in the wake of the COVID-19 pandemic. Industry analysis is critical due to rapid market changes.

• Market Size and Growth: Evaluate the growing demand for telehealth services, driven by the need for remote healthcare during the pandemic and convenience factors.
• Regulatory Environment: Understand the evolving regulatory landscape, including changes in telemedicine reimbursement policies and licensing requirements.
• Technological Trends: Explore emerging technologies such as AI-powered diagnosis and remote monitoring that can enhance service offerings.
• Outcome: Industry analysis underscores the potential for telehealth growth. You adapt your business model to align with regulatory changes, invest in cutting-edge technology, and focus on patient-centric care, positioning your telehealth service for success.

Food Industry - Plant-Based Foods

Scenario: As a food industry entrepreneur , you are considering entering the plant-based foods market, driven by increasing consumer interest in health and sustainability.

• Market Trends: Analyze the trend toward plant-based diets and sustainability, reflecting changing consumer preferences.
• Competitive Landscape: Assess the competitive landscape, understanding that established companies and startups are vying for market share.
• Consumer Behavior: Study consumer behavior, recognizing that health-conscious consumers seek plant-based alternatives.
• Outcome: Informed by industry analysis, you launch a line of plant-based products emphasizing both health benefits and sustainability. Effective marketing and product quality gain traction among health-conscious consumers, making your brand a success in the plant-based food industry.

These examples illustrate how industry analysis can guide strategic decisions, whether entering competitive tech markets, navigating dynamic healthcare regulations, or capitalizing on shifting consumer preferences in the food industry. By applying industry analysis effectively, businesses can adapt, innovate, and thrive in their respective sectors.

Conclusion for Industry Analysis

Industry Analysis is the compass that helps businesses chart their course in the vast sea of markets. By understanding the industry's dynamics, risks, and opportunities, you gain a strategic advantage that can steer your business towards success. From identifying competitors to mitigating risks and formulating competitive strategies, this guide has equipped you with the tools and knowledge needed to navigate the complexities of the business world.

Remember, Industry Analysis is not a one-time task; it's an ongoing journey. Keep monitoring market trends, adapting to changes, and staying ahead of the curve. With a solid foundation in industry analysis, you're well-prepared to tackle challenges, seize opportunities, and make well-informed decisions that drive your business toward prosperity. So, set sail with confidence and let industry analysis be your guiding star on the path to success.

How to Conduct Industry Analysis in Minutes?

Introducing Appinio , the real-time market research platform that transforms how you conduct Industry Analysis. Imagine getting real-time consumer insights in minutes, putting the power of data-driven decision-making at your fingertips. With Appinio, you can:

• Gain insights swiftly: Say goodbye to lengthy research processes. Appinio delivers answers fast, ensuring you stay ahead in the competitive landscape.
• No research degree required: Our intuitive platform is designed for everyone. You don't need a PhD in research to harness its capabilities.
• Global reach, local insights: Define your target group precisely from over 1200 characteristics and access consumer data in over 90 countries.

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Home > Business Plan > Market Size in a Business Plan

Market Size in a Business Plan

… the market size looks like this …

What is Market Size?

To the investor, the solution in itself has no value unless it can be realized in the market place. Ultimately, it will be the industry market size that decides the value of your business to an investor and, as a rule of thumb, the bigger the available market, the better.

How to Calculate Market Sizes

TAM (Total Available Market) is the total market size (people, revenues, units etc.) who have the problem you are seeking to solve today.

SAM (Served Available Market) is the part of the TAM who are able to use your solution to the problem. This is your target market .

Available Market Size Estimation

The total available market or TAM is based on the number of properties in the region which use lawn care treatments. Using a top down approach, Government statistics might show that there are six million properties with gardens and industry analysis reveals that 3% of properties use lawn care treatments, and spend an average of 150 per year. The TAM is calculated as follows:

TAM = 6 million x 3% x 150 = 27 million per year

This means that if your business operated throughout the entire region with no competition its revenues would be 27 million per year. TAM defines the maximum size for the market the business operates in.

However, at the moment not all of the TAM are able to use your lawn care service as you only have one lawn care outlet in one town in the region. The market which is able to use your solution is limited to the town, so the serviceable available market or SAM is based on the number of properties with gardens within the town. Again, Government statistics might show that there are one million properties with gardens in the region, so the SAM is given as follows:

SAM = 1 million x 3% x 150 = 4.5 million (16.7% of TAM)

If there was no competition within the town and you had the resources to provide the service , then the revenue from the business would be 4.5 million per year. The SAM represents 16.7% of the TAM.

Market Size and Growth

The investor will also want to know whether this is a growing or declining market. The market size section of the business plan should also give an indication of the potential for growth over the next five years. We might be able to find additional market size data which shows that the number of properties with gardens will grow to 20.5 million, and the number using lawn care treatments is expected to increase to 4%, with an average spend of 165. the TAM is calculated as follows:

TAM = 6.5 million x 4% x 165 = 42.9 million per year in five years time

Like wise for the town the number of properties with gardens might be expected to increase to 1.15 million, and the SAM is given as follows:

SAM = 1.15 million x 4% x 165 = 7.59 million (17.7% of TAM)

Market Estimate Presentation in the Business Plan

The business plan market size section can be presented in a number of formats, but a simple column format setting out the TAM and SAM now and in five years time, will allow the investor to quickly ascertain how big the market for the product could be and it prospects for growth over the duration of the business plan.

Market sizing is an important part of the business plan process. But this is planning not accounting. The market size section is an educated guess at how big the available market for the product is and aims to show that a successful launch and continued growth for the product is possible. It is based on available statistics and trade association data.

A few key points should be remembered when trying to determine market size

• Start from verifiable and accurate base data. In the above example, the starting point was a government statistic based on the number of properties with gardens.
• Double check any information with an alternative source if possible.
• Check the results make sense.
• Check the results using a bottom up calculation. For example, if you know a lawn care business in the region has revenue of 500,000 and estimated 2% of the market, then the TAM should be in the order of 500,000 / 2% = 25 million compared to the 27 million calculated above.
• Keep the industry definition narrow, in this case lawn care treatments.
• Be specific, don’t try and say for example, there are millions of properties in the world with gardens and if we can take a very small percentage of that our plan will work.
• The analysis will differ depending on whether you are dealing with an existing market or a completely new market. For an existing product there will be market and industry data available, for a new product you may need to carry out market size research with potential customers and work upwards from there.

This is part of the financial projections and Contents of a Business Plan Guide , a series of posts on what each section of a simple business plan should include. The next post in this series is about the analysis of the target market for the business plan product.

About the Author

Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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Analyze your market like a pro with this step-by-step guide + insider tips

Don’t fall into the trap of assuming that you already know enough about your market.

No matter how fantastic your product or service is, your business cannot succeed without sufficient market demand .

You need a clear understanding of who will buy your product or service and why .

You want to know if there is a clear market gap and a market large enough to support the survival and growth of your business.

Industry research and market analysis will help make sure that you are on the right track .

It takes time , but it is time well spent . Thank me later.

WHAT is Market Analysis?

The Market Analysis section of a business plan is also sometimes called:

• Market Demand, Market Trends, Target Market, The Market
• Industry Analysis & Trends, Industry & Market Analysis, Industry and Market Research

WHY Should You Do Market Analysis?

First and foremost, you need to demonstrate beyond any reasonable doubt that there is real need and sufficient demand for your product or service in the market, now and going forward.

• What makes you think that people will buy your products or services?
• Can you prove it?

Your due diligence on the market opportunity and validating the problem and solution described in the Product and Service section of your business plan are crucial for the success of your venture.

Also, no company operates in a vacuum. Every business is part of a larger overall industry, the forces that affect your industry as a whole will inevitably affect your business as well.

Evaluating your industry and market increases your own knowledge of the factors that contribute to your company’s success and shows the readers of your business plan that you understand the external business conditions.

External Support

In fact, if you are seeking outside financing, potential backers will most definitely be interested in industry and market conditions and trends.

You will make a positive impression and have a better chance of getting their support if you show market analysis that strengthens your business case, combining relevant and reliable data with sound judgement.

Let’s break down how to do exactly that, step by step:

HOW To Do Market Analysis: Step-by-Step

So, let’s break up how market analysis is done into three steps:

• Industry:  the total market
• Target Market: specific segments of the industry that you will target
• Target Customer: characteristics of the customers that you will focus on

Step 1: Industry Analysis

How do you define an industry.

For example, the fashion industry includes fabric suppliers, designers, companies making finished clothing, distributors, sales representatives, trade publications, retail outlets online and on the high street.

How Do You Analyze an Industry?

Briefly describe your industry, including the following considerations:

1.1. Economic Conditions

Outline the current and projected economic conditions that influence the industry your business operates in, such as:

• Official economic indicators like GDP or inflation
• Labour market statistics
• Foreign trade (e.g., import and export statistics)

1.2. Industry Description

Highlight the distinct characteristic of your industry, including:

• Market leaders , major customer groups and customer loyalty
• Supply chain and distribution channels
• Profitability (e.g., pricing, cost structure, margins), financials
• Key success factors
• Barriers to entry preventing new companies from competing in the industry

1.3. Industry Size and Growth

Estimate the size of your industry and analyze how industry growth affects your company’s prospects:

• Current size (e.g., revenues, units sold, employment)
• Historic and projected industry growth rate (low/medium/high)
• Life-cycle stage /maturity (emerging/expanding/ mature/declining)

1.4. Industry Trends

• Industry Trends: Describe the key industry trends and evaluate the potential impact of PESTEL (political / economic / social / technological / environmental / legal) changes on the industry, including the level of sensitivity to:
• Seasonality
• Economic cycles
• Government regulation (e.g. environment, health and safety, international trade, performance standards, licensing/certification/fair trade/deregulation, product claims) Technological change
• Global Trends: Outline global trends affecting your industry
• Identify global industry concerns and opportunities
• International markets that could help to grow your business
• Strategic Opportunity: Highlight the strategic opportunities that exist in your industry

Step 2: Target Customer Identification

Who is a target customer.

One business can have–and often does have–more than one target customer group.

The success of your business depends on your ability to meet the needs and wants of your customers. So, in a business plan, your aim is to assure readers that:

• Your customers actually exist
• You know exactly who they are and what they want
• They are ready for what you have to offer and are likely to actually buy

How Do You Identify an Ideal Target Customer?

2.1. target customer.

• Identify the customer, remembering that the decision-maker who makes the purchase can be a different person or entity than the end-user.

2.2. Demographics

• For consumers ( demographics ): Age, gender, income, occupation, education, family status, home ownership, lifestyle (e.g., work and leisure activities)
• For businesses ( firmographic ): Industry, sector, years in business, ownership, size (e.g., sales, revenues, budget, employees, branches, sq footage)

2.3. Geographic Location

• Where are your customers based, where do they buy their products/services and where do they actually use them

2.4 Purchasing Patterns

• Identify customer behaviors, i.e., what actions they take
• how frequently
• and how quickly they buy

2.5. Psychographics

• Identify customer attitudes, i.e., how they think or feel
• Urgency, price, quality, reputation, image, convenience, availability, features, brand, customer service, return policy, sustainability, eco-friendliness, supporting local business
• Necessity/luxury, high involvement bit ticket item / low involvement consumable

Step 3: Target Market Analysis

What is a target market.

Target market, or 'target audience', is a group of people that a business has identified as the most likely to purchase its offering, defined by demographic, psychographic, geographic and other characteristics. Target market may be broken down to target customers to customize marketing efforts.

How Do You Analyze a Target Market?

So, how many people are likely to become your customers?

To get an answer to this questions, narrow the industry into your target market with a manageable size, and identify its key characteristics, size and trends:

3.1. Target Market Description

Define your target market by:

• Type: B2C, B2B, government, non-profits
• Geographic reach: Specify the geographic location and reach of your target market

3.2. Market Size and Share

Estimate how large is the market for your product or service (e.g., number of customers, annual purchases in sales units and $ revenues). Explain the logic behind your calculation:

• TAM (Total Available/Addressable/Attainable Market) is the total maximum demand for a product or service that could theoretically be generated by selling to everyone in the world who could possibly buy from you, regardless of competition and any other considerations and restrictions.
• SAM (Serviceable Available Market) is the portion of the TAM that you could potentially address in a specific market. For example, if your product/service is only available in one country or language.
• SOM (Service Obtainable Market / Share of Market) is the share of the SAM that you can realistically carve out for your product or service. This the target market that you will be going after and can reasonably expect to convert into a customer base.

3.3. Market Trends

Illustrate the most important themes, changes and developments happening in your market. Explain the reasons behind these trends and how they will favor your business.

3.4. Demand Growth Opportunity

Estimate future demand for your offering by translating past, current and future market demand trends and drivers into forecasts:

• Historic growth: Check how your target market has grown in the past.
• Drivers past: Identify what has been driving that growth in the past.
• Drivers future: Assess whether there will be any change in influence of these and other drivers in the future.

How Big Should My Target Market Be?

Well, if the market opportunity is small, it will limit how big and successful your business can become. In fact, it may even be too small to support a successful business at all.

On the other hand, many businesses make the mistake of trying to appeal to too many target markets, which also limits their success by distracting their focus.

What If My Stats Look Bad?

Large and growing market suggests promising demand for your offering now and into the future. Nevertheless, your business can still thrive in a smaller or contracting market.

Instead of hiding from unfavorable stats, acknowledge that you are swimming against the tide and devise strategies to cope with whatever lies ahead.

Step 4: Industry and Market Analysis Research

The market analysis section of your business plan should illustrate your own industry and market knowledge as well as the key findings and conclusions from your research.

Back up your findings with external research sources (= secondary research) and results of internal market research and testing (= primary research).

What is Primary and Secondary Market Research?

Yes, there are two main types of market research – primary and secondary – and you should do both to adequately cover the market analysis section of your business plan:

• Primary market research is original data you gather yourself, for example in the form of active fieldwork collecting specific information in your market.
• Secondary market research involves collating information from existing data, which has been researched and shared by reliable outside sources . This is essentially passive desk research of information already published .

Unless you are working for a corporation, this exercise is not about your ability to do professional-level market research.

Instead, you just need to demonstrate fundamental understanding of your business environment and where you fit in within the market and broader industry.

Why Do You Need To Do Primary & Secondary Market Research?

There are countless ways you could go collecting industry and market research data, depending on the type of your business, what your business plan is for, and what your needs, resources and circumstances are.

For tried and tested tips on how to properly conduct your market research, read the next section of this guide that is dedicated to primary and secondary market research methods.

In any case, tell the reader how you carried out your market research. Prove what the facts are and where you got your data. Be as specific as possible. Provide statistics, numbers, and sources.

When doing secondary research, always make sure that all stats, facts and figures are from reputable sources and properly referenced in both the main text and the Appendix of your business plan. This gives more credibility to your business case as the reader has more confidence in the information provided.

Go to the Primary and Secondary Market Research post for my best tips on industry, market and competitor research.

7 TOP TIPS For Writing Market Analysis

1. realistic projections.

Above all, make sure that you are realistic in your projections about how your product or service is going to be accepted in the market, otherwise you are going to seriously undermine the credibility of your entire business case.

2. Laser Focus

Discuss only characteristic of your target market and customers that are observable, factual and meaningful, i.e. directly relate to your customers’ decision to purchase.

Always relate the data back to your business. Market statistics are meaningless until you explain where and how your company fits in.

For example, as you write about the market gap and the needs of your target customers, highlight how you are uniquely positioned to fill them.

In other words, your goal is to:

• Present your data
• Analyze the data
• Tie the data back to how your business can thrive within your target market

3. Target Audience

On a similar note, tailor the market analysis to your target audience and the specific purpose at hand.

For example, if your business plan is for internal use, you may not have to go into as much detail about the market as you would have for external financiers, since your team is likely already very familiar with the business environment your company operates in.

4. Story Time

Make sure that there is a compelling storyline and logical flow to the market information presented.

The saying “a picture is worth a thousand words” certainly applies here. Industry and market statistics are easier to understand and more impactful if presented as a chart or graph.

6. Information Overload

Keep your market analysis concise by only including pertinent information. No fluff, no repetition, no drowning the reader in a sea of redundant facts.

While you should not assume that the reader knows anything about your market, do not elaborate on unnecessary basic facts either.

Do not overload the reader in the main body of the business plan. Move everything that is not essential to telling the story into the Appendix. For example, summarize the results of market testing survey in the main body of the business plan document, but move the list of the actual survey questions into the appendix.

7. Marketing Plan

Note that market analysis and marketing plan are two different things, with two distinct chapters in a business plan.

As the name suggests, market analysis examines where you fit in within your desired industry and market. As you work thorugh this section, jot down your ideas for the marketing and strategy section of your business plan.

Final Thoughts

Remember that the very act of doing the research and analysis is a great opportunity to learn things that affect your business that you did not know before, so take your time doing the work.

Related Questions

What is the purpose of industry & market research and analysis.

The purpose of industry and market research and analysis is to qualitatively and quantitatively assess the environment of a business and to confirm that the market opportunity is sufficient for sustainable success of that business.

Why are Industry & Market Research and Analysis IMPORTANT?

Industry and market research and analysis are important because they allow you to gain knowledge of the industry, the target market you are planning to sell to, and your competition, so you can make informed strategic decisions on how to make your business succeed.

How Can Industry & Market Research and Analysis BENEFIT a Business?

Industry and market research and analysis benefit a business by uncovering opportunities and threats within its environment, including attainable market size, ideal target customers, competition and any potential difficulties on the company’s journey to success.

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The 2 Simple & Straightforward Methods for Market Sizing Your Business

Published: September 21, 2023

When you’re considering a new venture, one of the first things you should do is determine whether there is a valuable market for it.

Discover the methods to calculate your market size and accurately measure your business’ revenue potential .

Keep reading, or jump to the section you’re looking for:

What is market sizing?

Market sizing terms to know, how to calculate market size, market sizing methods.

Market sizing is the process of finding how big your product's audience or revenue could be. So, market size is the total number of potential buyers for a product or service and the potential revenue reach based on that population size.

When market sizing, you're calculating customer numbers to measure the growth potential of your business.

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• SWOT Analysis Template
• Survey Template
• Focus Group Template

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Click this link to access this resource at any time.

Why is market size important?

There are several reasons why every business should spend time sizing its market:

• Market sizing helps you figure out if your product is a worthy investment. Say you have a great idea for a product but there are only 100 people who would buy it. From there, you can decide if that population size is worth the cost of manufacturing, production, distribution, and more for your product.
• Market sizing helps you estimate profit and potential for growth. If you know how many people your business has the potential to reach, you can estimate how much revenue you can generate. This is valuable for both business owners as well as investors.
• Market size defines who you’re marketing to and what their needs are. No business can succeed without marketing. Knowing your market size is the first step in understanding your target market and their needs.
• Market sizing helps your business make better decisions. Understanding your market landscape, gaps, and opportunities will inform your decision-making. It can also help you set more realistic goals, assign resources, and refine your strategies.
• Market sizing helps your business minimize risk. Starting or expanding a business is inherently risky. Understanding your market can help you anticipate and prepare for challenges.

Market Size vs. Market Value

Market size is the total potential demand for a product or service. This number usually calculates the number of potential customers, units sold, or revenue generated. So, market size is an estimate of the overall market reach.

Market value refers to the financial worth or estimated market capitalization of a company or industry. It’s a measure of perceived value. It can give you an idea of how much a company could sell for in a given market.

In summary, market size focuses on the potential market opportunity, while market value is the financial value of an individual company or an entire market.

Before diving into how to figure out your market size, there are a few helpful terms you should get to know.

TAM stands for Total Addressable Market. This number is the maximum potential revenue or customer base that a company could achieve if it were to capture 100% of market share.

SAM stands for Serviceable Addressable Market. SAM is a part of the TAM that aligns with the company's resources, capabilities, and target customers.

SOM stands for Serviceable Obtainable Market. SOM is the part of the SAM that a company can get at its current scale. This figure may consider marketing and sales strategies, competitive positioning, and product demand.

Check out this post to learn more about TAM, SAM, and SOM and how to calculate them.

Target Market

A target market is a specific group of customers, industries, or segments that a company focuses on. It's the customer segment that's most likely to show interest, purchase, and appreciate a company's products or services.

Penetration Rate

Penetration rate refers to the percentage of a target market that a company has successfully captured. It shows the level of market share reached by a company in a specific market segment or overall market.

If you're a new business, you can calculate penetration rate by dividing your total customers by the number of potential customers in the target market. Then, multiply the result by 100 to get the percentage.

Learn more about market penetration here.

Market Segmentation

Market segmentation is the process of dividing the total market into distinct groups or segments. Usually, the people in these segments have common characteristics, needs, or behaviors.

Segmenting the market can help you better understand your target customers. It can also help you tailor business strategies, like marketing , to meet specific segment needs.

Value Proposition

A value proposition is the unique benefits that a company offers to its target customers. It differentiates a company's product or service from competitors and creates value for customers.

Understanding the value proposition is crucial in market sizing. This is because it can help you find the specific customer segments that will find the most value in your offer.

Try one of these free value proposition templates to draft your value proposition.

• Start with your total addressable market.
• Find a group of customers to focus on within that target market.
• Figure out how many of those customers are likely to buy your product.
• Multiply that customer number by estimated penetration rate.

While calculating market size takes only a few steps, it's a crucial process. The steps below will help you understand the potential demand and revenue opportunities for your business.

1. Start with your total addressable market.

You can calculate your TAM by multiplying the total customers in a market by the annual value per customer. But before calculating, make sure you take a look at the tips below:

• Define your product or service. While developing a product can be quick, growing a business around a product is more complex. It's important to clearly understand your product or service and how it solves a problem or meets a need in the market.
• Find your market category. Some products fall within more than one industry or market category. This is the first step that will narrow your TAM. So, think carefully about what you expect customers to compare your offer to.
• Conduct market research. Gather relevant data and information about your potential users. If you're new to market research, check out this free market research kit , with research and planning templates.
• Analyze the competition. Conduct competitive analysis to figure out the market share and unique value of your top competitors.
• Define your total addressable market. With the research and analysis you've pulled together, create a realistic TAM estimate.

2. Find a group of customers to focus on within that target market.

Dig into the tips below to quantify the top customers in your market:

• Create your ideal buyer persona. Use the Make My Persona tool to outline the characteristics, demographics, and behaviors of your ideal customers.
• Segment your target market. Start dividing your target market into distinct segments. You might base segments on factors like age, location, interests, or buying behavior.
• Continue market research. Continue collecting data and insights about each segment. This will help you understand how big each segment is, as well as their needs, preferences, pain points, and purchasing habits. Your ongoing market research might include surveys, interviews, focus groups, or analyzing existing market research.
• Set pricing for your product or service. For some products, pricing is a deciding purchase factor. So, if you haven't already, set pricing or a price range for your products.
• Assess segments of your market and prioritize . Think about each segment's size, growth potential, and competition. It's also a good idea to think about how each segment aligns with your company's capabilities and resources. In short, don't just focus on segments that offer the most attractive opportunities. Make sure they align with your strengths and needs.
• Refine your buyer personas. With your prioritized segments, take another look at your ideal customer profile. This will give you a more useful buyer persona for your marketing and sales strategies.
• Confirm your SAM with market testing. Test your target segments with a product or service pilot group, measuring their responses and feedback.

3. Figure out how many of those customers are likely to buy your product.

This step will narrow your scope more intensely on the customers who need exactly what you have to offer. These are the people who are looking for you or a clear alternative to your competitors. To quantify this group:

• Create a customer journey map. From awareness to purchase, this process can help you map out the ideal customer path. From how you expect customers to discover your products to the blockers that might keep them from clicking buy, this step is useful for market sizing and beyond. Use these customer journey templates if you're new to this process.
• Estimate conversion rates. Use historical data, industry benchmarks, or industry research to estimate conversion rates. This can help you quantify expected numbers of leads, prospects, and customers in each segment.
• Figure out buyer intent. Create a ranking or score for each segment to measure their likelihood of purchasing your product. This can help you prioritize segments with the highest conversion potential.
• Create a SOM estimate with your data. The research above will add credibility to your market size estimate. It can also help guide your growth strategies.

4. Multiply that customer number by estimated penetration rate.

To calculate penetration rate, divide the SOM you calculated above by your TAM, then multiply by 100.

Once you have a calculation for your market size, you'll want to make sure you can trust that number. Keep your market sizing current with these tips:

• Confirm your data is accurate and reliable. As you complete your research, use reliable sources such as industry reports, market studies, or government databases. Also, check to ensure the data you're referencing is up to date.
• Keep up with market growth, seasonality, industry trends, tech advancements, regulatory changes, and economic conditions. These factors can affect both market size and customer demand.
• Review and update your market size estimates regularly. Market conditions change over time. Plan regular reviews of your market size, then update your calculations with new or relevant data.

There are two simple methods for market sizing your business. These straightforward processes can help you use data to gauge market size.

Top Down Approach

The first is a top-down approach, in which you start by looking at the market as a whole, then refine it to get an accurate market size. That would look like starting from your total addressable market and filtering from there.

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First Steps: Writing the Industry Section of Your Business Plan This quick guide offers tips that will help you create the industry section for your business plan.

By Teresa Ciulla Jan 4, 2015

Opinions expressed by Entrepreneur contributors are their own.

In their book Write Your Business Plan , the staff of Entrepreneur Media, Inc. offer an in-depth understanding of what's essential to any business plan, what's appropriate for your venture, and what it takes to ensure success. In this edited excerpt, the authors outline what type of details you should include in the industry section of your business plan.

It isn't enough to just work hard. If you're in the wrong industry at the wrong time, making your business grow is going to be difficult. The investment community tends to believe that any business can be buoyed by an industry on the rise and that the opposite is true in an industry whose tide is ebbing. This means it's important for you to include an industry analysis in your business plan.

Readers of your business plan may want to see an industry on a fast-growth track with few established competitors and great potential. Or they may be more interested in a big, if somewhat slower-growing, market with competitors who have lost touch with the market, leaving the door open for rivals.

Whatever the facts are, you'll need to support them with a snapshot analysis of the state of your industry and any trends taking place. This can't be mere off-the-cuff thinking. You need to support your opinions with market research that identifies specific competitors and outlines their weaknesses and strengths and any barriers to entry into the market. You need to describe why your industry is valuable and how it will continue to be important. Finally, and perhaps most important, you'll have to convincingly describe what makes you better and destined to succeed.

When preparing the state of the industry section, instead of looking at your business as a self-contained system, you'll describe the whole industry in which you operate and point to your position in that universe. You then zero in on your country, your state and your local community, deepening on how far your business stretches.

This part of your plan may take a little more legwork than other sections because you'll be drawing together information from a number of outside sources. You may also be reporting on or even conducting your own original research into industry affairs.

To start preparing your industry analysis and outlook, dig up the following facts about your field:

1. What is your total industry-wide sales volume? In dollars? In units?

2. What are the trends in sales volumes within your industry?

3. Who are the major players and your key competitors? What are they like?

4. What does it take to compete? What are the barriers to entry?

5. What technological trends affect your industry?

6. What are the main modes of marketing?

7. How does government regulation affect the industry?

8. In what ways are changing consumer tastes affecting your industry?

9. Identify recent demographic trends affecting the industry.

10. How sensitive is the industry to seasons and economic cycles?

11. What are key financial measures in your industry (average profit margins, sales commissions, etc.)?

If your business addresses a trend before it's been widely recognized, you need to include this information in your business plan. Providing some statistics in the trends section of your plan can make it more convincing.

Barriers to Entry

If you want to become a semiconductor manufacturer, you'll need a billion-dollar factory or two. If you want to have a TV network, you'll need programming and cable carriage in the major markets. These problems are called barriers to entry, and they exist to some extent in all industries. The barriers may be monetary, technological, distribution or market-related, or they may simply be a matter of ownership of prime real estate.

An important part of analyzing your market is determining what the barriers to entry are and how high they stretch. If the barriers are high, as is the case with automobile manufacturing, you can be assured new competitors are likely to be slow in springing up. If the barriers are low, such as opening a nail salon, which doesn't have a huge overhead, you have more opportunity to get into the game.

Be alert for innovative competitors when writing the section of your plan in which you analyze barriers to entry. Clearly some markets are also more saturated than others, and today some are dominated by the McDonald's of their industry. For example, it's hard to open a bookstore today with Amazon changing the way people buy books. In that industry, you need to be creative and explore entry into specialty books, mystery books or another niche within the larger market. Exploring entry points in the marketplace carefully will save you from a disastrous error and will certainly demonstrate to investors that you've thought your plan through and aren't jumping to conclusions.

Identifying Competitors

You're not alone, even if you have a one-person business. You also have your competition to worry about, and your backers will worry about competition, too. Even if you're truly in the rare position of addressing a brand-new market where no competition exists, most experienced people reading your plan will have questions about companies they suspect may be competitors. For these reasons, you should devote a special section of your plan to identifying competitors.

If you had to name two competitors in the athletic shoe market, you'd quickly come up with Nike and Reebok. But these by far aren't the only competitors in the sneaker business. They're just two of the main ones, and depending on the business you're in, the other ones may be more important. If you sell soccer shoes, for instance, Adidas is a bigger player than either of the two American firms. And smaller firms such as Etonic, New Balance and Saucony also have niches where they are comparatively powerful.

You can develop a list of competitors by talking to customers and suppliers, checking with industry groups, and reading trade journals. But it's not enough to simply name your competitors. You need to know their manner of operation, how they compete.

Does a competitor stress a selective, low-volume, high-margin business, or does she emphasize sales growth at any cost, taking every job that comes along, whether or not it fits any coherent scheme or offers an attractive profit? Knowing this kind of information about competitors can help you identify their weaknesses as well as their names.

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How to Write a Market Analysis for a Business Plan

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A lot of preparation goes into starting a business before you can open your doors to the public or launch your online store. One of your first steps should be to write a business plan . A business plan will serve as your roadmap when building your business.

Within your business plan, there’s an important section you should pay careful attention to: your market analysis. Your market analysis helps you understand your target market and how you can thrive within it.

Simply put, your market analysis shows that you’ve done your research. It also contributes to your marketing strategy by defining your target customer and researching their buying habits. Overall, a market analysis will yield invaluable data if you have limited knowledge about your market, the market has fierce competition, and if you require a business loan. In this guide, we'll explore how to conduct your own market analysis.

How to conduct a market analysis: A step-by-step guide

In your market analysis, you can expect to cover the following:

Industry outlook

Target market

Market value

Competition

Barriers to entry

Let’s dive into an in-depth look into each section:

Step 1: Define your objective

Before you begin your market analysis, it’s important to define your objective for writing a market analysis. Are you writing it for internal purposes or for external purposes?

If you were doing a market analysis for internal purposes, you might be brainstorming new products to launch or adjusting your marketing tactics. An example of an external purpose might be that you need a market analysis to get approved for a business loan .

The comprehensiveness of your market analysis will depend on your objective. If you’re preparing for a new product launch, you might focus more heavily on researching the competition. A market analysis for a loan approval would require heavy data and research into market size and growth, share potential, and pricing.

Step 2: Provide an industry outlook

An industry outlook is a general direction of where your industry is heading. Lenders want to know whether you’re targeting a growing industry or declining industry. For example, if you’re looking to sell VCRs in 2020, it’s unlikely that your business will succeed.

Starting your market analysis with an industry outlook offers a preliminary view of the market and what to expect in your market analysis. When writing this section, you'll want to include:

Market size

Are you chasing big markets or are you targeting very niche markets? If you’re targeting a niche market, are there enough customers to support your business and buy your product?

Product life cycle

If you develop a product, what will its life cycle look like? Lenders want an overview of how your product will come into fruition after it’s developed and launched. In this section, you can discuss your product’s:

Research and development

Projected growth

How do you see your company performing over time? Calculating your year-over-year growth will help you and lenders see how your business has grown thus far. Calculating your projected growth shows how your business will fare in future projected market conditions.

Step 3: Determine your target market

This section of your market analysis is dedicated to your potential customer. Who is your ideal target customer? How can you cater your product to serve them specifically?

Don’t make the mistake of wanting to sell your product to everybody. Your target customer should be specific. For example, if you’re selling mittens, you wouldn’t want to market to warmer climates like Hawaii. You should target customers who live in colder regions. The more nuanced your target market is, the more information you’ll have to inform your business and marketing strategy.

With that in mind, your target market section should include the following points:

Demographics

This is where you leave nothing to mystery about your ideal customer. You want to know every aspect of your customer so you can best serve them. Dedicate time to researching the following demographics:

Income level

Create a customer persona

Creating a customer persona can help you better understand your customer. It can be easier to market to a person than data on paper. You can give this persona a name, background, and job. Mold this persona into your target customer.

What are your customer’s pain points? How do these pain points influence how they buy products? What matters most to them? Why do they choose one brand over another?

Research and supporting material

Information without data are just claims. To add credibility to your market analysis, you need to include data. Some methods for collecting data include:

Target group surveys

Focus groups

Reading reviews

Feedback surveys

You can also consult resources online. For example, the U.S. Census Bureau can help you find demographics in calculating your market share. The U.S. Department of Commerce and the U.S. Small Business Administration also offer general data that can help you research your target industry.

Step 4: Calculate market value

You can use either top-down analysis or bottom-up analysis to calculate an estimate of your market value.

A top-down analysis tends to be the easier option of the two. It requires for you to calculate the entire market and then estimate how much of a share you expect your business to get. For example, let’s assume your target market consists of 100,000 people. If you’re optimistic and manage to get 1% of that market, you can expect to make 1,000 sales.

A bottom-up analysis is more data-driven and requires more research. You calculate the individual factors of your business and then estimate how high you can scale them to arrive at a projected market share. Some factors to consider when doing a bottom-up analysis include:

Where products are sold

Who your competition is

The price per unit

How many consumers you expect to reach

The average amount a customer would buy over time

While a bottom-up analysis requires more data than a top-down analysis, you can usually arrive at a more accurate calculation.

Step 5: Get to know your competition

Before you start a business, you need to research the level of competition within your market. Are there certain companies getting the lion’s share of the market? How can you position yourself to stand out from the competition?

There are two types of competitors that you should be aware of: direct competitors and indirect competitors.

Direct competitors are other businesses who sell the same product as you. If you and the company across town both sell apples, you are direct competitors.

An indirect competitor sells a different but similar product to yours. If that company across town sells oranges instead, they are an indirect competitor. Apples and oranges are different but they still target a similar market: people who eat fruits.

Also, here are some questions you want to answer when writing this section of your market analysis:

What are your competitor’s strengths?

What are your competitor’s weaknesses?

How can you cover your competitor’s weaknesses in your own business?

How can you solve the same problems better or differently than your competitors?

How can you leverage technology to better serve your customers?

How big of a threat are your competitors if you open your business?

Step 6: Identify your barriers

Writing a market analysis can help you identify some glaring barriers to starting your business. Researching these barriers will help you avoid any costly legal or business mistakes down the line. Some entry barriers to address in your marketing analysis include:

Technology: How rapid is technology advancing and can it render your product obsolete within the next five years?

Branding: You need to establish your brand identity to stand out in a saturated market.

Cost of entry: Startup costs, like renting a space and hiring employees, are expensive. Also, specialty equipment often comes with hefty price tags. (Consider researching equipment financing to help finance these purchases.)

Location: You need to secure a prime location if you’re opening a physical store.

Competition: A market with fierce competition can be a steep uphill battle (like attempting to go toe-to-toe with Apple or Amazon).

Step 7: Know the regulations

When starting a business, it’s your responsibility to research governmental and state business regulations within your market. Some regulations to keep in mind include (but aren’t limited to):

Employment and labor laws

Advertising

Environmental regulations

If you’re a newer entrepreneur and this is your first business, this part can be daunting so you might want to consult with a business attorney. A legal professional will help you identify the legal requirements specific to your business. You can also check online legal help sites like LegalZoom or Rocket Lawyer.

Tips when writing your market analysis

We wouldn’t be surprised if you feel overwhelmed by the sheer volume of information needed in a market analysis. Keep in mind, though, this research is key to launching a successful business. You don’t want to cut corners, but here are a few tips to help you out when writing your market analysis:

Use visual aids

Nobody likes 30 pages of nothing but text. Using visual aids can break up those text blocks, making your market analysis more visually appealing. When discussing statistics and metrics, charts and graphs will help you better communicate your data.

Include a summary

If you’ve ever read an article from an academic journal, you’ll notice that writers include an abstract that offers the reader a preview.

Use this same tactic when writing your market analysis. It will prime the reader of your market highlights before they dive into the hard data.

Get to the point

It’s better to keep your market analysis concise than to stuff it with fluff and repetition. You’ll want to present your data, analyze it, and then tie it back into how your business can thrive within your target market.

Revisit your market analysis regularly

Markets are always changing and it's important that your business changes with your target market. Revisiting your market analysis ensures that your business operations align with changing market conditions. The best businesses are the ones that can adapt.

Why should you write a market analysis?

Your market analysis helps you look at factors within your market to determine if it’s a good fit for your business model. A market analysis will help you:

1. Learn how to analyze the market need

Markets are always shifting and it’s a good idea to identify current and projected market conditions. These trends will help you understand the size of your market and whether there are paying customers waiting for you. Doing a market analysis helps you confirm that your target market is a lucrative market.

2. Learn about your customers

The best way to serve your customer is to understand them. A market analysis will examine your customer’s buying habits, pain points, and desires. This information will aid you in developing a business that addresses those points.

3. Get approved for a business loan

Starting a business, especially if it’s your first one, requires startup funding. A good first step is to apply for a business loan with your bank or other financial institution.

A thorough market analysis shows that you’re professional, prepared, and worth the investment from lenders. This preparation inspires confidence within the lender that you can build a business and repay the loan.

4. Beat the competition

Your research will offer valuable insight and certain advantages that the competition might not have. For example, thoroughly understanding your customer’s pain points and desires will help you develop a superior product or service than your competitors. If your business is already up and running, an updated market analysis can upgrade your marketing strategy or help you launch a new product.

Final thoughts

There is a saying that the first step to cutting down a tree is to sharpen an axe. In other words, preparation is the key to success. In business, preparation increases the chances that your business will succeed, even in a competitive market.

The market analysis section of your business plan separates the entrepreneurs who have done their homework from those who haven’t. Now that you’ve learned how to write a market analysis, it’s time for you to sharpen your axe and grow a successful business. And keep in mind, if you need help crafting your business plan, you can always turn to business plan software or a free template to help you stay organized.

This article originally appeared on JustBusiness, a subsidiary of NerdWallet.

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How to Write the Market Analysis Section of a Business Plan

Alyssa Gregory is an entrepreneur, writer, and marketer with 20 years of experience in the business world. She is the founder of the Small Business Bonfire, a community for entrepreneurs, and has authored more than 2,500 articles for The Balance and other popular small business websites.

The market analysis section of your business plan comes after the products or services section and should provide a detailed overview of the industry you intend to sell your product or service in, including statistics to support your claims.

In general, the market analysis section should include information about the industry, your target market, your competition, and how you intend to make a place for your own product and service. Extensive data for this section should be added to the end of the business plan as appendices, with only the most important statistics included in the market analysis section itself.

What Should a Market Analysis Include?

The market analysis section of your small business plan should include the following:

• Industry Description and Outlook : Describe your industry both qualitatively and quantitatively by laying out the factors that make your industry an attractive place to start and grow a business. Be sure to include detailed statistics that define the industry including size, growth rate , trends, and outlook.
• Target Market : Who is your ideal client/customer? This data should include demographics on the group you are targeting including age, gender, income level, and lifestyle preferences. This section should also include data on the size of the target market, the purchase potential and motivations of the audience, and how you intend to reach the market.
• Market Test Results : This is where you include the results of the market research you conducted as part of your initial investigation into the market. Details about your testing process and supporting statistics should be included in the appendix.
• Lead Time : Lead time is the amount of time it takes for an order to be fulfilled once a customer makes a purchase. This is where you provide information on the research you've completed on how long it will take to handle individual orders and large volume purchases, if applicable.
• Competitive Analysis : Who is your competition? What are the strengths and weaknesses of the competition? What are the potential roadblocks preventing you from entering the market?

7 Tips for Writing a Market Analysis

Here is a collection of tips to help you write an effective and well-rounded market analysis for your small business plan.

• Use the Internet : Since much of the market analysis section relies on raw data, the Internet is a great place to start. Demographic data can be gathered from the U.S. Census Bureau. A series of searches can uncover information on your competition, and you can conduct a portion of your market research online.
• Be the Customer : One of the most effective ways to gauge opportunity among your target market is to look at your products and services through the eyes of a purchaser. What is the problem that needs to be solved? How does the competition solve that problem? How will you solve the problem better or differently?
• Cut to the Chase : It can be helpful to your business plan audience if you include a summary of the market analysis section before diving into the details. This gives the reader an idea about what's to come and helps them zero in on the most important details quickly.
• Conduct Thorough Market Research : Put in the necessary time during the initial exploration phase to research the market and gather as much information as you can. Send out surveys, conduct focus groups, and ask for feedback when you have an opportunity. Then use the data gathered as supporting materials for your market analysis.
• Use Visual Aids : Information that is highly number-driven, such as statistics and metrics included in the market analysis, is typically easier to grasp when it's presented visually. Use charts and graphs to illustrate the most important numbers.
• Be Concise : In most cases, those reading your business plan already have some understanding of the market. Include the most important data and results in the market analysis section and move the support documentation and statistics to the appendix.
• Relate Back to Your Business : All of the statistics and data you incorporate in your market analysis should be related back to your company and your products and services. When you outline the target market's needs, put the focus on how you are uniquely positioned to fulfill those needs.

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How to estimate market size: Business and marketing planning for startups

Sizing the market is a necessary task for business and marketing planning, and budgeting for all startups, especially those that seek third-party financing such as venture capital (VC). Even though their investment philosophies may differ, most VCs and angel investors would like to know that they are investing in a market with a large potential size (typically, at least $1 billion).

Understanding your market potential

Even if you do not seek external financing, understanding your market potential is essential for a range of different strategic decisions, in areas such as:

• Product development
• Partnering and distribution
• Organizational design and critical employee skills

Starting point for estimating market size: Know the problem you are solving

The starting point for estimating market size is to understand the problem you solve for customers and the potential value your product generates for them. This is an aspect that many startup founders in the innovation community tend to overlook, since they get excited about the product they’ve developed without thinking about how it benefits their audience.

Depending on your technology, you may have to choose which customer problem to solve first. If this is the case, completing the exercise below may help you better grasp the market size for each application. This will make it easier to prioritize which problem to solve first.

Exercise: Estimating market size

This exercise consists of five steps to help you estimate the total market potential for a product. In each step, we build on a health innovation case study that assumes the problem we solve relates to patient safety in hospitals.

Step 1. Define your target customer

All early-stage entrepreneurs and startups must define their target customer .

Your target customer equals the person or company for whom your technology solves a specific problem. To define your target customer you must:

• Determine who your target customer is.
• Create a profile of your typical/expected target customer.

Given the importance of defining your target customer, it is crucial to set aside enough time to do a proper analysis of this first step.

Case study: We have analyzed patient-safety procedures in a few hospitals. We have determined that our innovative technology would generate the most value in the largest hospitals (the top 25%, ranked by size).

Step 2. Estimate the number of target customers

Estimate the total number of target customers in the market—companies who have a profile similar to that of your target customer.

If you’re a startup venture in Ontario or another Canadian province, you can use industry databases such as those offered by Statistics Canada, U.S. Bureau of Economic Analysis or Hoovers to help you quantify your market.

Case study: By studying publicly available sources, we have found out that in our target group there are 1,300 hospitals in Canada and the United States.

Step 3. Determine your penetration rate

Refine your market size by assuming a penetration rate for your category of product. The penetration rate is a function of the nature of your product. Assume a high penetration rate if your category of product is mission-critical or mandated through regulation; assume a low penetration rate for products with a specialized purpose.

Example: penetration rates of computers versus business intelligence systems:

• Computers, word-processing and internet: It is almost impossible today to operate a business in the developed world without a computer that has word-processing capabilities and is connected to the internet. While the penetration of those three technologies has not quite reached 100%, it is close enough to use that assumption for business growth and planning.
• Business intelligence systems: In theory, most companies would benefit from having a business intelligence system – a type of software that is used to manage and analyze data about finance, sales, and marketing activities, in addition to more specialized purposes. In practice, however, few ventures have the combination of the scale, skills and business practices required to make business intelligence systems a worthwhile investment.This limits the penetration rate to very large organizations that make up maybe less than 1% of all businesses in the developed world. Nevertheless, while 1% may not sound like a lot, it still represents a much larger number of target customers than a new startup could effectively pursue.

Case study: We have studied the factors that drive improvement in patient safety across North America, and found that it depends on provincial and state regulations. Based on areas where patient-safety regulations are strict, we can assume a penetration rate of 70% for our technology .

Step 4. Calculate the potential market size: Volume and value

Market volume.

To find the overall market potential (that is, the potential market volume), multiply your number of target customers by the penetration rate (see steps 2 and 3 above).

Case study : Using our fictitious example, where the number of target customers is 1,300 and the penetration rate is assumed to be 70%, the potential market volume would be calculated as follows:

1,300 hospitals × 70% = 910 hospitals

Market value

To calculate the monetary value of the market, multiply the market volume by your average value (that is, price expectations).

Case study: We assume each sale to a hospital will yield an average value of $2.5 million. To find the market value, we calculate the following:

910 hospitals × $ 2.5 million = $ 2.275 billion

5. Apply the market-size data

Following these steps to estimate your market size (value) is by no means an exact science. Still, there are ways to maximize the effectiveness of this exercise:

• At the time you make your first estimate, examine each assumption you make and what would cause it to change. To factor in the risks of change, calculate best-case and worst-case scenarios in addition to your expected scenario.
• Over time, monitor the accuracy of your initial assumptions and whether you need to modify them.

Case study: Our patient-safety technology may appeal to hospitals of a smaller size than initially assumed, especially if new regulations mandate tighter patient-safety procedures from all hospitals. While such a change would more than double the number of hospitals in our target market, smaller hospitals would not be able to pay as much, in turn driving the expected average price per sale down to $2 million.

Note: This exercise aims at estimating the total market potential for a product. It is important for startups to recognize that both early adopters and laggards are included in those numbers. While early adopters will likely be your customers in years 1 and 2, the laggards may not enter the market until year 20 or later. In terms of our case study, this would mean that the size of the market in year 1 would be about $100 million if early adopters comprise 5% of the overall hospital market for patient safety. For a more detailed understanding of how markets develop, read the article Technology adoption lifecycle .

The highlights

• Define your target customer
• Estimate the number of target customers
• Determine your penetration rate
• Calculate the potential market size: Volume and value
• Apply the market-size data
• The starting point? Understand the customer problem you solve and the potential value you generate.

Summary: These five steps outline how to estimate a market size—essential when making strategic decisions (e.g, business and marketing planning) and seeking third-party financing (e.g., venture capital).

Researching a market? Our free online course Introduction to Market Sizing offers a practical 30-minute primer on market research and calculating market size.

Want to learn how to understand and talk to your customers? Join us for our next cohort of the Customer Development Immersive.

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How to calculate market size potential in 3 easy steps

Got an awesome product you’re ready to bring to market? You’ll need to do your homework, and that means learning how to calculate your market size potential.

Conducting an in-depth market segmentation or sizing study can cost a lot of money and often requires research expertise. Here’s how to get a solid steer on your potential market size without saying goodbye to your (entire!) marketing budget. Hint: we can help!

How to quickly calculate market size potential

Calculating market size can help you create better marketing, sales, and development strategies for that specific market. How can you quickly calculate it though?

TL;DR—You’ll need to follow these simple three steps:

• Step 1: Define your audience and total addressable market (TAM)
• Step 2: Gather wider market size intel
• Step 3: Use the market size calculation formula

We’ll get down to what each of these steps entails, but first let’s find out what market size actually is .

What is market size?

Market size is the number of individuals in a certain market who are potential customers of your product or service. Depending on your distribution strategy, you’ll probably also want to look at the number of potential sellers of your product or service . 

When measuring market size there are two ways to approach it: top down and bottom up. 

Let’s look at each:

Top down market sizing

The top down market sizing approach focuses on seeing what the current market is like and applying what you find to your business.

For example, let’s say you sell your services to creative agencies and there are 100 creative agencies across the UK, however you currently only sell to eight of these agencies. You can calculate that your average sale among the eight creative agencies that you work with is £5,000. This would mean that your top down market size is £500,000.

However, this number is likely unrealistic and it won’t really tell you much. After all, not all the agencies will decide to work with you, nor will you sustain the same selling average.

Bottom up market sizing

For the bottom up approach you look at your own segment data, and then you look at secondary research to understand what’s expected to happen to those segments.

Although the bottom up approach can be more time consuming and will require you to better study and analyse your market, at the end it results in a more realistic and trustworthy number.

For example, let’s say 60% of your marketing agency business goes to big corporations, and 40% goes to small and medium-sized companies. If secondary research of your market says that big corporations are relying less on agency work because they’re hiring in-house teams and you know there’s an increase in the number of new startups entering your market, then you can act accordingly and focus on providing better solutions to SMBs.

These two ways to calculate market size help you understand the size of the opportunity in any given market . That said, it’s also important to consider other factors such as the indirect competition – we’ll address this in a bit. 

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Let’s understand why market size is important.

Why is market size important?

If you create a business plan that doesn’t cover market size, you’re likely to be sent packing by any potential investor. Without market size data you can’t create a viable business plan, it’s the only thing that gives you an idea of the potential value of your product or service. Market size is essential even if you’re not seeking third-party funding.

Let’s say you have the patent to a revolutionary new software tool; it’s easy to assume everyone will want it. So you might say: “my market is all American adults,” but this is naive and not backed with evidence. You’ll never sell your product to all American adults, no matter how great the product is! 

There will be a certain type of person who really does want to buy your tool and your job is to nail down who that person is—and then work out how many of those individuals like them there are in the market. This might sound difficult, but thanks to the wealth of data tools available nowadays, it’s easier than you think.

How to use your estimated market size

Before we cover how to calculate your market size, it’s important to know how you’ll be able to use this number.

Market size helps business owners answer the following questions: 

• What’s the potential revenue from this particular market?
• Is the market big enough? Will it be worth it to invest time and money in? 
• Is this a growing market? Will there be opportunities after three, five, or ten years?

These are key questions when trying to start or maintain any business. Now, without further ado, let’s take a look at how to calculate market size.

How to calculate your market size

Calculating your market size shouldn’t be complicated. In fact, it can be done in three simple steps:

1. Define your target audience and Total Addressable Market (TAM)

Your target customers are the people for whom your product or service solves a specific problem.

Identifying who these people are is a lot easier if you’re already active in one market. There are three ways to group your target audience’s market: TAM, SAM, and SOM – worry not, we’ll go through what each of these mean.

Total addressable market (TAM) TAM is the total demand there is for a product like yours. If you’re creating an energy drink, your TAM will be estimating everyone that might consume your product: students, drivers, athletes, the lot.

Serviceable available market (SAM) SAM is the people in the TAM that could feasibly reach your product. Let’s say you’ll only sell it at a specific supermarket that’s only available in the southern cities of England, those within your TAM that are also in the southern cities of England will be your SAM.

Serviceable obtainable market (SOM) SOM is the smallest subset of the available market that you’ll want to capture through your marketing and sales efforts. These are those customers that are in your SAM, but are currently not being served, or are unhappy with the existing market offerings, or those that would actually be willing to try a new version of the product they already use.

If you can use existing data

Examine the profiles of your existing customers – what do you know about them? In addition to looking at demographic information like age, gender, geographical location and socio-economic background, engage in a conversation with your customers to find out why they buy your product and why they buy your brand specifically.

If you need to start from scratch

If you’re starting from scratch with a new product or service, you’ll need to come up with some hypotheses to test. 

For example, let’s say you’ve invented a wearable device that automatically tracks how many calories you’ve consumed. You can probably assume it will be of interest to men and women trying to live a healthier lifestyle, as well as sportspeople who need control over their diets and workout routine. There could be further demand from employers or health insurance providers who want to incentivise people to maintain a healthy diet.   

You can gather initial data from a bit of desk research – for example, this government-published statistic tells us that 62% of adults in the UK are overweight . But don’t stop there, now’s the time to delve a bit further by carrying out some consumer research.

Through a market research and brand tracking tool like Attest, you can access more 125 million people in 59 countries, which means you can test real demand with a subset of your target audience.

For example, you could find out:

• How many people are actively trying to live a healthier lifestyle? 
• Why is a healthier lifestyle important to them?
• What are their pain points when trying to do this?
• What products do they currently use to help them improve their health?
• Would they be interested in your product?
• How likely would they be to buy it?
• How much would they be willing to spend if they are interested?

To further define your target customer, you can then analyse their demographics (these are built-in to the Attest platform) and look for trends. Perhaps you see that professional women, living in London and the south east, aged between 30 to 50 are showing the highest purchase intent. You can then create profiles of your prime potential customers.

Once you’ve got a good indication of who your product or service is relevant to, a larger market segmentation exercise makes sense – it’ll help you prioritise your efforts and understand the true potential size of the market. 

2. Gather wider market size intel

To get the full picture, you’ll want to enhance your findings by gathering further information on your industry. 

Most industries have formal associations which compile and track industry size data. You can find out, for example, how much the industry is worth, how much is spent annually on specific product types and average retail prices. 

It’s worth spending some time working out which industry your product or service actually sits in. Knowing your industry helps you understand who your competition is.

To get more clarity on who your competitors are, try drawing up a market map. Market mapping involves arranging competing products on an axis according to their positioning. For example, whether they are high or low-cost or whether they are complex or basic (see the below example.) 

In an ideal world, market mapping will highlight that your product falls into a unique niche. For example, your product could be the highest quality product being offered at a low price point. This immediately gives you a point of difference, giving investors a compelling reason to believe you’ll be able to steal market share.

Use consumer research

You can use your consumer research to back up your market positioning, like social enterprise Divine Chocolate did. The chocolate bar maker identified that some consumers were prepared to pay a premium price for very high-quality chocolate made from Fairtrade cocoa. It saw that there was little competition in this space and successfully claimed the position. 

If you do find a gap in the market, it’s important to be sure why others aren’t filling it. It may be that the demand from consumers just isn’t there, so be sure to combine your study of the market with actual feedback from consumers.

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Run brand perception research

Brand perception is about what your consumers think and feel about your brand. Not just as an opinion, but as a deeper subconscious sentiment that they have developed after interacting with your brand, your products, your international marketing and messaging, and yes, even your competition.

Brand perception is not what you want customers to feel towards your brand. It’s about what the customers believe you stand for. Ideally, these two would be the same, but in reality it’s hard to influence your customers so directly; that’s why you need to research your brand perception – and also that of your competitors.

Brand perception can affect the type of customers you attract, your price point, and the partnerships you can build with other brands. So, make sure you measure your brand’s reputation and perception .

Use market research surveys

The best way to gather market-wide information is through market research surveys using market research services . These tools will help you collect important information from various demographics, and types of customers.

Market research used to be done face-to-face or through lengthy, cumbersome calls. Today  you can have great insights, data ready for reporting, and a global reach with online market research surveys . They help you take the guesswork out of market research while keeping your process scalable and inclusive.

Once you’ve narrowed down your target market size and customers, and you’ve studied the market at length, you’re ready to calculate market size.

3. Use the market size calculation formula

Your market research will give you a lot of information that you’ll need to analyse and understand. Let’s look at how to plug this information in a formula for estimating market size.

For example, let’s say you produce chocolate. If you plan to be stocked in independent food stores, but you find there are few of these types of outlets in the Midlands – a location where you see high purchase intent– this will affect these consumers’ ability to buy and will reduce your potential sales. 

You have to take factors like this into consideration and look at the ‘ available market. ’ The available market is those who have both interest and the ability to buy – this is your number of target customers.

Once you have this figure, you need to multiply it by the quantity of your product an average buyer will purchase in a given time period, like a year. In the case of our fictional calorie counting device, this is likely to be a one-off purchase, but if it’s a consumable you’re selling, purchase frequency will be far higher. Use your industry data and consumer brand research to estimate this figure – and be realistic!

Making projections about the size of a market

Market size is the maximum total number of sales or customers your business can see, often measured over the course of a specific period of time – often a year. Knowing what your potential market size is will help you when gauging your next business steps, whether or not an investment in a new product is worth it, or what growth is to be expected.

The next step in calculating market size is to engage in a bit of future-gazing. Is your market likely to grow or shrink in the future? You can look at historical data to analyse the market’s performance – is it on an upward trajectory?

Now, think about your customer base—is that likely to get bigger? If we go back to the example of the calorie tracker, there’s plenty of available data to show that the overweight population is growing . Will there be more prospective customers in your market in the next few years? If you can show your marketplace isn’t static and is instead evolving, there’s greater reason to believe in a successful future for your product.

When presenting market size and market value statistics for your business, try to make one, two and three-year projections. Don’t forget to factor in your anticipated roll-out to other geographic areas over time or improved distribution plan. 

You also need to consider your own impact on the industry. What’s your disruptive potential? Most startups are coming to market with an innovative product or service and this can dramatically change the landscape. Think of the way digital cameras virtually destroyed the market for film cameras – and film developing – or the effect Amazon’s Kindle had on regular bookstores.

On the other hand, are there other companies’ products or services on the horizon that threaten the industry as you know it? Do as much research as possible by looking at patents being filed, reading industry media and setting up Google alerts for relevant keywords to keep abreast of things in development. 

How to calculate market size: an example

Let’s say your product is a face wash for people with acne – you can reasonably expect people to get through one tube of it per month. If there are 500,000 target customers in your market, this means the total volume of market demand for acne face wash is 500,000 x 12 (months a year) = 6 million a year. If the average price of acne face wash is £10 a tube, then market value is 6 million x £10 = £60 million.

Another calculation you can do is estimating the percentage of market share you will be able to command. For example, if you know the face wash and cleanser industry as a whole is worth £1 billion annually, you can realistically expect to capture between 1% to 5%. In terms of value, that equates to between £10 million and £50 million.

Summing up your market sizing exercise

Now you’ve learned how to determine market potential (number of target users x purchases expected in a given period of time = market size or volume). Now, you can add this information into your pitch deck so potential investors can see what the estimated earnings can be. 

Bear in mind that most VCs and angel investors would like to know they’re investing in a market with a large potential size (typically, at least £1 billion). If your numbers are smaller than this, don’t be tempted to over-inflate them. Be honest and explain why you believe in the market’s potential… or why it’s important to bring your product to market. For example, it’s going to make the world a better place. 

Investors’ investment philosophies differ, so there’s every chance you can find your match with the right research in hand.

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Market Size FAQ

To calculate market size you need to follow three simple steps: 1. Define your target audience and total addressable market (TAM) 2. Use consumer, brand perception, and market research to gather wide market size intel to find out which gaps in the market there are,  the current and future competitors, and what consumers think of your brand.  3. Use the market size calculation formula (number of target users x purchases expected in a given period of time = market size or volume) to better understand your target market potential.

Here’s an example of a market size calculation: let’s say your product is a face wash for people with acne. You estimate that people will get through one tube per month. If you have 500,000 target customers, this means that the total volume of market demand for acne face wash is 500,000 x 12, because there are 12 months in a year. This is equal to 6 million a year.  Now, to calculate market value you take the 6 million and multiply it by the average price of your product: 6 million x £10 = £60 million. That’s your potential market size and value. 

A good market size will depend on your industry and product. However, investors will normally be looking for a market potential size of at least £1 billion. Don’t get discouraged if you didn’t find that’s your potential market, there are other factors to consider when entering a market.  

Customer Research Lead 

Nick joined Attest in 2021, with more than 10 years' experience in market research and consumer insights on both agency and brand sides. As part of the Customer Research Team team, Nick takes a hands-on role supporting customers uncover insights and opportunities for growth.

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How to Determine Market Size for a Business Plan

If you do things right, your business plan is the first step in your journey toward becoming an entrepreneur, but the key is to ensure that every detail is correct. One of the most important aspects of your business plan is to determine the market size for the products or services that you intend to offer your target audience. Any legitimate investor will want to know that his investment has the potential for a sizeable return, and he will base his decision, in large part, on the size of the market that you're trying to enter. Sizing up your market is also beneficial for developing new products and services.

Define Your Ideal Customer

You can't begin to determine the market size without defining your ideal customer, who is also known as your targeted audience. The best way to figure this out is to know exactly what problem your product or service solves for the people most likely to be interested in making a purchase. For example, if you're selling a gadget that can locate any remote control device in a person's house, research may tell you that your ideal customer is a man in the 25- to 50-year old age range.

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You arrived at this targeted consumer because your research told you that men dominate possession of television remote control devices, and are therefore more likely to misplace them, and then will be more likely to need your device. This process isn't simply to determine not only who will buy your product or service, but also to help you eliminate people who will not be attracted to what you're selling.

Define Your Piece of the Overall Market

The good news is that there isn't any company that's already established in your market that has a monopoly on that market. However, to have any chance of success, you must define the piece of that market that you are going to target. You can do this by taking the biggest player in the field and finding out how much of the market it has captured. For example, if you're entering the TV device market, you may learn that customers spent $2 billion on these devices in 2017.

You also learn that Panasonic accounts for $1.5 billion of that market, so you know that the remaining $500 million is spread out among multiple smaller companies, and is the piece you'd would like to bite from.

Determine Your Percentage of that Piece of the Market

Just because you have now defined the size of your piece of the market doesn't mean that you're done because you still have to figure out your percentage of that piece. To do that, you have to know where you intend to sell your product or service, how many of that product or service you project to sell in a year, as well as the number of similar products and services that sold in the market the previous five years.

The projected number of sales will tell you what percentage of the market you can reasonably hope to capture, typically somewhere between 1 to 5 percent.

• GrowThink: How to Size an Emerging Market in Your Business Plan
• Entrepreneur: 5 Strategies to Effectively Determine Your Market Size
• Startups: How to Calculate the size of Your Target Plan
• Include potential market, target market and market share in your business plan. This will show readers how you arrived at your figures. You want to demonstrate a rational process that starts with a very large number and gradually reduces it to a smaller number you can expect to sell to. Showing the entire process will prove that your method was not arbitrary.

Sampson Quain is an experienced content writer with a wide range of expertise in small business, digital marketing, SEO marketing, SEM marketing, and social media outreach. He has written primarily for the EHow brand of Demand Studios as well as business strategy sites such as Digital Authority.

Market Size for a Business Plan – 2 Methods to Gauge It

In order to estimate how much in sales your startup can hope for, you’re going to have to estimate the market size for your product/service(s). This is critical for your startup because it will give you an idea of your business’ potential. It will also help you plan for capacity-related issues.

2 approaches to estimating the market size for a business plan

I cover this topic more in-depth in a post on market size and growth rate on my sister site, InvestSomeMoney.com.

The context there is focused on investing your money in a publicly-traded company. Though that’s a little different than what we are doing here, the fundamental principles remain the same.

The goal is to determine how many potential customers there are for a business and how much they are willing to spend. In order to do that, we can employ two general methods. These methods are a top-down analysis and a bottom-up approach to understand market size and growth.

One way to think about this is that a bottom-up approach uses multiplication and a top-down analysis uses division to arrive at an estimated market size.

After writing on this subject several times, I’ve come up with another way to think about these methods. I think a bottom-up approach should look internally, at things like unit size and capacity. A top-down analysis should look externally at things like demographics and market research.

Looking at this from these two different perspectives opens the door for further analysis. When you’re done, you should know whether you can expect to be capacity constrained or demand constrained. You’ll also start to flesh out some ideas that will help you further into your business plan.

If you do an analysis with both approaches, you can compare the results. For instance, if your bottom-up approach is higher, you’ll know that you could have excess capacity issues. You need to consider scaling that back or otherwise expanding your product/service offering to drum up additional demand.

Conversely, if your top-down analysis reveals that demand is in excess of capacity, then you are leaving money on the table. Time to start thinking about what you can do to scale up and capture as much of the market as possible.

Let’s start by taking a look at a bottom-up approach to estimating the market size for a business plan.

Bottom-up approach example

On my sister site, InvestSomeMoney.com, I researched three real-life examples of a bottom up market sizing approach . In those examples, you’ll see that they sometimes mix in a little top-down analysis with their bottom-up approach and vice versa. There’s no rule against doing that, but I would rather look at things from two totally different perspectives.

When using a bottom-up approach, try to start with the most simplistic piece of firm information you can get your hands on. Then, start to build on it with other information, or the best guess you can muster.

You can think of a bottom-up approach as one that focuses on how much and how often customers will buy.

This information might be something you have internally. Or, it might be from the information you found by researching online. Start with a single “serving size” of your product/service. Then, think about how often a customer would buy. Work your way up from there.

A bottom-up approach for my business plan

As mentioned in earlier posts about business plans – I’m building one as I write these. My theoretical product is an all-natural topical hair loss treatment.

In the post linked above, I performed something of a top-down analysis of market size for a business plan. I later discovered that I was operating with incomplete information .

There’s still a lot to consider regarding packaging volume and dosage. That will require more thought. But, for the time being, I’m going to estimate the volume of a one month’s supply and the daily dosage to be the same as Rogaine. If that changes as I progress with my business plan, I can easily circle back to this and plug in different numbers.

With Rogaine as my benchmark, I know that a dosage of my product would be 1 mL. The product would be used twice a day. My product would come in 2 oz (60 ml) bottles. Each bottle would be one month’s supply, as I said.

Thinking about capacity

Okay. Now that I have a grasp on the package size – what about blending and packaging? If this idea were to come to fruition, I don’t picture myself blending batches in my bathtub and filling bottles with a ladle and a funnel. I would need access to some sort of industrial equipment.

Fortunately, a quick internet search shows that there is no shortage of contract blenders and packagers out there. Especially for food and supplements. What it costs, remains to be seen. That’s an issue for another time. For now, I just want to get an idea of how much I could manufacture.

This company claims it can blend 1.25 million pounds per workday. We’ll assume, for now, this represents the average contract blender/packager. What does that translate into in terms of 2 oz bottles?

First of all, I wouldn’t need all 26 of their kettles. Only one, tops, especially at startup. So, if we divide the 1.25 million pounds by 26, we get a per kettle capacity of about 48,000 lbs per day.

Pounds are a weight unit of measure (UOM) and ounces are a volume UOM. To make the conversion, we’re going to have to do some more estimating.

Water weighs a little over 8 lbs/gallon. We’ll assume my product has roughly the same density.

8 lbs ÷ 128 oz (per gallon) = .0625 lbs/oz. With each bottle containing 2 oz, we know that it’ll weigh approximately .125 lbs/bottle.

This means that with one of this company’s kettles, I could blend 384,615 bottles worth of product per day. 96.5 million bottles per year. At an approximate sales price of $7.50 per bottle, that translates into nearly $725 million in revenue per year.

Okay, I’ve looked at things from a bottom-up, capacity-focused approach. Let’s now consider a top-down, demographic-focused analysis.

Top-down analysis

Not surprisingly, I also wrote a post on InvestSomeMoney.com with examples of a top-down analysis to determine market size for a business plan . When you read through it, you might notice that some of the examples use Census data (or something similar). They take big chunks of information and start narrowing down their market from there.

Which brings us to three important terms for performing a top-down analysis. These are:

Total addressable market (TAM) Serviceable available market (SAM) and Serviceable obtainable market (SOM)

A SOM is a fraction of the SAM. In turn, a SAM is part of the TAM.

The TAM can be thought of as every potential customer that you can reach geographically. The SAM is what’s left when you niche down a little into the population that is a good fit for your unique selling proposition. Finally, the SOM represents the percentage of the SAM you can realistically expect to take.

It’s unlikely that you will ever capture 100% of the SAM. Even in a specific niche, you can’t be everything to everyone. That’s alright, though. The goal of this exercise is to make realistic estimates so that you have a sound business plan to work from.

When doing a top-down analysis, start with a large population or an overall industry size. From there, narrow down your customer until you arrive at your SOM. It helps to have a “customer avatar” in mind before starting a top-down analysis so you know where to niche down to.

I would suggest you perform a business plan demand analysis first to get a crystal clear picture of what that avatar is. You might think you know it intuitively. But you might be surprised at what you find – like I was!

A top-down analysis for my business plan

I know that not every person in the U.S. (much less the world) is going to want or need an all-natural topical supplement for hair loss. Who might though???

I’ll refer back to my handy-dandy business plan demand analysis (linked above) to see what I can find.

Here, I’m reminded of the ages that men and women first started experiencing hair loss. I’m reminded of the percentage that has sought any sort of treatment. Finally, I’m given an idea of what types of treatment they have tried.

A quick visit to Data.Census.Gov and I find table S0101, which gives me the U.S. population by age and sex. I customize and filter the table real quick. Then, I copy and paste the data I need into my spreadsheet.

Next step is to narrow these numbers down. I’ll use the “regular” numbers and the pessimistic numbers from sensitivity analysis from my business plan demand workbook .

I want to know the percentage of men who have had hair loss and tried any sort of treatment. Then, I want to go deeper and estimate the number that has found supplements to be effective. I’ll do this for both the most-likely and the worst-case scenarios. On the women’s side, I’ll do, more or less, the same thing.

TAM and SAM

You’ll see that I didn’t use the same age ranges for men and women. I assumed that males would start experiencing hair loss earlier, but would also stop caring about it earlier too.

The age range for males in my TAM was 20 – 54. For females, it was 25 – 59. This translates into a TAM of 151 million people in the U.S.

For the SAM, my worst-case scenario estimated that .9% of the male population in the target age ranges would be part of my market. 1.54% of females in the target age ranges were also assumed to be part of my market. This translated into a worst-case SAM of 1.8 million people.

As for my most-likely SAM, I estimated that 1.41% of males and 2.4% of females in the target age ranges were potential customers. This resulted in a SAM of 2.88 million people. Over a million more potential customers.

SOM is tricky.

Who’s to say what percentage of the SAM my company could capture? Obviously, it would start at 0% and work its way up from there. Where would it stop though?

It will depend, in part, on the number of companies vying for this niche. As I often do, I will refer to the Pareto principle. The Pareto principle states that 20% of the inputs will be responsible for 80% of the outputs. Put another way, 20% of the companies will have roughly 80% of the market share.

I’ll refer back, again, to my post on business plan demand. In it, I found three direct substitutions for my topical hair loss product. I won’t include Minoxidil (Rogaine) in that group, because of its unnatural chemistry.

Again, without getting too mired in math, I estimate that there are approximately thirty companies in the topical hair loss supplement space. This was a quick and dirty estimate based on the results of an internet search.

Six of those thirty companies probably control 80% of the market. That leaves 4.2% (1 ÷ 24) of the remaining 20% as my short-term SOM. Obviously, if my product were to take off, that amount could grow considerably and could approach the SAM.

What that means as far as the market size is 15K people worst-case and 24K people most-likely. At 12 bottles purchased per year, this translates into 184K and 287.5K bottles per year respectively.

Here’s a look at the spreadsheet breaking that all down:

Comparing a bottom-up and top-down analysis when determining market size for a business plan

Obviously, a couple hundred thousand bottles (top-down) is a far cry from 96.5 million (bottom-up). So, it would appear I will not be capacity constrained in the near future. In fact, as this startup moves forward, I need to make sure I’m not over-buying capacity. Those huge fixed costs could kill my business before it has a chance to get off the ground.

Speaking of fixed costs, the information from this analysis has given me good data to build my pro forma financials – when that time comes.

Now, at some point in the future, selling my product internationally could be an option. However, in this tiny niche, it is unlikely that I’ll ever need that much capacity for this one product.

Market size for a business plan

What were there factors I didn’t consider (but should have) when estimating my potential market size?

How might you have approached this differently?

Join the conversation on Twitter!

Market Sizing & Trends Analysis

Written by Dave Lavinsky

In this article you’ll learn about market sizing and trends and how to identify them for your business.

Why You Need to Know Your Market Sizing & Trends

When you’re developing a simple business plan template to start or grow your company, you need to understand the size of your market and trends affecting it.

The market size confirms the market is big enough to warrant an investment of your time, and potentially investor/lender funding, into pursuing the opportunity. If the market is too small, you nor investors will not be able to get a reasonable return on your investment (which will dissuade angel investors and/or VC funding ).

Likewise trends tell you if the market is increasing or decreasing, and how the market is changing. This can help you improve your strategy. For example, if you were starting a fitness center and you learned that there was a trend towards personal training services, it would be important for your strategy and plan to offer such options.

Market Sizing & Trend Analysis Questions to Answer

The following questions should be answered in the industry analysis component of your business plan :

• How big is the business (in dollars)?
• Is the market declining or increasing?
• Who are the key competitors in the market?
• Who are the key manufacturers and/or suppliers in the market?
• What trends are affecting the industry?
• What is the industry’s growth forecast over the next 5 – 10 years?
• What is the relevant market size? That is, how big is the potential market for your company. The relevant market size equals a company’s sales if it were to capture 100% of its specific niche of the market. It is calculated by multiplying the number of prospective customers by the amount they could realistically spend on your product/service each year.

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How to Conduct Market Sizing & Trend Analysis

We like to determine market sizes using both a top-down (what percent of the market can we reasonably expect to penetrate) and bottom-up (e.g., how many units can we expect to sell at what price) methodology.

As many assumptions are required when sizing a new or emerging market, we tend to rely heavily on case studies of thousands of other companies and clients who have penetrated new markets. We also access paid industry reports from other companies who have done deep dive research into the relevant industries.

In assessing markets, looks at the current market size and what the market size might be in the short, mid and long-term. Specifically, answer the folowing key questions such as the following:

• How has the relevant market size changed over the past one to five years?
• What is the projected growth of the relevant market?
• What factors will affect this growth? Economic factors? Changing regulatory conditions? Changing consumer needs? 

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Would you like Growthink to provide an assessment of your market size and for you? If so, please contact us below.

What Our Clients Say

How to Determine Market Size for a Business Plan

by Sean Butner

Published on 1 Jan 2021

Business plans help business owners and leaders identify their goals and think through the steps needed to accomplish those goals. A vital part of any business plan is the market research section, which describes the demand for the company’s product and the current competitors. The market research section should tell how large each market for the product is, providing readers with a sense of how much business the company could do. Determining market size is a necessary step in writing a business plan.

Identify Your Markets

Identify types of potential clients. Think about the features of your product, and to whom those features would be benefits. List traits that people who would be interested in your product might have in common. For example, a gym might appeal to both fit people and moderately overweight people.

Determine factors that might exclude customers. For example, a luxury item may be unavailable to lower income households, or a customer might not be willing to go more than 15 minutes out of his way to go to a gym.

Put the traits and limiters together. For example, single overweight men who make at least $25,000 a year.

Calculate Market Size

Find statistics, preferably surveys conducted by a professional or governmental organization, on the demographics of your service area.

Add up the total number of people who meet your limiters. For example, a gym looking for single overweight men who make at least $25,000 a year and who live within 15 minutes of the location could use Census block information to determine the number of single men living within a 15-minute radius.

Reduce the total number of people who meet your limiters by the traits you identified. Multiply the total number by the percent of the total population that have the traits you identified. For example, if 87 percent of the population makes more than $25,000, and 10,000 single men live within a 15-minute radius, then 8,700 of those men likely make more than $25,000 per year.

Repeat with each additional market segment. Identify the size of each segment in your business plan, and sum up the entire size of the market for your product.

Market Sizing: Measuring Your TAM, SAM, and SOM

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Market sizing is all about potential. It’s the measurement every organization wants to increase. But before you start on your quest toward market domination, you need to know your market size, and only then, can you outline a strategic plan to help you get a bigger piece of the pie.

When launching a new product, diversifying your offering, or expanding into new regions, knowing your market potential BEFORE you invest time and money is key.

So, how can you work out your market size? 

Before you even think about using a syndicated research report published last year or data that’s out-of-date, let me explain how you can do market sizing with fresh data that reflects any market as it stands today – not last quarter, or last year.

What is market sizing?

Market sizing uses informed estimations to determine the potential market volume and sales revenue. Knowing how to calculate a total addressable market is just as important for those looking to launch in a new market as it is for start-ups.

Why do market sizing?

Calculating market size matters for several reasons. Here’s why.

• Allows organizations to estimate potential profit from a new product, service, or business.
• Helps investors decide whether to invest in a business or not.
• Aids the development of an effective marketing strategy that highlights the needs and potential of a core market.
• Gives a clearer picture of hiring needs before launch, helping to drive an optimized recruitment strategy.
• Doing periodic market sizing will also clarify your TAM, SAM, and SOM.

What is a market size formula?

You use a market sizing formula to estimate your market size. It’s the number of potential customers you can sell to.

How to calculate your market size

Multiple metrics go into a market sizing analysis: if you’re familiar with market size formulas you’ve probably heard of TAM, SAM, and SOM. These calculations are used to give an idea of a company’s size in relation to its market and competitors.

Here, we’ll go into detail about each metric, with bottom-up approaches on calculating them. We’ll also break down the variables contributing to your potential reachable market size.

Total Addressable Market (TAM)

TAM looks at the entire potential value of the overall market (think, the total value for toothbrush sales in the United States in a given year). The market size estimation is a huge number, and probably unattainable by one company (unless we’re talking about a monopoly). TAM can provide a framework for a market’s potential and stability.

You calculate TAM by adding up all product sales across the market. There are two ways of doing this:

• Add up figures for toothbrush sales per grocery chain, pharmacy, and retailer
• Estimate how many toothbrushes the average person buys, multiply that by the number of people in the U.S., and then by the average cost of a toothbrush

Serviceable Addressable Market (SAM)

SAM refers to the specific potential audience for your product or offering (keeping with our toothbrush example – the total value of online-only electric toothbrushes for kids). This is the maximum market value of your company based on this target market .

To calculate SAM, add up all the relevant product sales across the market (so, add up figures for online purchases of electric toothbrushes for kids).

Serviceable Obtainable Market (SOM)

SOM (also known as Share of Market) is a representation of the proportion of your SAM that you’re likely to obtain for your company. Assuming you’re not the only children’s toothbrush manufacturer, that number will be smaller than the SAM.

To calculate SOM, divide last year’s revenue by last year’s SAM. This is your market share. Now multiply your market share by the dollar-value SAM for this year.

Market size example + formula

A start-up linen company – supplying boutique hotels.

Let’s say you’re considering starting a business that supplies luxury bed linens for hotels and want to explore the opportunity. Here’s how you would calculate your market size.

Firstly, find out how many boutique hotels are in your market (we’re looking at the US market for this example). This allows you to establish the total addressable market (TAM) to which you could, in theory, sell your products.

After doing this research, you identify 50,000 hotels in North America. Of these 50,000, you only want to sell to independent hotels, which account for 10,000 establishments. You ascertain that your core target market includes 10,000 hotels. You then do further primary market research , which involves speaking with bedding and linen distributors, who confirm an approximate success rate of 25% for annual sales into luxury hotels.

Using this scenario, the following market sizing formula would be applied.

10,000 hotels x 25% = 2,500 hotels

Based on the assumption that each hotel will result in $20,000 in sales, you can work out potential revenue with the following formula.

2,500 hotels x $20,000 = $50,000,000

These figures tell you that, should you achieve a penetration rate of 25%, you could potentially generate $50 million. However, this figure doesn’t account for competitor offerings, so it’s important to be conservative when estimating how much of the market potential you can grab.

Pro Tip: If you’re launching a new product, conduct a competitive analysis and estimate your SOM based on factors such as web traffic analysis , marketing mix, and ad spend.

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Top-down vs. bottom-up market sizing

There are two approaches to market sizing – top-down and bottom-up. Neither gives you the complete picture, so it’s important to do a bit of both.

Here’s why.

Bottom-up market sizing assumes a surplus of customers in your reachable segments. With top-down market sizing, this doesn’t consider potential challenges such as ease of reaching a particular audience segment .

What is top-down market sizing?

Top-down market sizing looks at the whole market, taking a macro view of potential revenue and customers. Starting with the largest number and then refining according to realistic estimations of a target market. A top-down approach to market sizing is used to ascertain your serviceable obtainable market (SAM).

What is bottom-up market sizing?

Bottom-up market sizing starts small, then gradually gets built up. Firstly, you identify the segments you intend to reach. Then, estimations are made using assumptions (and market research) to establish growth and size. Essentially, bottom-up market sizing looks at where a product or service can be sold, the sales of comparable products, and the portion of current sales you can go after.

Top-down market sizing or bottom-up market sizing – which is best? Start any market sizing or market analysis bottom-up but add in some top-down thinking too. It’s generally good practice to meet somewhere in the middle.

You’ll know when you have a good market size estimation when both your bottom-up and top-down models align. You might need to tweak some of your assumptions in order to reach that happy place, but the updates are a positive part of the process that helps make your final estimate accurate.

Tools to estimate market size

There are ways to measure your TAM and SAM in addition to the market size formulas mentioned above. Here are a few:

Primary and secondary research: Start reading online and find external resources that give information about a market. These can come in the form of articles, case studies, whitepapers, product launch announcements, and more.

Financial reports: Public companies have to release their financial reports to the public. Capitalize on this information to see what the market looks like and specific competitors’ business plans.

Market research tools : Market research comes in many shapes and forms. You can pay a company to create a one-off report or use resources like Similarweb Digital Intelligence for on-demand access to dynamic market insights. Additionally, for businesses looking for a customizable and scalable data solution, Similarweb’s Data-as-a-Service provides tailored data feeds and APIs that integrate seamlessly with your existing tools, enhancing both market size estimations and competitive analysis.

Read more about our offering here .

Interviews and in-person visits: Talk to people in the industry to get a sense of how they see market potential , customers, and challenges. This can include studying customer segments and analyzing audience demographics .

Put it all together: Look at the figures and group all your information together to see if it all makes sense. If you have calculated a TAM of $1B, but conversations with business owners in the space point to half that, try to spot where your estimations may have skewed and adjust the TAM, SAM, and SOM accordingly.

Market sizing a micro-market

In larger organizations running multiple lines of business, each department or segment needs to size its own custom market. While this granular level of analysis was time-consuming and expensive in the past, Similarweb enables effortless customization capabilities that make the process quick, easy, and effective.

Feature Spotlight: Website Segment Analysis

See how to build a website segment in less than 60 seconds. This example is from the US finance market, specifically looking at credit card business lines across 6 key industry players. Once created, you can view the size of a market based on individual lines of business using Similarweb data.

Good market sizing involves getting deep into the numbers. Knowing your market size (AKA your TAM, SAM, and SOM) helps you build an effective strategy and make critical decisions about investing, potential growth opportunities, marketing strategies, and more. From increasing market share to new product ideation, you can use various tools and formulas for estimates that help you make smart decisions while avoiding unnecessary risks.

Here’s a market size formula chart to get you started:

Want to learn more about market sizing?

Check out our related blog posts Market Segmentation: Tips, Types, and Benefits Explained and 4 Types of Market Segmentation (Plus a Few Extras You Might Miss) .

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Market Sizing FAQ

Market sizing is the process of estimating the market’s potential size from the bottom up.

What is my market size?

Your market size is the number of potential customers you can sell a product or service to.

Are market mapping and marking sizing the same thing?

Although market sizing and mapping are similar, there are key differences. Market sizing considers the potential size of a market, which involves understanding the total potential market size from the bottom-up. Market mapping is a data-driven market research strategy that allows you to strategically position yourself in the market. This can help determine who your customers are in terms of market size and value.

How do I calculate market sizing?

• TAM (add up all product sales across the market)
• SAM (add up only relevant product sales across the market)
• SOM (divide last year’s revenue by last year’s SAM)

What other tools can I use to help calculate market size?

• Primary and secondary desk research
• Financial reports
• Market research products
• In-person interviews and visits

Why is market sizing important?

If you can accurately assess the size of a market, you can safely launch a new product, enter new regions, diversify your offering, or make any other major, costly decisions with ease.

by Liz March

Digital Research Specialist

Liz March has 15 years of experience in content creation. She enjoys the outdoors, F1, and reading, and is pursuing a BSc in Environmental Science.

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More From Forbes

20 expert tips for accurately measuring market size.

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The market size of your business can inform everything from strategy development to resource allocation. Without clear, accurate insights into your market's potential, you risk targeting the wrong audience or misjudging the demand for your products and services, which could lead to missed opportunities or an inefficient use of resources.

Below, Forbes Business Development Council members offer tips to help you successfully measure your market size. Here's how these approaches can help you make more informed decisions and better align your efforts with actual demand.

1. Use Publicly Reported Data

As a part of routine client pipeline development, I check Medicare Advantage plan enrollment volume by state and county to better understand future opportunities and observe trends in the market landscape. This helps to stratify outreach and follow-up, as well as inform capital planning for the next 12 to 18 months. - Ray Parzik , The Oncology Institute of Hope and Innovation

2. Forecast Sales Potential

Market size can be measured by estimating potential sales expected from the identified target customers. It’s critical to be aware of the target market size to plan ahead on finances, inventory, supply chain, tailored marketing strategies and so on and avoid unexpected losses in the future. - Arun Rasika Karunakaran , Tata Consultancy Services Ltd

3. Follow The ‘3Ps’

Measuring the market size is vital for identifying market potential and making strategic decisions. Get started with the 3Ps (Product, Price, Place). Segment the market, conduct primary and secondary research and calculate total addressable market—TAM (both methods). Map it along historical data, assess competitors and adjust estimates based on business capabilities and pilot feedback. Repeat with multiple sources for accurate size. - Suhail Syed , Vesper Telecom

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Today’s nyt mini crossword clues and answers for tuesday, september 17th, sean ‘diddy’ combs arrested in new york after grand jury indictment, 4. use the top-down or bottom-up approach.

There are two fundamental ways of measuring market size: top-down and bottom-up. The top-down approach leverages realistic assumptions about the total addressable market (TAM) for a product or service. This approach is used when launching something new. The bottom-up approach leverages empirical data to define the total serviceable market (TSM) or total obtainable market (TOM) to ultimately derive TAM. - Jojo Duttaroy , EY

5. Consider The Impacted End-Users

A good method of measuring market size is by assessing the total addressable market based on the number of end users impacted. This approach provides a holistic view of the potential impact and reach of the solution. It ensures a customer-centric focus and concentrates on end-user experience. It helps to enhance the value proposition to address the specific needs and pain points of a larger audience. - Vishal Dugar , Cognizant Technology Solutions

6. Identify The Serviceable Addressable Market

Historically, total addressable market (TAM) has been the preferred value for measuring the market size. However, this can often present an inflated value, hence the recent preference for serviceable addressable market (SAM), a subset of TAM. Most companies use third-party vendors to develop this data set, often stitching multiple datasets together. - Roshin Unnikrishnan , Cisco

Forbes Business Development Council is an invitation-only community for sales and biz dev executives. Do I qualify?

7. Use Company-Specific Metrics

Traditionally, the Total Addressable Market (TAM) seems to help size the market opportunity. How much of TAM is truly relevant is dependent on industry, geography and maturity phase in the product life cycle. For example, what is the serviceable addressable market (SAM) that is more relevant to the company or industry? A finer metric would be SOM (serviceable obtainable market) which is company-specific. - Srinivas Vadhri , Kestone

8. Assess The ‘Opportunity Universe’

The traditional lens of looking at market size is through the total addressable market (TAM), serviceable addressable market (SAM) and serviceable obtainable market (SOM). However, we are in the midst of an intelligence revolution and the transformation of industries is happening extremely fast. Leaders must constantly evaluate their "Opportunity Universe" or risk defining their TAM too narrowly. - Janesh Janardhanan , Frost & Sullivan

9. Be Precise In Defining Your Market

First, clearly define your addressable market, which may be a small segment of the overall market. Avoid relying solely on broad approaches such as the total addressable market (TAM). Instead, use the more precise serviceable obtainable market (SOM) method. Always gather data from multiple sources (e.g., market and competitor analysis) to ensure a reliable estimate. - Jerry Dimos , One Paper Lane

10. Consider Your Actual Sales

While a top-down approach utilizing a total addressable market is great for raising capital based on what could be, a bottom-up market sizing approach is most important to run the business. Take into account what actual sales are and map out your likely initiatives to come up with a reliable model for growth. - Scott Hozebin , StrideMD

11. Learn From Competitors

Analyzing competitors is crucial for determining market size by evaluating the market share and performance of companies in the industry. It allows businesses to measure growth opportunities and pinpoint areas where there is room for expansion. This approach offers a perspective on market opportunities and assists in making informed strategic choices while navigating competitive challenges. - Thasha Batts , Pinnacle Global Network

12. Find The Total Addressable Market

One effective method of measuring market size is calculating the total addressable market (TAM). TAM estimates the total revenue opportunity if a product achieves 100% market share, considering the entire potential customer base. This measurement is crucial for strategic planning, attracting investors and resource allocation and providing insights into market potential to guide business decisions. - Gunjan Paliwal

13. Understand The Opportunity Size

Sizing the market both top-down and bottom-up is a comprehensive approach. For example, the total market size for electric vehicles (EV) in the U.S. can be sized by the total population of U.S. families, the number of families per car, penetration of EVs regionally based on infrastructure and so on, as well as using current automobile use, conversion to EV and net new EV sales. - Archana Rao , Innova Solutions

14. Leverage Available Information

Measuring market size is a challenge for marketers. In the B2B healthcare space, there is public information (including the NPI database) available that is helpful. It's important to understand the difference between your total addressable market and serviceable addressable market. The delta between the two can be where you find your product roadmap or key elements of your expansion strategy. - Ashleigh Stanford , PracticeTek

15. Look For Money-Saving Solutions

One nontraditional way to do market sizing in new markets where there are limited studies is to look at the dollar value that can be saved or made via the adoption of the solution, and then understand the impact the solution can have on that gain or loss. For example, if this solution can reduce a known cost by 10% in a known target market, one can calculate the TAM as a percent of that 10% savings. - Jean-Marc Chanoine , Templafy

16. Identify Realistic Market Opportunities

I prefer to measure market size using serviceable available market (SAM) analysis. SAM focuses on the segment of the total addressable market (TAM) that our company can realistically target and serve. This offers a clearer picture of market opportunities, guiding strategic decisions and resource allocation effectively. Understanding SAM ensures our efforts are focused and yield better returns. - Michael Fritsch , Smarter Operations

17. Consider The Different Market Segments

Segment your total market based on different forms of graphics (such as technographics, firmographics, demographics and so on) and estimate the size of each segment. Combine the high-value segments that align with your products or services to get your relevant market size. This knowledge enables you to have a laser-sharp focus on your offerings which is of paramount importance in today’s noisy market. - Praneeth Kudithipudi , Sacumen

18. Take An Industry-Wide Approach

One approach to understanding a company's market size is to learn about its total sales in the industry. Finding revenue data from leading industry companies helps inform newer companies about potential growth. In turn, this allows leaders to set financial goals and expectations based on new products or services that directly compete with the top companies and offer customers new solutions. - Wayne Elsey , The Funds2Orgs Group

19. Execute A Beta Test

Run a small campaign and see how the results are. You could also do surveys, discussion panels and test groups, but I'm a big believer in just going out and testing limited sales. Hopefully, you can grow your business from there. - David Strausser , Fonseca Advisers

20. Use Statistical Segmentation

Limited resources need efficiency and effectiveness to create revenue. For sustainable growth, business development leaders should figure out which segments have real purchasing power for their service and produce. A diverse background of team members brings the insight to minimize unknown segments which is valuable for sales. - Gyehyon Andrea Jo , MVLASF

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What are market trends in a business plan?

Table of Contents

What are market trends?

Why do i need market trends in my business plan, how to keep up with market trends, what market trends to monitor frequently, customer behaviours, technological advances, industry regulations, how to write the market trends in your business plan, using countingup to streamline your business.

Market trends in a business plan are key pieces of information that share where your company sits in the wider picture of your industry. Your business plan should prove why your business is viable, show where you fit in the market and what customers you serve. Examining what the market looks like is a smart business move when starting out.

This article on market trends in a business plan will cover:

• What are market trends
• Why market trends are necessary in my business plan

Market trends are the direction changes of a specific industry and can be influenced by customer behaviours or developing technology. 

Take the mobile phone industry for example, as technology has improved over the last twenty years consumers have moved from bulky handsets to slimmer smartphones, that can do everything a computer can and more. Consumers have even gone back to the fashion of flip phones now that technology has allowed a bigger screen that can be folded to save space. This is a good example where both technology and customer demand has influenced the direction of the industry,

Acknowledging these trends when running a business ensures that you stay on the same path as the industry itself, moving with customer needs and adapting your business as the sector and technology evolve. Ignoring market trends in the long term could mean you are left behind by customers, as they may move to businesses that meet their needs more. 

Your market trend research should be part of wider market analysis in your business plan. Understanding where you fit in a sector and what separates your company from competitors will help you shape everything from your product to pricing and marketing plans.

It’s important to focus on trends in this process so you can understand what appeals to your target audience. By analysing the market landscape and trends, you will be able to serve your customers better. It will also feed into your marketing messaging and content creation strategy later on.

A market and trend analysis should be both quantitative (using numbers and statistics such as projections and financial forecasts) and qualitative (based on experience or observation). Trends will fit into both categories of research and you should be able to find data and non-numerical information to support your examination of trends when writing your business plan. 

It’s important to remember that a business plan is not set in stone. It can be a document that you regularly update to reflect changes in your industry and company.

Keeping pace in a fast-changing market is not easy – after all, you’ve got a business to run. Using social media and subscribing to relevant industry emails make it simpler to get the information you need. Doing this will allow you to stay on top of market trends to include in your initial business plan and for more long-term future planning. 

Follow influencers in your industry to see what they talk about and how they create content for the audience that you serve. This will give you an idea of what resonates with your target customers when it comes to content and the form of content the influencer tends to use (video, written blogs, imagery etc.).

Read relevant publications in your sector to find out what is making headlines. Magazines or online blogs that share up-to-date opinions and thought leadership (influential content) will help you stay on the pulse of what is currently important to the industry.

Reading detailed reports and research can be time-consuming but will give you a good overview of the industry’s current state and any new developments. You can then update your business plan to follow the trends that arise from any data you’ve seen. 

Some common areas will affect the running of your business, the trends in your business plan and the whole market landscape. Keeping on top of the following aspects and regularly checking in on them will ensure your business develops as the market does.

Your customer can make or break your business. If you don’t cater to their needs and wants, your business will not be on the radar of your target audience. 

Let’s take an example – if your target customer is under 45, and you primarily do business online, you will need to ensure your website is optimised for mobile. This is because consumer behaviours have changed in recent years, and most searches are now conducted via mobile . If you don’t pick up on this development, your business risks being left behind when competitors optimise for mobile and you don’t.

Like our previous example, customer behaviour often changes with advances in technology. As mobile phones, and then smartphones, have become more able to operate as a computer, consumers have moved to using their phones out of convenience. 

Keep on top of developments that are relevant to your business and make sure you can move with, and not against, the technology changes.

Every now and again, there will be a law change or new regulation that rocks many industries – such as GDPR in 2018. Staying up to date with regulations that could affect the way you run and market your business will save you weighty fines (especially in the case of data protection).

There may be more frequent regulation updates if you operate in an industry that requires you to follow safety guidelines or best practices, such as those that an electrician or builder will have to follow. 

Ensuring that you are up to date on precautions and rules, as well as renewing any professional certifications you need to operate, will ensure your business plan reflects the changing face of your industry.

Using your research on your target customers and the sector,  use the following steps to write up the market trends section of your business plan:

• Current market overview, including which company has the biggest share or most influence
• Where you fit in that market, what gives your business a competitive edge.
• Current trends that impact your business operation
• Any upcoming trends that may impact your business or the products/services you offer
• Outline any plans on how you will keep up with trends
• Upcoming regulatory changes

You can then follow this with your competitor research in your business plan, to give a full picture of your industry and where you fit in.

Now that you have the answers to questions like ‘what are market trends in a business plan’, you will be able to prepare a thorough market analysis to set up your new venture for success. 

Countingup can help your new business by making your business accounting simple, too. Countingup is the business account with built-in accounting software. The app is helping thousands of business owners across the UK save time and money by automating the time consuming parts of accounting. Find out more here and get started today.

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Charter rolls out new Spectrum pricing and internet speeds, aims to 'be a better service operator'

Charter Communications  CEO Chris Winfrey said he wants customers to think of reliability and credibility when they think of their cable and broadband provider.

The cable giant told CNBC it is unveiling a series of changes Monday to bolster that goal, including rolling out new bundles and pricing, increasing internet speeds, offering credits for service outages and promising heightened reliability for customers.

Charter — which provides broadband, cable TV and mobile services and is known to customers under the name of Spectrum — said it is also trying to make the company more approachable and remove the longtime negative connotations around cable companies by announcing Spectrum’s new “first-of-its-kind customer commitment,” branded as “Life Unlimited.”

The rollout comes as Charter and its industry peers contend with several trends: slowing broadband customer growth, continued defections from the cable TV bundle, and a young but speedily expanding mobile business.

“It is hard to be loved when you’re providing a critical service to the household that’s a physical infrastructure that charges over $100 a month,” Winfrey said in an interview with CNBC. “And to the extent there’s a problem, sometimes somebody has to enter your home ... in the same vein that it is for an electrician or plumber.”

The first step to changing a less-favorable consumer view is with “pricing and packaging that creates more value than you can replicate anywhere else in the marketplace,” he said.

Spectrum said it will charge as low as $30 a month for its 500Mbps internet plan, or $40 a month for 1GB service, when either are bundled with two mobile lines or cable TV. The company is also increasing the baseline internet speed for current customers at no additional cost.

The company also said it’s planning to be upfront about costs. Under its new plan, taxes and fees are baked in, there are no annual contracts and pricing is guaranteed up to three years, it said. Charter even eliminated the 99 cents it had tacked on to most of Spectrum’s pricing in the past.

In addition, Spectrum pledged to give customers credits when the company’s customer service doesn’t live up to its promises, or for internet outages that are out of the customer’s control but are due to an issue on the company’s part and last more than two hours. Service issues such as those caused by weather, natural disasters or power outages don’t count.

Life Unlimited — a new platform for Spectrum’s internet, mobile and TV services — will roll out across its 41-state footprint this week, the company said.

“We wanted to make a bold statement about our commitment and our capabilities,” Winfrey said. “We also wanted to recognize that we’re not perfect and we’re putting ourselves under pressure, concrete pressure, to make sure that we can be a better service operator every month and every year from here on out.”

Pricing power

The announced changes are some of Charter’s biggest moves since Winfrey  took the helm  as CEO in December 2022.

He  followed  Tom Rutledge, who held the post for a decade and turned a relatively small cable operator into the second-largest cable company in the U.S. through the  takeovers  of Time Warner Cable and Bright House Networks in 2016. Winfrey was CFO at the time and spearheaded the mergers.

Winfrey recalled the various investments and advancements cable companies had made over the years: namely in broadband, but also in the pay TV bundle and the landline and mobile phone businesses.

“For all the value that the industry’s brought over the years, and the service and reliability investments that we’ve made, we haven’t always gotten the full credit that we deserve, and in some cases, we did get the credit we deserve because we could have done things better,” Winfrey said.

He entered the top job at a moment when it was clear growth was unlikely to return to the cable TV bundle.

Winfrey had been a low-key and not widely known executive in the media industry, but he started off swinging.

At an investor day in December 2022, Charter announced an aggressive capital investment plan that included putting $5.5 billion over three years in its broadband infrastructure network. The higher-than-expected spending during a time of growing competition from 5G wireless providers sent alarms through Wall Street, and the stock dropped.

Charter’s stock price has  fluctuated  greatly in recent years. On Sept. 12, 2021, the stock price was $787.12. It closed at $340.17 on Friday.

Charter’s stock has fluctuated in recent years as there’s been a slowdown in broadband subscriber growth.

That’s in part because broadband customer growth at providers including Charter and  Comcast  has  struggled , according to the companies’ earnings reports. Increased competition from wireless companies such as  AT&T  and  Verizon  has also played a role in the stagnation, as has the slowdown in the buying and selling of houses due to high interest rates.

The third quarter was the worst ever for broadband industry subscriber losses, according to MoffettNathanson. Charter lost 149,000 subscribers and had a total of 30.4 million residential and small business broadband customers as of June 30, according to its second-quarter earnings report.

While the losses weren’t as substantial as analysts had feared, Charter’s growth bright spot is now its mobile business, which  launched  in 2018. Spectrum Mobile has 8.8 million total lines and has grown rapidly due to enticing promotional deals and increased mobile usage on reliable Wi-Fi networks, the company said.

In late 2022, Charter  announced  its “Spectrum One” plan, the first time it offered broadband, Wi-Fi and mobile in a bundle with promotions that included competitive rates and, in some cases, free mobile lines.

“For wireless, the ‘Spectrum One’ promotion will almost certainly turn out to have been a home run,” analyst Craig Moffett said in a research note in July. “Despite the fact that it was initially viewed as shockingly aggressive, it was, in fact, a rather modest offer.”

Moffett called mobile an “underappreciated growth engine” for Charter, not only because of customer additions but also growth in average revenue per user, or ARPU, which is a metric often used by cable companies.

Winfrey doesn’t expect ARPU to be affected by the new promotions.

“When I think about Wall Street, I think about the customer,” Winfrey said. “If you focus on the customer, provide great customer service, save them money, provide value, then your capital market strategy, your regulatory strategy, all of that just falls into place.”

Tough on TV

Customers have been dropping pay TV rapidly across all providers, including Charter. But the company has been vocal about its efforts to preserve the business, especially under Winfrey’s leadership.

The biggest moment came in 2023 when  Disney -owned networks  went dark  for Charter’s customers and Winfrey called the pay TV ecosystem “broken” as he pushed for a revamped deal with Disney.

While these disputes are common — Disney and DirecTV on Saturday ended a roughly two-week  blackout fight  — this one was different in the age of streaming.

For Charter, the sticking point wasn’t just the fees. The company wanted Disney’s ad-supported streaming options to be part of its TV offering.

Pay TV providers often say the rates that programming companies such as Disney seek from them are too high, especially since the programmers are also funneling much of their content into streaming platforms. Although the cable bundle loses customers, cable providers note it’s still a cash cow while streaming chases profitability.

“Credit to Disney, eventually they were willing to lean in and they understood their role in the industry,” Winfrey said, adding that ESPN is considered the linchpin of the cable TV bundle. “They had to be the leader in the space, and we knew that.”

The  deal  allowed for ad-supported Disney+ and ESPN+ to be included in “Spectrum TV Select” packages. In addition, when ESPN launches its direct-to-consumer streaming option — which is expected  to debut  in fall 2025 — these customers will receive access to it, too.

“I give Charter a ton of credit because they walked into the room and they had very specific ideas. They had a vision that they wanted to execute against, and again, it was a hard negotiation,” ESPN Chairman Jimmy Pitaro  said on CNBC  on Sept. 3   when discussing the blackout fight with DirecTV.

Depending on the tier a customer subscribes to, their package can include the ad-supported versions of streamers Disney+, ESPN+, Max, Discovery+, Paramount+, AMC+, BET+ and/or Televisa Univision’s Vix.

The deals have also given Charter the opportunity to sell and market the streaming services to its broadband-only customers — and includes a revenue share agreement.

The most recent  deals  with  Warner Bros. Discovery  and  AMC Networks  were  early renewals . That’s relatively uncommon in an industry where carriage negotiations often come down to the wire.

Charter last year also  started  offering its own streaming devices, known as Xumo, through a joint venture with Comcast. The device gets rid of the cable box and gives consumers a way to access both their cable TV and streaming apps in one place.

“We still have hurdles to get through,” Winfrey said, noting that Charter’s goal is to offer all ad-supported streaming apps owned by the major programmers it negotiates with on the cable TV bundle in the first half of 2025.

NBCUniversal’s Peacock is still not part of that roster, however. A Charter representative said the company doesn’t discuss renewals and declined to comment.

More from CNBC:

• DirecTV, Disney reach deal to end blackout in time for college football
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Disclosure:   Comcast is the parent company of NBCUniversal, which owns CNBC.

Lillian Rizzo covers media, sports and other business news for CNBC.

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Malaysia's economic growth sparks review of 2030 SDG progress - Hanifah

Tuesday, 17 Sep 2024

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Deputy Economy Minister Datuk Hanifah Hajar Taib - Bernama

KUALA LUMPUR: With Malaysia's economy on the rise, it is an opportune moment to review progress towards the 2030 Agenda for Sustainable Development, Deputy Economy Minister Datuk Hanifah Hajar Taib said.

Speaking at the Malaysia Sustainable Development Goals (SDG) Summit 2024, she noted that the country’s climate targets had been significantly impacted by the COVID-19 pandemic.

She urged participants to contribute valuable insights during the summit to help shape Malaysia’s 13th Plan, which will chart the nation’s course until 2030.

"This is in line with Madani's holistic initiatives to realise the whole-of-nation approach," she said.

Hanifah Hajar emphasised that strong cooperation among all stakeholders is essential for achieving Malaysia’s 2030 sustainable agenda, which is just six years away.

This is especially crucial given the severe impact of climate change in recent years.

SDG 13, which focuses on combating climate change, is therefore more relevant than ever.

"In Malaysia, floods in Perlis and Kedah, followed by prolonged drought, mirror the extreme weather patterns seen across the globe.

"Recent indications of clear air turbulence disrupting planes are also a concern for travel. These aren’t isolated events but part of troubling and unpredictable global trends,” she said.

Domestically, the 12th Malaysia Plan and its Mid-Term Review highlight the government’s proactive measures to address economic, social, and environmental challenges.

"These policies are not just reactions to global pressures but are firmly aligned with the United Nations 2030 Agenda for Sustainable Development and the Madani Economy framework.

"Our unwavering goal is to leave no one behind,” she said.

The Madani plan focuses on five core areas, including driving sustainable economic growth by attracting foreign investment, empowering small and medium enterprises, and exploring emerging sectors such as the digital economy.

Additionally, Malaysia is addressing the cost of living by managing inflation, rationalising subsidies and improving public service efficiency.

"Job creation is another pillar. We are focusing on education, skills training, and supporting high-growth industries to generate meaningful, high-paying jobs that will prepare our workforce for the future.

"Growth alone is insufficient. To achieve true sustainability, we must undergo transformative structural reforms,” she said, noting that these reforms, central to the economic framework, are designed to enhance efficiency, boost competitiveness and promote inclusivity. - Bernama

Tags / Keywords: Hanifah Hajar Taib , SDG , Agenda 2030 , Madani , COVID-19

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