Determine your market size
Key points in this article
- Take a close look at demand
- Work out potential market share
- Access free market data
When you’re considering starting a small business, you may have a general idea there’s a market for your goods or services. What you really need to know are the facts.
By taking a close look at both the demand and supply side of your target market, you’ll plan your introduction to the marketplace better and have a clearer idea of its size.
You’ll also be equipped with wider knowledge to make wiser decisions, plus be better able to assess the risks and opportunities of potential markets.
A look at demand
Get a feel for the direction the market's progressing in by surveying customers and potential customers, or perhaps by hiring a professional market research firm.
Take a sample group of your target market and interview them to assess demand for the products or services in the prospective market. Your research shouldn’t be biased, so:
- stay away from interviewing friends
- try not to lead your interviewees into answering questions a certain way.
Take a close look at demand by sampling your proposed target market to see how they respond
A look at supply
Establish the current value of the potential market – competitors’ annual sales will give you an indication of this. If you can work out the total value of the market in overall sales, you can get a clearer estimate of what your market share might look like.
Some data might be available online, or you may need to pay to access industry reports. Also try:
- checking trade press websites
- looking for articles on industry media sites
- talking to a credible accountant with experience in the area.
What about emerging markets?
You’ll experience greater risk when deciding to enter a new market compared to an established one. Be extra cautious about finding out all you can about the potential size of any new market on the table.
Is the market moving in the right direction?
Take a decent look at the life cycle of the market you’re interested in – where is it at? Markets ebb and flow through periods of growth and decline. There may be opportunities at either stage.
If you’re analysing a declining market, have a close look at the reasons why it’s declining.
Is the market moving at the right pace?
Timing's crucial when deciding to enter a market. If you don’t have the resources available to enter a new market early and wait for demand to increase, think about waiting until growth is underway before exposing your business to undue risk.
Is this market big enough to interest you?
Finding out this information comes back to doing your research on the ground. You’ll have an idea of how big you want to grow your business but does the market you’re contemplating restrict your ambitions?
Will it be sufficiently profitable?
On the surface a market could appear profitable due to high demand. However, a closer look might reveal tight margins or the prospect of innovative technology transforming the market in the near future.
Aim to work out an estimate of what your market share could be
Get the information you need
Make use of the market data available in your industry by accessing:
- industry or trade associations
- online research
- your local chamber of commerce
- industry reports
- free government resources.
The Australian Bureau of Statistics (ABS) may also have statistical data on your industry, including information on market size from other government agencies that commission reports the public can access.