Four Steps To Calculate The Size of Your Target Market

Four Steps To Calculate The Size of Your Target Market

Knowing your customer base is essential, meaning a pivotal starting point with your new business should be to size up your market to find out how many customers you have the potential to sell to. Calculating the size of your market involves knowing who your customers are, what traits they share and what products or services they are in market for. In this blog post, we will provide the four key steps you should take to measure the size of your market.


Step 1: Top-down or Bottom-up Analysis

The size of your market is a key figure within your business plan as it provides an insight into the scope of the opportunity ahead and provides a good starting point to shape your marketing strategy.

This step involves trying to narrow down exactly who you’re selling to. You do not want to be over-optimistic as a bloated sales forecast with a bigger marketing budget than necessary will come across as misplaced arrogance to potential business investors. You do not want your business to look like a risk not worth taking, due to poor initial market analysis.

Therefore, doing some secondary data research either online or in the library will provide you with a good data set to work from.

There are two approaches to calculate the size of your market, top-down or bottom-up. They are both great approaches, and it is advisable to undertake both to see if you are on track for an accurate figure.

  • Top-down Analysis – Calculating the entire total market you will be entering and then estimating your share of that market. This tends to be a widely optimistic form of analysis.
  • Bottom-up Analysis – Estimating potential sales in order to calculate an overall sales figure. This form of analysis involves a lot more work than a top-down approach, but the final figure is often much more accurate.


Step 2: Analysing Your Target Market

Following the calculation of your market size with the form of analysis you choose, you then need to assess the value of this market.

You need to consider measurability, accessibility, profitable development and size as factors to help you to decide whether a certain market segment makes it into your business plan.


  • Measurability – Estimating how many customers you’re going to sell to and judging whether this number is large enough for it to be worth your business selling to them. An initial decrease in the number of people in your target market is normal; this is because you will be pinpointing exactly who you want to sell to. Over time, once you have found your niche you may actually generate higher sales. It is also worth calculating what part of your business offering applies to which consumers.
  • Accessibility – You need to be able to reach the customers you wish to target, or they are simply not the right customers. Knowing how to reach them in a way that makes them connected with your business on an individual basis is the aim here. Namely, reaching over-50s by advertising in a magazine suited to that age group can give you confidence that 18-24-year olds will not read it.
  • Profitable Development – However worthwhile or desirable your product or service is, your target customers must have money to spend on it.
  • Size – If your market is too small or niche you may not have enough sales to survive long-term and adversely if your target market is too big then it may be difficult to compete against large corporates. Striking the right balance is an important factor.


Step 3: Dividing Your Target Market

Once you have your target market, it is best practise to segment it. This will help to gather consumers of similar tastes into the same group, with the hope of making it easier for you to tailor and market your product or service to a clear audience. Here are some example segmentation groups:

  • Demographic - Investigate information such as age range, gender, education level, income level, marital status, ethnic background, religious background and family composition of the people who will purchase your service or product.
  • Geographic - This form of segmentation arises when consumers have different needs based on where they are located. Trying to decipher the area from which your primary target will come is a great way to segment. This may be from certain neighbourhoods or could encompass your town, county, country or even climate. A good way to envision this idea is that a busy city may have heavy use of motorcycle dispatch services, but much less use for gardening products.
  • Psychographic – This involves identifying common psychographic commonalities of people who are likely to use your service, such as common interests, values, attitudes, lifestyles and spending habits.
  • Benefit – This form of segmentation recognises that different people can get different satisfaction from the same product or service. This may include convenience, status, value and quality.

All of this research can be done through either surveys, focus groups, questionnaires, blog and forum research or website analytics. The aim is to find out what motivates people to buy a product.


Step 4: Identifying Your Competitors

It is inevitable that there will be businesses out there targeting the same audiences as you and offering a similar product or service. Due to this, you will want to have a good level of understanding when it comes to who your competitors are. An analysis of the best performing business within your sector will help you to understand their success.

By doing in-depth research into your competitors you can find their weaknesses and therefore position your business in a better light, as well as finding their strengths and building on them for your own business.

This competitor analysis should then form part of your business plan, so you can show how you will try to gain market share.


Final Thoughts

These four steps should help you to calculate the size of your target market which in turn will lead to a solid business plan and a more accurate idea of the market you want to address shaped around your business idea.

If you are interested in creating a business plan that will consider all aspects of your unique business to help you thrive moving forward, we can help. Do not hesitate to contact us via the form on the right or by calling us on 01604 420 420.

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