“If you don’t know where you are going, you will probably end up somewhere else” – Lawrence J.Peter
As rightly said by Lawrence J.Peter, before starting a business you have to make sure that you have good knowledge about your target audience, the demand for the product or the service you are willing to offer and everything about the market in and out. If not there are high chances of you getting lost and you might end up wasting your money and time.
So how can you identify whether you are choosing the right field? How do you make sure that you will be getting profit from the business? That is when market sizing comes into the picture. A market sizing is a business plan that provides answers to all these questions. So what exactly is this?
What is Market Sizing?
In simple words, market sizing is the number of potential customers who are likely to buy your product or service within a given market.
Market Sizing is generally used by entrepreneurs and business organizations to estimate and calculate how much profit they will be getting from their product or service. Market Sizing gives them a clear view to make plans and come up with the right decisions for their brand. And they can decide whether to invest their money and time in the business idea they are working on.
If you are a business or a startup brand or if you are someone who is planning to expand your business or making preparations to launch a new product in your company you must know the size of the potential customers who will be willing to buy from you. This includes the approximate sales revenue you will be getting in the market. And with that, you can decide whether this is the right time and opportunity to continue what you are planning to do. This market pricing method saves you from a lot of confusion in the future and prevents your company from running at a loss. So, now you’ve got a clear view of market pricing and how much importance it holds in your business.
Now, let’s look at the calculation process of market sizing.
How to Calculate Market Sizing?
Calculating market sizing is simple when you can define your goals and can predict your market size. The first step in the calculation process will be to predict the market sizing. At first, you have to understand who your target audience is and who can benefit from the product or service you offer. Your product or service should serve them a purpose and solve their problem.
For example, if you are planning to sell Handicrafts products. Before investing your time, money and energy you have to make sure that the market is large enough for you to survive and excel as a brand and know how many people will be interested in the product or service you are offering.
The next step will be an estimation. Even though you have a large audience, not everyone from the lot would be interested in buying your product or service. So you can estimate the approximate number of people who will want to invest their money and buy it from you. For that, you can have a look at other competitor companies, their market shares and annual turnovers. You can also conduct surveys on online platforms and people who have worked before in a similar brand.
For example, you have conducted surveys and have had personal interaction with 500 people and among them, more than 400 of them are interested in that product and are willing to buy it. Then you are ready to go and start your brand.
Now to calculate it you have to count all the approximate number of potential customers who could be getting your product or service and multiply that number with the average annual turnover or revenue of other competitive companies in the same market.
You can calculate the total number of the target audience of your product and multiply that by the months of a year(12). After that, you should multiply the price you will be determining for the product. And the result will be the estimated turnover for the year.
For example, if your target audience is 50,000 in number, you have to multiply it by 12. And Assuming that every month your audience will purchase from you. And your product is priced at 500 INR. It goes like this.
50,000 (demand)×12 (months) = 600,000
600000×500 (price of product) = 300,000,000 That is 3 Billion.
Your estimated turnover for a year would be 3 billion.
TAM, SAM, SOM in Market Sizing
So what is TAM, SAM, SOM? These are essential components for you to determine market sizing. Let’s just break it to you in simple words.
- TAM – Total Addressable Market is the total demand for a product or service in every market and is the maximum amount of turnover your company can get in the market. Estimating the potential of the specific market is what TAM is.
- SAM – Serviceable Addressable Market is a part of the TAM that focuses on your product or service that is within your geographical area and reach. Due to geographical differences, you cannot reach out and sell your product and service to all your target audience from different geographical areas.
- SOM – Serviceable Obtainable Market is where you get to know, identify and determine how many customers can benefit from your product or service. Here, you will be thinking realistically and will then come up to a conclusion. Because if there are hundreds of people selling the same product just like yours in the market. Then it is not possible to convince every person to get the product from you.
Look at the overview of different industries and their market size to know where your industry is in the market and to get an estimated view of its market value.
Overview of Different Industries and Their Market Sizing
Every industry has a different market size depending on its demand and the value it holds in that particular year. It keeps changing depending on the interests and needs of its audience.
These are the top 5 industries and their market size as of 2021.
- Engineering Water Solutions – The engineering water solution sector where they improve flood irrigation and water management has a great market size in the year 2021. And its market size is 2278 Cr.
- Textile weaving – The textile weaving sector is the production of textiles. This sector has huge employment for both skilled as well as unskilled labor and employs over 35 million people across the country. And its market size is 17295 Cr.
- Metal-Ferrous and others – The production of methyl has been growing rapidly every year. With the growth of infrastructure and manufacturing the demand for metal is also increasing. Its market size is 1433 Cr.
- Steel-Sponge iron – Steel Sponge iron and significant importance and raw material when it comes to manufacturing of high quality are and that is what is the reason behind its demand and its market size is 16598 Cr.
- Media and entertainment– media and entertainment industry is a very vast sector including movies, television, print, radio, music, magazine and a lot more. Media and entertainment together play a major role in India as it is the 2nd largest television market in the world and its market size is 5805 Cr.
Industry data source: Economic Times