Many companies are interested in expanding their business into new markets, industries, or verticals. However, one of the most common challenges they face is figuring out the size of the market and what share they could realistically capture. Without access to extensive market data, estimating the total market size and your potential share can seem daunting. That’s why we’ve created a simple tool to help you get started.
We call this a “back of the envelope” calculation. This method combines your current market knowledge and logic, along with some data and educated guesses. It’s a starting point to help you gather enough information to make more accurate estimates over time. You can use this template and customize it for your business. Note: The template has an option for both Business-to-Consumer (our example below) and Business-to-Business (tab in the spreadsheet).
Here’s a step-by-step guide on how to estimate your market size and share using our tool:
Step 1: Define Your Product or Service and Target Audience
- Start by describing your product or service and identifying the people or uses as specifically as possible. This detailed description will help you filter your data later on. (Row 3)
Step 2: Identify the Broadest Category of Your Target Market
- Identify the largest group that includes your target market. This could be total households, businesses, or another broad category relevant to your product or service. (Row 11)
- Tip: You can often start your research using free resources like the U.S. Census Bureau or business listing services.
- If you’re selling to businesses, you will estimate the number of organizations in the market. For instance, if you’re targeting banks in your area, you would look for a listing of banks in your region.
Step 3: Narrow Down the Market
- Add more assumptions to refine your market size. Not everyone in your broad category will need or use your product. (Row 12)
- Example: There are about 139 million households in the United States, and according to the U.S. Census Bureau, 75% of these households have garages. This reduces the market to ~104 million households.
Step 4: Add More Assumptions
- Continue to narrow down your market with more specific assumptions if needed. (Rows 15 & 18)
- Example: Not every household with a garage will have bikes or small boats to hang. You may need to estimate the number of households that do.
- Note: Keep it simple. Ask yourself, “Does this data help me make a decision about market size or share?” If you’re unsure, it’s probably best to leave it out.
Step 5: Use our Tool to Calculate the Market Size
- Input your data and assumptions into a spreadsheet to calculate the estimated number of potential customers in the market. (Column B)
Step 6: Gut Check Your Calculation
- Take a moment to review your results. (Rows 13, 16, 19, 22) If the number doesn’t seem logical, consider the following actions:
- Research additional data sources for more accurate estimates.
- Adjust your assumptions.
Step 7: Add Average Purchase Value Per Customer
- Estimate how much, on average, a customer would spend on your product or service in a time period (we usually use 12 months to even out seasonality). (Row 24)
- If you have a wide range of purchase sizes, you can add a few ranges to calculate an estimate by customer size.
Step 8: Calculate the Market Size in Sales
- Multiply the number of potential customers by the average purchase per customer to estimate the total market size in dollar $ sales. (Row 26)
Step 9: Gut Check Again
- Review your sales estimates. If the figures still don’t seem quite right, revisit your assumptions and data sources.
Step 10: Estimate Your Market Share
- Determine what percentage of the market you realistically expect to capture by following a similar process you followed for the market size estimate. (Row 29) Here are some example assumptions you might use.
- Are the customers the same as the ones you work with now?
- How competitive is the environment?
- What’s your production capacity? Does the estimated share correlate with what you can produce?
- Do you have a distribution channel that would enable you to increase share quickly?
Using the Model
- Continue adding data and refining your assumptions to increase the accuracy of the model.
- Once you launch, review and make notes on what assumptions and estimates were most accurate and which ones weren’t. That will make your model more predictable.
Download our Market Size & Share Estimator Tool or view the full presentation below and get started today.