One of the most important pieces of information to any startup trying to introduce a new product into the market is how large the market is.
In fact, if you are looking for investors, they will want to know how viable your business idea is and one of the ways to determine this is by understanding the potential market size. After all, a product that caters to a small market is riskier than one that serves the needs of a larger market.
To understand the market size, an entrepreneur can hire an expert. However, this might end up using a lot of resources that could otherwise be focused on production and marketing.
Take for example a product that is meant for grooming dogs. National surveys could tell you the number of households that own dogs. Say for example there are 54 million households that have at least one dog. Is this the size of the market?
The short and simple answer is no.
First, it is virtually impossible to market the product to all 54 million households. Second, some dog breeds have shorter fur and require less maintenance than others. You might need to narrow down your analysis to houses that have specific breeds.
Other considerations could be the location of the potential market. In the end, you may bring the number down to 15 million households that could use your product.
Let’s take a look at some important considerations when determining the market size in greater detail.
1. Is the market big enough?
When conducting market size research, you might find that the potential market is simply too small to dedicate limited resources. You might then focus on searching for a bigger market allowing the business to avoid the risks involved in venturing into something that is not worthwhile.
On the other hand, it is possible to conduct market research and discover that the market is far larger than you would have otherwise expected. You can then focus your resources to this market.
2. Do you fully understand your target market?
One major benefit of conducting market size research is that you will likely come across other highly useful information such as the price sensitivity of the potential customers or their spending habits.
You can then use this to design your product and tailor your marketing strategies accordingly.
3. Would you get into business with yourself?
That is if you were a potential investor and an entrepreneur came to you with a similar proposal, do you have the required information to enter into business and turn the idea into a successful enterprise?
If you have any doubts, then perhaps you should do more research.
Make sure you have hard, concrete information and not just assumptions. Investors want to be convinced that you’ve made the necessary and thorough preparations. They are likely going to pick up on the fact that you lack sufficient knowhow to start and run your business so make sure you conduct the necessary research and analysis.