The 2 Simple & Straightforward Methods for Market Sizing Your Business

Clifford Chi

Published: September 21, 2023

When you’re considering a new venture, one of the first things you should do is determine whether there is a valuable market for it.

Market sizing graphic with investor shaking hands, lightbulb for ideas, and money for investment.

Discover the methods to calculate your market size and accurately measure your business’ revenue potential .

Keep reading, or jump to the section you’re looking for:

What is market sizing?

Market sizing terms to know, how to calculate market size, market sizing methods.

Market sizing is the process of finding how big your product's audience or revenue could be. So, market size is the total number of potential buyers for a product or service and the potential revenue reach based on that population size.

When market sizing, you're calculating customer numbers to measure the growth potential of your business.

business plan market size

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Why is market size important?

There are several reasons why every business should spend time sizing its market:

  • Market sizing helps you figure out if your product is a worthy investment. Say you have a great idea for a product but there are only 100 people who would buy it. From there, you can decide if that population size is worth the cost of manufacturing, production, distribution, and more for your product.
  • Market sizing helps you estimate profit and potential for growth. If you know how many people your business has the potential to reach, you can estimate how much revenue you can generate. This is valuable for both business owners as well as investors.
  • Market size defines who you’re marketing to and what their needs are. No business can succeed without marketing. Knowing your market size is the first step in understanding your target market and their needs.
  • Market sizing helps your business make better decisions. Understanding your market landscape, gaps, and opportunities will inform your decision-making. It can also help you set more realistic goals, assign resources, and refine your strategies.
  • Market sizing helps your business minimize risk. Starting or expanding a business is inherently risky. Understanding your market can help you anticipate and prepare for challenges.

Market Size vs. Market Value

Market size is the total potential demand for a product or service. This number usually calculates the number of potential customers, units sold, or revenue generated. So, market size is an estimate of the overall market reach.

Market value refers to the financial worth or estimated market capitalization of a company or industry. It’s a measure of perceived value. It can give you an idea of how much a company could sell for in a given market.

In summary, market size focuses on the potential market opportunity, while market value is the financial value of an individual company or an entire market.

Before diving into how to figure out your market size, there are a few helpful terms you should get to know.

TAM stands for Total Addressable Market. This number is the maximum potential revenue or customer base that a company could achieve if it were to capture 100% of market share.

SAM stands for Serviceable Addressable Market. SAM is a part of the TAM that aligns with the company's resources, capabilities, and target customers.

SOM stands for Serviceable Obtainable Market. SOM is the part of the SAM that a company can get at its current scale. This figure may consider marketing and sales strategies, competitive positioning, and product demand.

Market sizing terms, TAM, SAM, SOM

Check out this post to learn more about TAM, SAM, and SOM and how to calculate them.

Target Market

A target market is a specific group of customers, industries, or segments that a company focuses on. It's the customer segment that's most likely to show interest, purchase, and appreciate a company's products or services.

Penetration Rate

Penetration rate refers to the percentage of a target market that a company has successfully captured. It shows the level of market share reached by a company in a specific market segment or overall market.

Market sizing terms, Penetration rate

If you're a new business, you can calculate penetration rate by dividing your total customers by the number of potential customers in the target market. Then, multiply the result by 100 to get the percentage.

Learn more about market penetration here.

Market Segmentation

Market segmentation is the process of dividing the total market into distinct groups or segments. Usually, the people in these segments have common characteristics, needs, or behaviors.

Segmenting the market can help you better understand your target customers. It can also help you tailor business strategies, like marketing , to meet specific segment needs.

Value Proposition

A value proposition is the unique benefits that a company offers to its target customers. It differentiates a company's product or service from competitors and creates value for customers.

Understanding the value proposition is crucial in market sizing. This is because it can help you find the specific customer segments that will find the most value in your offer.

Try one of these free value proposition templates to draft your value proposition.

  • Start with your total addressable market.
  • Find a group of customers to focus on within that target market.
  • Figure out how many of those customers are likely to buy your product.
  • Multiply that customer number by estimated penetration rate.

While calculating market size takes only a few steps, it's a crucial process. The steps below will help you understand the potential demand and revenue opportunities for your business.

Market sizing example graphic

1. Start with your total addressable market.

You can calculate your TAM by multiplying the total customers in a market by the annual value per customer. But before calculating, make sure you take a look at the tips below:

  • Define your product or service. While developing a product can be quick, growing a business around a product is more complex. It's important to clearly understand your product or service and how it solves a problem or meets a need in the market.
  • Find your market category. Some products fall within more than one industry or market category. This is the first step that will narrow your TAM. So, think carefully about what you expect customers to compare your offer to.
  • Conduct market research. Gather relevant data and information about your potential users. If you're new to market research, check out this free market research kit , with research and planning templates.
  • Analyze the competition. Conduct competitive analysis to figure out the market share and unique value of your top competitors.
  • Define your total addressable market. With the research and analysis you've pulled together, create a realistic TAM estimate.

2. Find a group of customers to focus on within that target market.

Dig into the tips below to quantify the top customers in your market:

  • Create your ideal buyer persona. Use the Make My Persona tool to outline the characteristics, demographics, and behaviors of your ideal customers.
  • Segment your target market. Start dividing your target market into distinct segments. You might base segments on factors like age, location, interests, or buying behavior.
  • Continue market research. Continue collecting data and insights about each segment. This will help you understand how big each segment is, as well as their needs, preferences, pain points, and purchasing habits. Your ongoing market research might include surveys, interviews, focus groups, or analyzing existing market research.
  • Set pricing for your product or service. For some products, pricing is a deciding purchase factor. So, if you haven't already, set pricing or a price range for your products.
  • Assess segments of your market and prioritize . Think about each segment's size, growth potential, and competition. It's also a good idea to think about how each segment aligns with your company's capabilities and resources. In short, don't just focus on segments that offer the most attractive opportunities. Make sure they align with your strengths and needs.
  • Refine your buyer personas. With your prioritized segments, take another look at your ideal customer profile. This will give you a more useful buyer persona for your marketing and sales strategies.
  • Confirm your SAM with market testing. Test your target segments with a product or service pilot group, measuring their responses and feedback.

3. Figure out how many of those customers are likely to buy your product.

This step will narrow your scope more intensely on the customers who need exactly what you have to offer. These are the people who are looking for you or a clear alternative to your competitors. To quantify this group:

  • Create a customer journey map. From awareness to purchase, this process can help you map out the ideal customer path. From how you expect customers to discover your products to the blockers that might keep them from clicking buy, this step is useful for market sizing and beyond. Use these customer journey templates if you're new to this process.
  • Estimate conversion rates. Use historical data, industry benchmarks, or industry research to estimate conversion rates. This can help you quantify expected numbers of leads, prospects, and customers in each segment.
  • Figure out buyer intent. Create a ranking or score for each segment to measure their likelihood of purchasing your product. This can help you prioritize segments with the highest conversion potential.
  • Create a SOM estimate with your data. The research above will add credibility to your market size estimate. It can also help guide your growth strategies.

4. Multiply that customer number by estimated penetration rate.

To calculate penetration rate, divide the SOM you calculated above by your TAM, then multiply by 100.

Once you have a calculation for your market size, you'll want to make sure you can trust that number. Keep your market sizing current with these tips:

  • Confirm your data is accurate and reliable. As you complete your research, use reliable sources such as industry reports, market studies, or government databases. Also, check to ensure the data you're referencing is up to date.
  • Keep up with market growth, seasonality, industry trends, tech advancements, regulatory changes, and economic conditions. These factors can affect both market size and customer demand.
  • Review and update your market size estimates regularly. Market conditions change over time. Plan regular reviews of your market size, then update your calculations with new or relevant data.

There are two simple methods for market sizing your business. These straightforward processes can help you use data to gauge market size.

Top Down Approach

The first is a top-down approach, in which you start by looking at the market as a whole, then refine it to get an accurate market size. That would look like starting from your total addressable market and filtering from there.

how to calculate market size using a top down approach

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Home > Business Plan > Market Size in a Business Plan

Market Size in a Business Plan

Market Size in a Business Plan

… the market size looks like this …

What is Market Size?

To the investor, the solution in itself has no value unless it can be realized in the market place. Ultimately, it will be the industry market size that decides the value of your business to an investor and, as a rule of thumb, the bigger the available market, the better.

How to Calculate Market Sizes

TAM (Total Available Market) is the total market size (people, revenues, units etc.) who have the problem you are seeking to solve today.

SAM (Served Available Market) is the part of the TAM who are able to use your solution to the problem. This is your target market .

Available Market Size Estimation

The total available market or TAM is based on the number of properties in the region which use lawn care treatments. Using a top down approach, Government statistics might show that there are six million properties with gardens and industry analysis reveals that 3% of properties use lawn care treatments, and spend an average of 150 per year. The TAM is calculated as follows:

TAM = 6 million x 3% x 150 = 27 million per year

This means that if your business operated throughout the entire region with no competition its revenues would be 27 million per year. TAM defines the maximum size for the market the business operates in.

However, at the moment not all of the TAM are able to use your lawn care service as you only have one lawn care outlet in one town in the region. The market which is able to use your solution is limited to the town, so the serviceable available market or SAM is based on the number of properties with gardens within the town. Again, Government statistics might show that there are one million properties with gardens in the region, so the SAM is given as follows:

SAM = 1 million x 3% x 150 = 4.5 million (16.7% of TAM)

If there was no competition within the town and you had the resources to provide the service , then the revenue from the business would be 4.5 million per year. The SAM represents 16.7% of the TAM.

Market Size and Growth

The investor will also want to know whether this is a growing or declining market. The market size section of the business plan should also give an indication of the potential for growth over the next five years. We might be able to find additional market size data which shows that the number of properties with gardens will grow to 20.5 million, and the number using lawn care treatments is expected to increase to 4%, with an average spend of 165. the TAM is calculated as follows:

TAM = 6.5 million x 4% x 165 = 42.9 million per year in five years time

Like wise for the town the number of properties with gardens might be expected to increase to 1.15 million, and the SAM is given as follows:

SAM = 1.15 million x 4% x 165 = 7.59 million (17.7% of TAM)

Market Estimate Presentation in the Business Plan

The business plan market size section can be presented in a number of formats, but a simple column format setting out the TAM and SAM now and in five years time, will allow the investor to quickly ascertain how big the market for the product could be and it prospects for growth over the duration of the business plan.

market size

Market sizing is an important part of the business plan process. But this is planning not accounting. The market size section is an educated guess at how big the available market for the product is and aims to show that a successful launch and continued growth for the product is possible. It is based on available statistics and trade association data.

A few key points should be remembered when trying to determine market size

  • Start from verifiable and accurate base data. In the above example, the starting point was a government statistic based on the number of properties with gardens.
  • Double check any information with an alternative source if possible.
  • Check the results make sense.
  • Check the results using a bottom up calculation. For example, if you know a lawn care business in the region has revenue of 500,000 and estimated 2% of the market, then the TAM should be in the order of 500,000 / 2% = 25 million compared to the 27 million calculated above.
  • Keep the industry definition narrow, in this case lawn care treatments.
  • Be specific, don’t try and say for example, there are millions of properties in the world with gardens and if we can take a very small percentage of that our plan will work.
  • The analysis will differ depending on whether you are dealing with an existing market or a completely new market. For an existing product there will be market and industry data available, for a new product you may need to carry out market size research with potential customers and work upwards from there.

This is part of the financial projections and Contents of a Business Plan Guide , a series of posts on what each section of a simple business plan should include. The next post in this series is about the analysis of the target market for the business plan product.

About the Author

Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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How to Write a Market Analysis for a Business Plan

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A lot of preparation goes into starting a business before you can open your doors to the public or launch your online store. One of your first steps should be to write a business plan . A business plan will serve as your roadmap when building your business.

Within your business plan, there’s an important section you should pay careful attention to: your market analysis. Your market analysis helps you understand your target market and how you can thrive within it.

Simply put, your market analysis shows that you’ve done your research. It also contributes to your marketing strategy by defining your target customer and researching their buying habits. Overall, a market analysis will yield invaluable data if you have limited knowledge about your market, the market has fierce competition, and if you require a business loan. In this guide, we'll explore how to conduct your own market analysis.

How to conduct a market analysis: A step-by-step guide

In your market analysis, you can expect to cover the following:

Industry outlook

Target market

Market value

Competition

Barriers to entry

Let’s dive into an in-depth look into each section:

Step 1: Define your objective

Before you begin your market analysis, it’s important to define your objective for writing a market analysis. Are you writing it for internal purposes or for external purposes?

If you were doing a market analysis for internal purposes, you might be brainstorming new products to launch or adjusting your marketing tactics. An example of an external purpose might be that you need a market analysis to get approved for a business loan .

The comprehensiveness of your market analysis will depend on your objective. If you’re preparing for a new product launch, you might focus more heavily on researching the competition. A market analysis for a loan approval would require heavy data and research into market size and growth, share potential, and pricing.

Step 2: Provide an industry outlook

An industry outlook is a general direction of where your industry is heading. Lenders want to know whether you’re targeting a growing industry or declining industry. For example, if you’re looking to sell VCRs in 2020, it’s unlikely that your business will succeed.

Starting your market analysis with an industry outlook offers a preliminary view of the market and what to expect in your market analysis. When writing this section, you'll want to include:

Market size

Are you chasing big markets or are you targeting very niche markets? If you’re targeting a niche market, are there enough customers to support your business and buy your product?

Product life cycle

If you develop a product, what will its life cycle look like? Lenders want an overview of how your product will come into fruition after it’s developed and launched. In this section, you can discuss your product’s:

Research and development

Projected growth

How do you see your company performing over time? Calculating your year-over-year growth will help you and lenders see how your business has grown thus far. Calculating your projected growth shows how your business will fare in future projected market conditions.

Step 3: Determine your target market

This section of your market analysis is dedicated to your potential customer. Who is your ideal target customer? How can you cater your product to serve them specifically?

Don’t make the mistake of wanting to sell your product to everybody. Your target customer should be specific. For example, if you’re selling mittens, you wouldn’t want to market to warmer climates like Hawaii. You should target customers who live in colder regions. The more nuanced your target market is, the more information you’ll have to inform your business and marketing strategy.

With that in mind, your target market section should include the following points:

Demographics

This is where you leave nothing to mystery about your ideal customer. You want to know every aspect of your customer so you can best serve them. Dedicate time to researching the following demographics:

Income level

Create a customer persona

Creating a customer persona can help you better understand your customer. It can be easier to market to a person than data on paper. You can give this persona a name, background, and job. Mold this persona into your target customer.

What are your customer’s pain points? How do these pain points influence how they buy products? What matters most to them? Why do they choose one brand over another?

Research and supporting material

Information without data are just claims. To add credibility to your market analysis, you need to include data. Some methods for collecting data include:

Target group surveys

Focus groups

Reading reviews

Feedback surveys

You can also consult resources online. For example, the U.S. Census Bureau can help you find demographics in calculating your market share. The U.S. Department of Commerce and the U.S. Small Business Administration also offer general data that can help you research your target industry.

Step 4: Calculate market value

You can use either top-down analysis or bottom-up analysis to calculate an estimate of your market value.

A top-down analysis tends to be the easier option of the two. It requires for you to calculate the entire market and then estimate how much of a share you expect your business to get. For example, let’s assume your target market consists of 100,000 people. If you’re optimistic and manage to get 1% of that market, you can expect to make 1,000 sales.

A bottom-up analysis is more data-driven and requires more research. You calculate the individual factors of your business and then estimate how high you can scale them to arrive at a projected market share. Some factors to consider when doing a bottom-up analysis include:

Where products are sold

Who your competition is

The price per unit

How many consumers you expect to reach

The average amount a customer would buy over time

While a bottom-up analysis requires more data than a top-down analysis, you can usually arrive at a more accurate calculation.

Step 5: Get to know your competition

Before you start a business, you need to research the level of competition within your market. Are there certain companies getting the lion’s share of the market? How can you position yourself to stand out from the competition?

There are two types of competitors that you should be aware of: direct competitors and indirect competitors.

Direct competitors are other businesses who sell the same product as you. If you and the company across town both sell apples, you are direct competitors.

An indirect competitor sells a different but similar product to yours. If that company across town sells oranges instead, they are an indirect competitor. Apples and oranges are different but they still target a similar market: people who eat fruits.

Also, here are some questions you want to answer when writing this section of your market analysis:

What are your competitor’s strengths?

What are your competitor’s weaknesses?

How can you cover your competitor’s weaknesses in your own business?

How can you solve the same problems better or differently than your competitors?

How can you leverage technology to better serve your customers?

How big of a threat are your competitors if you open your business?

Step 6: Identify your barriers

Writing a market analysis can help you identify some glaring barriers to starting your business. Researching these barriers will help you avoid any costly legal or business mistakes down the line. Some entry barriers to address in your marketing analysis include:

Technology: How rapid is technology advancing and can it render your product obsolete within the next five years?

Branding: You need to establish your brand identity to stand out in a saturated market.

Cost of entry: Startup costs, like renting a space and hiring employees, are expensive. Also, specialty equipment often comes with hefty price tags. (Consider researching equipment financing to help finance these purchases.)

Location: You need to secure a prime location if you’re opening a physical store.

Competition: A market with fierce competition can be a steep uphill battle (like attempting to go toe-to-toe with Apple or Amazon).

Step 7: Know the regulations

When starting a business, it’s your responsibility to research governmental and state business regulations within your market. Some regulations to keep in mind include (but aren’t limited to):

Employment and labor laws

Advertising

Environmental regulations

If you’re a newer entrepreneur and this is your first business, this part can be daunting so you might want to consult with a business attorney. A legal professional will help you identify the legal requirements specific to your business. You can also check online legal help sites like LegalZoom or Rocket Lawyer.

Tips when writing your market analysis

We wouldn’t be surprised if you feel overwhelmed by the sheer volume of information needed in a market analysis. Keep in mind, though, this research is key to launching a successful business. You don’t want to cut corners, but here are a few tips to help you out when writing your market analysis:

Use visual aids

Nobody likes 30 pages of nothing but text. Using visual aids can break up those text blocks, making your market analysis more visually appealing. When discussing statistics and metrics, charts and graphs will help you better communicate your data.

Include a summary

If you’ve ever read an article from an academic journal, you’ll notice that writers include an abstract that offers the reader a preview.

Use this same tactic when writing your market analysis. It will prime the reader of your market highlights before they dive into the hard data.

Get to the point

It’s better to keep your market analysis concise than to stuff it with fluff and repetition. You’ll want to present your data, analyze it, and then tie it back into how your business can thrive within your target market.

Revisit your market analysis regularly

Markets are always changing and it's important that your business changes with your target market. Revisiting your market analysis ensures that your business operations align with changing market conditions. The best businesses are the ones that can adapt.

Why should you write a market analysis?

Your market analysis helps you look at factors within your market to determine if it’s a good fit for your business model. A market analysis will help you:

1. Learn how to analyze the market need

Markets are always shifting and it’s a good idea to identify current and projected market conditions. These trends will help you understand the size of your market and whether there are paying customers waiting for you. Doing a market analysis helps you confirm that your target market is a lucrative market.

2. Learn about your customers

The best way to serve your customer is to understand them. A market analysis will examine your customer’s buying habits, pain points, and desires. This information will aid you in developing a business that addresses those points.

3. Get approved for a business loan

Starting a business, especially if it’s your first one, requires startup funding. A good first step is to apply for a business loan with your bank or other financial institution.

A thorough market analysis shows that you’re professional, prepared, and worth the investment from lenders. This preparation inspires confidence within the lender that you can build a business and repay the loan.

4. Beat the competition

Your research will offer valuable insight and certain advantages that the competition might not have. For example, thoroughly understanding your customer’s pain points and desires will help you develop a superior product or service than your competitors. If your business is already up and running, an updated market analysis can upgrade your marketing strategy or help you launch a new product.

Final thoughts

There is a saying that the first step to cutting down a tree is to sharpen an axe. In other words, preparation is the key to success. In business, preparation increases the chances that your business will succeed, even in a competitive market.

The market analysis section of your business plan separates the entrepreneurs who have done their homework from those who haven’t. Now that you’ve learned how to write a market analysis, it’s time for you to sharpen your axe and grow a successful business. And keep in mind, if you need help crafting your business plan, you can always turn to business plan software or a free template to help you stay organized.

This article originally appeared on JustBusiness, a subsidiary of NerdWallet.

On a similar note...

How to Determine Your Market Size

How to assess market size for a small business plan..

As you develop your business plan, you should estimate your market size to understand the potential for your product or service. This information helps you determine whether your business idea is viable and provides insight into the level of investment necessary to launch and grow your business.

This article will provide information about estimating your market size using proven approaches. We’ll also offer market size examples and an outline that you can use for writing your business plan. Together these will serve as a template to help you understand the importance of assessing the market and future growth potential for your business.

What is market size?

Market size is the total revenue generated by all the businesses that offer products or services similar to yours. It’s an indicator of the potential demand for your business and provides an estimate of the market size you will be competing for.

How is market size measured?

Market size is measured in terms of the total revenue generated by all the businesses that offer products or services similar to yours. This information can be gathered through market research, including surveys, interviews, industry reports, and data analysis.

What level of detail do investors and lenders expect to see in your business plan?

Investors and lenders typically expect to see a detailed analysis of your target market and the potential market size for your business. This analysis should include the total market size, target market, and estimated market share. They may also expect to see information on the competition in your market, growth trends, and any other factors that may impact the potential for the success of your business.

Key Terms to Understand Market Size

In the introduction, we stated that market size is the total amount of revenue that is currently being generated for a given product or service in a defined area. The following terms will help you understand the market size and potential more completely.

Total Addressable Market

The total addressable market (TAM) is the full revenue opportunity available for a product or service, assuming 100% market share without considering any competition or other external factors that may limit the potential market size. This is the maximum possible revenue your business could generate if you capture the entire market.

Serviceable Available Market

The serviceable available market (SAM) is the portion of the total addressable market that you can realistically reach and serve with your product or service. The SAM considers factors such as geographic limitations, customer demographics, and market saturation.

SOM or Obtainable Market

The SOM, or obtainable market, is the portion of the serviceable available market that your business can realistically capture based on your marketing and sales efforts, resources, and competitive landscape. This represents the market share that you can expect to achieve based on your ability to reach and serve customers within the serviceable available market.

Market Share

Market share is the percentage of total revenue in a particular market that is generated by your business. It is calculated by dividing your business’s revenue by the total revenue generated by all the firms in the serviceable market. This metric provides insight into your business’s market position and ability to compete with other companies that customers will consider when looking for products and services like those you offer.

Quantifying Your Market Size

How to estimate the tam for your business idea.

To estimate your total addressable market (TAM), you may use various methods, including top-down analysis, bottom-up analysis, or industry reports and research. Top-down analysis involves estimating the total market size and then narrowing it down to the specific niche that your business serves, whereas bottom-up analysis involves estimating the size of your niche market and then extrapolating to estimate the total market size. Additionally, you may use industry reports and research from third-party sources to help assess market size.

How to determine the SAM for your business idea

To determine your serviceable available market (SAM), you need to identify your target market and estimate the number of potential customers. This process involves researching and analyzing data on customer demographics, psychographics, and behaviors to understand their needs, preferences, and buying habits. Once you have identified your target market, you can estimate the market size by including population statistics, market research reports, and surveys.

How to determine the SOM for your business idea

You must assess your competitive landscape, marketing and sales strategies, and resources to determine your obtainable market or SOM. This involves understanding your competitors, their market share, their strengths and weaknesses, and developing a marketing and sales strategy that will allow you to reach and serve your target market. Once you clearly understand your competitive landscape and your marketing and sales strategy, you can estimate your SOM based on your ability to capture market share.

Calculating the market size for your business

To calculate the market size for your business, you will need to estimate your SOM and then multiply it by the size of the market in terms of revenue. Complete this by multiplying the total revenue of your industry by your estimated market share.

Alternatively, you can estimate your market size by multiplying the total number of potential customers in your target market by the average revenue per customer. These calculations will help you determine the potential revenue your business can generate within its target market.

A Reality Check on Your Market Size Estimate

Does it feel right.

Take a critical look at your market size estimates and ask yourself if they feel realistic. Are your assumptions based on accurate and up-to-date information? Are there any factors you might be overlooking that could impact the size of your market? It’s essential to consider both the macro and micro-level factors that could affect your market size.  These include technological changes, consumer preferences, economic conditions, and any relevant regulatory changes.

Cite sources for your assumptions

When making assumptions about market size, citing your sources is important. Investors and lenders will want to see that your estimates are based on credible data and research. Look for industry reports, market research studies, and other sources supporting your assumptions. It would be best if you also considered conducting your own primary research, such as surveys or focus groups, to validate your assumptions and gather more information about your target market.

Socialize your estimate with trusted advisors

Get feedback from people who have experience in your industry and can provide insights into the size of the market. Talk to advisors, mentors, and industry experts who can help you validate your assumptions and provide a reality check on your market size estimates. By getting feedback from trusted sources, you can refine your estimates and improve the accuracy of your business plan. It’s also important to be open to constructive criticism and to revise your estimates if necessary based on the feedback you receive.

Common Questions About Market Size for a Business Plan

How does competition fit into market size estimates.

When estimating market size, it is crucial to consider the competitive landscape. If there are many existing players in the market, then the overall market size may be smaller than if the market is relatively unexplored. Investors and lenders will want to see that you have taken this into account and that your market size estimate is realistic, given the level of competition in the industry.

Does competition fit into TAM, SAM, or SOM?

Competition can fit into all three market size categories – TAM, SAM, and SOM.

When estimating the Total Addressable Market (TAM), consider the level of competition in the entire market, as it represents the total demand for a product or service, including all competitors.

When estimating the Serviceable Available Market (SAM), evaluate the level of competition within the specific geographic or demographic segment being targeted. Looking at competition allows for a more accurate estimate of the market share that the business can realistically capture.

When estimating the Share of the Obtainable Market (SOM), consider the level of competition for the specific customers or clients the business aims to capture. This approach allows for a more realistic estimate of the market share the company can realistically capture based on the level of competition and other factors.

How do growth trends fit into market size estimates?

Growth trends are an important consideration when estimating market size. If the market is projected to grow rapidly over the next few years, then the overall market size will be larger than it is currently. Conversely, if the market is projected to decline or grow slowly, then the overall market size will be smaller. When estimating market size, consider these growth trends and justify your assumptions with credible sources.

How to measure growth rates locally versus regionally or nationally?

Measuring growth rates can be done at different levels, depending on the scope of the market analyzed. For example, if you are analyzing a local market, look at the growth rate of the overall population or the number of businesses in the area. If you are investigating a national market, look at the growth rate of the overall economy or the industry you are entering. Make sure you are using the right metrics for the market you are analyzing and that you can justify your assumptions.

What if my business can grow faster than the overall trends?

If you believe your business can grow faster than the overall trends, it’s important to be able to explain why. This might be because you have a unique value proposition, a better product, or a more effective marketing strategy. When estimating market size, you should consider the potential impact of your business on the overall market and adjust your estimates accordingly. Investors and lenders will want to see that you have a realistic and well-supported estimate of your potential market share.

Market Size Outline for a Business Plan

A market size template.

The market size outline below will help ensure that your business plan addresses the critical aspects of market size that investors and lenders want to know. As a business owner, this will also help you look at your business quantitatively to arrive at estimates based on sound principles.

  • Market served by your products or services
  • The specific segment you’re measuring
  • Dollar volume being sold today
  • Compound annual growth rate or CAGR
  • Accelerating or decelerating trends
  • Narrative on how you are defining your addressable market
  • A numerical estimate of TAM based on your definition
  • How do you define your serviceable market
  • A numerical estimate of SAM based on your definition
  • How will you reach the obtainable market
  • A numerical estimate of the SOM based
  • The total market size in your addressable market
  • Your market share estimate in percent
  • Your revenue estimate based on market share
  • Web research
  • Industry associations
  • Other sources

Market Size Examples for a Business Plan

Market size example one: jolly organic pet foods.

Based on our research, we estimate that the total addressable market (TAM) for our proposed product, which is a premium line of organic pet food, is around $1 billion. This includes dog and cat owners interested in high-quality, all-natural, and organic pet food in the United States.

Our serviceable available market (SAM) is estimated to be around $100 million, a subset of the TAM we are targeting. We arrived at this estimate by focusing on the demographic of pet owners who are currently buying premium pet food and are likely to be interested in our product.

Looking at our budget and the geographies we plan to target initially, our Serviceable Obtainable Market (SOM) is just 5% of the US market.  This brings our SOM to $10 million.

We also took into account the presence of competitors in the market. We estimate that our share of the SOM will be approximately 20%, which equates to $2 million in annual revenue by the end of year one. We arrived at this estimate by analyzing the current market share of our competitors and factoring in our unique value proposition and target audience.

As the business achieves its plans and goals, we will expand into other markets, increasing the revenue potential. The numbers above are based on our initial launch covered in the business plan.

These estimates are subject to change as we gather more data and feedback from potential customers and industry experts. In addition, we plan to continuously monitor and adjust our market size estimates as needed to ensure a realistic understanding of the market and our potential for success.

Market Size Example Two: Get Your Fitness Goal – An app for making it happen.

Get Your Goal is a software company that creates apps for tracking personal fitness goals. The market size section of their business plan is shown below.

Market Size:

As of 2021, the global market size for fitness and wellness mobile apps was estimated to be around $280 million and is projected to grow at a CAGR of 21.6% from 2021 to 2028. However, this includes various fitness and wellness apps, including diet and nutrition, mental health, and medical conditions. To narrow down the market size for personal fitness and goal-setting apps specifically, we need to look at the Total Addressable Market (TAM).

According to a report by Statista, the total number of health and fitness app downloads worldwide was 100 million in 2020, and it is projected to increase to 220 million by 2025. This indicates a growing demand for personal fitness and goal-setting apps. To estimate the TAM for this specific market, we can assume that not all app downloads necessarily result in active usage or revenue generation. However, if we take a conservative estimate of 10% of downloads leading to active usage and revenue generation, then the TAM for personal fitness and goal-setting apps would be around 22 million users.

To estimate the Serviceable Addressable Market (SAM), we need to look at the subset of the TAM that our app can realistically target. For instance, if our app is only available in English and targets individuals living in the United States, our SAM would be smaller than the global TAM. Based on research, the SAM for our personal fitness and goal-setting app would be around 1.5 million users.

Finally, to estimate the Serviceable Obtainable Market (SOM), we must consider the realistic market share our app can capture within the SAM. Assuming a conservative 10% market share in the first year, growing to 5% by year three, our SOM would be around 150,000 users in year one, growing to 750,000 users in year five.

Based on the subscription model of our app, we estimate that the average customer will pay $10 per month, and our revenue will come from a 30% take rate from the app stores. Using these assumptions, our estimated revenue for the first year would be $6.1 million, growing to $30 million in year five.

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business plan market size

How to estimate market size: Business and marketing planning for startups

Read the highlights.

  • Define your target customer
  • Estimate the number of target customers
  • Determine your penetration rate
  • Calculate the potential market size: Volume and value
  • Apply the market-size data
  • The starting point? Understand the customer problem you solve and the potential value you generate.

Sizing the market is a necessary task for business and marketing planning, and budgeting for all startups, especially those that seek third-party financing such as venture capital (VC). Even though their investment philosophies may differ, most VCs and angel investors would like to know that they are investing in a market with a large potential size (typically, at least $1 billion).

Understanding your market potential

Even if you do not seek external financing, understanding your market potential is essential for a range of different strategic decisions, in areas such as:

  • Product development
  • Partnering and distribution
  • Organizational design and critical employee skills

Starting point for estimating market size: Know the problem you are solving

The starting point for estimating market size is to understand the problem you solve for customers and the potential value your product generates for them. This is an aspect that many startup founders in the innovation community tend to overlook, since they get excited about the product they’ve developed without thinking about how it benefits their audience.

Depending on your technology, you may have to choose which customer problem to solve first. If this is the case, completing the exercise below may help you better grasp the market size for each application. This will make it easier to prioritize which problem to solve first.

Exercise: Estimating market size

This exercise consists of five steps to help you estimate the total market potential for a product. In each step, we build on a health innovation case study that assumes the problem we solve relates to patient safety in hospitals.

Step 1. Define your target customer

All early-stage entrepreneurs and startups must define their target customer .

Your target customer equals the person or company for whom your technology solves a specific problem. To define your target customer you must:

  • Determine who your target customer is.
  • Create a profile of your typical/expected target customer.

Given the importance of defining your target customer, it is crucial to set aside enough time to do a proper analysis of this first step.

Case study: We have analyzed patient-safety procedures in a few hospitals. We have determined that our innovative technology would generate the most value in the largest hospitals (the top 25%, ranked by size).

Step 2. Estimate the number of target customers

Estimate the total number of target customers in the market—companies who have a profile similar to that of your target customer.

If you’re a startup venture in Ontario or another Canadian province, you can use industry databases such as those offered by Statistics Canada, U.S. Bureau of Economic Analysis or Hoovers to help you quantify your market.

Case study: By studying publicly available sources, we have found out that in our target group there are 1,300 hospitals in Canada and the United States.

Step 3. Determine your penetration rate

Refine your market size by assuming a penetration rate for your category of product. The penetration rate is a function of the nature of your product. Assume a high penetration rate if your category of product is mission-critical or mandated through regulation; assume a low penetration rate for products with a specialized purpose.

Example: penetration rates of computers versus business intelligence systems:

  • Computers, word-processing and internet: It is almost impossible today to operate a business in the developed world without a computer that has word-processing capabilities and is connected to the internet. While the penetration of those three technologies has not quite reached 100%, it is close enough to use that assumption for business growth and planning.
  • Business intelligence systems: In theory, most companies would benefit from having a business intelligence system – a type of software that is used to manage and analyze data about finance, sales, and marketing activities, in addition to more specialized purposes. In practice, however, few ventures have the combination of the scale, skills and business practices required to make business intelligence systems a worthwhile investment.This limits the penetration rate to very large organizations that make up maybe less than 1% of all businesses in the developed world. Nevertheless, while 1% may not sound like a lot, it still represents a much larger number of target customers than a new startup could effectively pursue.

Case study: We have studied the factors that drive improvement in patient safety across North America, and found that it depends on provincial and state regulations. Based on areas where patient-safety regulations are strict, we can assume a penetration rate of 70% for our technology .

Step 4. Calculate the potential market size: Volume and value

Market volume.

To find the overall market potential (that is, the potential market volume), multiply your number of target customers by the penetration rate (see steps 2 and 3 above).

Case study : Using our fictitious example, where the number of target customers is 1,300 and the penetration rate is assumed to be 70%, the potential market volume would be calculated as follows:

1,300 hospitals × 70% = 910 hospitals

Market value

To calculate the monetary value of the market, multiply the market volume by your average value (that is, price expectations).

Case study: We assume each sale to a hospital will yield an average value of $2.5 million. To find the market value, we calculate the following:

910 hospitals × $ 2.5 million = $ 2.275 billion

5. Apply the market-size data

Following these steps to estimate your market size (value) is by no means an exact science. Still, there are ways to maximize the effectiveness of this exercise:

  • At the time you make your first estimate, examine each assumption you make and what would cause it to change. To factor in the risks of change, calculate best-case and worst-case scenarios in addition to your expected scenario.
  • Over time, monitor the accuracy of your initial assumptions and whether you need to modify them.

Case study: Our patient-safety technology may appeal to hospitals of a smaller size than initially assumed, especially if new regulations mandate tighter patient-safety procedures from all hospitals. While such a change would more than double the number of hospitals in our target market, smaller hospitals would not be able to pay as much, in turn driving the expected average price per sale down to $2 million.

Note: This exercise aims at estimating the total market potential for a product. It is important for startups to recognize that both early adopters and laggards are included in those numbers. While early adopters will likely be your customers in years 1 and 2, the laggards may not enter the market until year 20 or later. In terms of our case study, this would mean that the size of the market in year 1 would be about $100 million if early adopters comprise 5% of the overall hospital market for patient safety. For a more detailed understanding of how markets develop, read the article Technology adoption lifecycle .

Summary: These five steps outline how to estimate a market size—essential when making strategic decisions (e.g, business and marketing planning) and seeking third-party financing (e.g., venture capital).

Researching a market? Our free online course Introduction to Market Sizing offers a practical 30-minute primer on market research and calculating market size.

Want to learn how to understand and talk to your customers? Join us for our next cohort of the Customer Development Immersive.

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How to Write the Market Analysis Section of a Business Plan

Alyssa Gregory is an entrepreneur, writer, and marketer with 20 years of experience in the business world. She is the founder of the Small Business Bonfire, a community for entrepreneurs, and has authored more than 2,500 articles for The Balance and other popular small business websites.

business plan market size

The market analysis section of your business plan comes after the products or services section and should provide a detailed overview of the industry you intend to sell your product or service in, including statistics to support your claims.

In general, the market analysis section should include information about the industry, your target market, your competition, and how you intend to make a place for your own product and service. Extensive data for this section should be added to the end of the business plan as appendices, with only the most important statistics included in the market analysis section itself.

What Should a Market Analysis Include?

The market analysis section of your small business plan should include the following:

  • Industry Description and Outlook : Describe your industry both qualitatively and quantitatively by laying out the factors that make your industry an attractive place to start and grow a business. Be sure to include detailed statistics that define the industry including size, growth rate , trends, and outlook.
  • Target Market : Who is your ideal client/customer? This data should include demographics on the group you are targeting including age, gender, income level, and lifestyle preferences. This section should also include data on the size of the target market, the purchase potential and motivations of the audience, and how you intend to reach the market.
  • Market Test Results : This is where you include the results of the market research you conducted as part of your initial investigation into the market. Details about your testing process and supporting statistics should be included in the appendix.
  • Lead Time : Lead time is the amount of time it takes for an order to be fulfilled once a customer makes a purchase. This is where you provide information on the research you've completed on how long it will take to handle individual orders and large volume purchases, if applicable.
  • Competitive Analysis : Who is your competition? What are the strengths and weaknesses of the competition? What are the potential roadblocks preventing you from entering the market?

7 Tips for Writing a Market Analysis

Here is a collection of tips to help you write an effective and well-rounded market analysis for your small business plan.

  • Use the Internet : Since much of the market analysis section relies on raw data, the Internet is a great place to start. Demographic data can be gathered from the U.S. Census Bureau. A series of searches can uncover information on your competition, and you can conduct a portion of your market research online.
  • Be the Customer : One of the most effective ways to gauge opportunity among your target market is to look at your products and services through the eyes of a purchaser. What is the problem that needs to be solved? How does the competition solve that problem? How will you solve the problem better or differently?
  • Cut to the Chase : It can be helpful to your business plan audience if you include a summary of the market analysis section before diving into the details. This gives the reader an idea about what's to come and helps them zero in on the most important details quickly.
  • Conduct Thorough Market Research : Put in the necessary time during the initial exploration phase to research the market and gather as much information as you can. Send out surveys, conduct focus groups, and ask for feedback when you have an opportunity. Then use the data gathered as supporting materials for your market analysis.
  • Use Visual Aids : Information that is highly number-driven, such as statistics and metrics included in the market analysis, is typically easier to grasp when it's presented visually. Use charts and graphs to illustrate the most important numbers.
  • Be Concise : In most cases, those reading your business plan already have some understanding of the market. Include the most important data and results in the market analysis section and move the support documentation and statistics to the appendix.
  • Relate Back to Your Business : All of the statistics and data you incorporate in your market analysis should be related back to your company and your products and services. When you outline the target market's needs, put the focus on how you are uniquely positioned to fulfill those needs.

Analyze your market like a pro with this step-by-step guide + insider tips

Don’t fall into the trap of assuming that you already know enough about your market.

No matter how fantastic your product or service is, your business cannot succeed without sufficient market demand .

You need a clear understanding of who will buy your product or service and why .

You want to know if there is a clear market gap and a market large enough to support the survival and growth of your business.

Industry research and market analysis will help make sure that you are on the right track .

It takes time , but it is time well spent . Thank me later.

WHAT is Market Analysis?

The Market Analysis section of a business plan is also sometimes called:

  • Market Demand, Market Trends, Target Market, The Market
  • Industry Analysis & Trends, Industry & Market Analysis, Industry and Market Research

WHY Should You Do Market Analysis?

First and foremost, you need to demonstrate beyond any reasonable doubt that there is real need and sufficient demand for your product or service in the market, now and going forward.

  • What makes you think that people will buy your products or services?
  • Can you prove it?

Your due diligence on the market opportunity and validating the problem and solution described in the Product and Service section of your business plan are crucial for the success of your venture.

Also, no company operates in a vacuum. Every business is part of a larger overall industry, the forces that affect your industry as a whole will inevitably affect your business as well.

Evaluating your industry and market increases your own knowledge of the factors that contribute to your company’s success and shows the readers of your business plan that you understand the external business conditions.

External Support

In fact, if you are seeking outside financing, potential backers will most definitely be interested in industry and market conditions and trends.

You will make a positive impression and have a better chance of getting their support if you show market analysis that strengthens your business case, combining relevant and reliable data with sound judgement.

Let’s break down how to do exactly that, step by step:

HOW To Do Market Analysis: Step-by-Step

So, let’s break up how market analysis is done into three steps:

  • Industry:  the total market
  • Target Market: specific segments of the industry that you will target
  • Target Customer: characteristics of the customers that you will focus on

Step 1: Industry Analysis

How do you define an industry.

For example, the fashion industry includes fabric suppliers, designers, companies making finished clothing, distributors, sales representatives, trade publications, retail outlets online and on the high street.

How Do You Analyze an Industry?

Briefly describe your industry, including the following considerations:

1.1. Economic Conditions

Outline the current and projected economic conditions that influence the industry your business operates in, such as:

  • Official economic indicators like GDP or inflation
  • Labour market statistics
  • Foreign trade (e.g., import and export statistics)

1.2. Industry Description

Highlight the distinct characteristic of your industry, including:

  • Market leaders , major customer groups and customer loyalty
  • Supply chain and distribution channels
  • Profitability (e.g., pricing, cost structure, margins), financials
  • Key success factors
  • Barriers to entry preventing new companies from competing in the industry

1.3. Industry Size and Growth

Estimate the size of your industry and analyze how industry growth affects your company’s prospects:

  • Current size (e.g., revenues, units sold, employment)
  • Historic and projected industry growth rate (low/medium/high)
  • Life-cycle stage /maturity (emerging/expanding/ mature/declining)

1.4. Industry Trends

  • Industry Trends: Describe the key industry trends and evaluate the potential impact of PESTEL (political / economic / social / technological / environmental / legal) changes on the industry, including the level of sensitivity to:
  • Seasonality
  • Economic cycles
  • Government regulation (e.g. environment, health and safety, international trade, performance standards, licensing/certification/fair trade/deregulation, product claims) Technological change
  • Global Trends: Outline global trends affecting your industry
  • Identify global industry concerns and opportunities
  • International markets that could help to grow your business
  • Strategic Opportunity: Highlight the strategic opportunities that exist in your industry

Step 2: Target Customer Identification

Who is a target customer.

One business can have–and often does have–more than one target customer group.

The success of your business depends on your ability to meet the needs and wants of your customers. So, in a business plan, your aim is to assure readers that:

  • Your customers actually exist
  • You know exactly who they are and what they want
  • They are ready for what you have to offer and are likely to actually buy

How Do You Identify an Ideal Target Customer?

2.1. target customer.

  • Identify the customer, remembering that the decision-maker who makes the purchase can be a different person or entity than the end-user.

2.2. Demographics

  • For consumers ( demographics ): Age, gender, income, occupation, education, family status, home ownership, lifestyle (e.g., work and leisure activities)
  • For businesses ( firmographic ): Industry, sector, years in business, ownership, size (e.g., sales, revenues, budget, employees, branches, sq footage)

2.3. Geographic Location

  • Where are your customers based, where do they buy their products/services and where do they actually use them

2.4 Purchasing Patterns

  • Identify customer behaviors, i.e., what actions they take
  • how frequently
  • and how quickly they buy

2.5. Psychographics

  • Identify customer attitudes, i.e., how they think or feel
  • Urgency, price, quality, reputation, image, convenience, availability, features, brand, customer service, return policy, sustainability, eco-friendliness, supporting local business
  • Necessity/luxury, high involvement bit ticket item / low involvement consumable

Step 3: Target Market Analysis

What is a target market.

Target market, or 'target audience', is a group of people that a business has identified as the most likely to purchase its offering, defined by demographic, psychographic, geographic and other characteristics. Target market may be broken down to target customers to customize marketing efforts.

How Do You Analyze a Target Market?

So, how many people are likely to become your customers?

To get an answer to this questions, narrow the industry into your target market with a manageable size, and identify its key characteristics, size and trends:

3.1. Target Market Description

Define your target market by:

  • Type: B2C, B2B, government, non-profits
  • Geographic reach: Specify the geographic location and reach of your target market

3.2. Market Size and Share

Estimate how large is the market for your product or service (e.g., number of customers, annual purchases in sales units and $ revenues). Explain the logic behind your calculation:

  • TAM (Total Available/Addressable/Attainable Market) is the total maximum demand for a product or service that could theoretically be generated by selling to everyone in the world who could possibly buy from you, regardless of competition and any other considerations and restrictions.
  • SAM (Serviceable Available Market) is the portion of the TAM that you could potentially address in a specific market. For example, if your product/service is only available in one country or language.
  • SOM (Service Obtainable Market / Share of Market) is the share of the SAM that you can realistically carve out for your product or service. This the target market that you will be going after and can reasonably expect to convert into a customer base.

3.3. Market Trends

Illustrate the most important themes, changes and developments happening in your market. Explain the reasons behind these trends and how they will favor your business.

3.4. Demand Growth Opportunity

Estimate future demand for your offering by translating past, current and future market demand trends and drivers into forecasts:

  • Historic growth: Check how your target market has grown in the past.
  • Drivers past: Identify what has been driving that growth in the past.
  • Drivers future: Assess whether there will be any change in influence of these and other drivers in the future.

How Big Should My Target Market Be?

Well, if the market opportunity is small, it will limit how big and successful your business can become. In fact, it may even be too small to support a successful business at all.

On the other hand, many businesses make the mistake of trying to appeal to too many target markets, which also limits their success by distracting their focus.

What If My Stats Look Bad?

Large and growing market suggests promising demand for your offering now and into the future. Nevertheless, your business can still thrive in a smaller or contracting market.

Instead of hiding from unfavorable stats, acknowledge that you are swimming against the tide and devise strategies to cope with whatever lies ahead.

Step 4: Industry and Market Analysis Research

The market analysis section of your business plan should illustrate your own industry and market knowledge as well as the key findings and conclusions from your research.

Back up your findings with external research sources (= secondary research) and results of internal market research and testing (= primary research).

What is Primary and Secondary Market Research?

Yes, there are two main types of market research – primary and secondary – and you should do both to adequately cover the market analysis section of your business plan:

  • Primary market research is original data you gather yourself, for example in the form of active fieldwork collecting specific information in your market.
  • Secondary market research involves collating information from existing data, which has been researched and shared by reliable outside sources . This is essentially passive desk research of information already published .

Unless you are working for a corporation, this exercise is not about your ability to do professional-level market research.

Instead, you just need to demonstrate fundamental understanding of your business environment and where you fit in within the market and broader industry.

Why Do You Need To Do Primary & Secondary Market Research?

There are countless ways you could go collecting industry and market research data, depending on the type of your business, what your business plan is for, and what your needs, resources and circumstances are.

For tried and tested tips on how to properly conduct your market research, read the next section of this guide that is dedicated to primary and secondary market research methods.

In any case, tell the reader how you carried out your market research. Prove what the facts are and where you got your data. Be as specific as possible. Provide statistics, numbers, and sources.

When doing secondary research, always make sure that all stats, facts and figures are from reputable sources and properly referenced in both the main text and the Appendix of your business plan. This gives more credibility to your business case as the reader has more confidence in the information provided.

Go to the Primary and Secondary Market Research post for my best tips on industry, market and competitor research.

7 TOP TIPS For Writing Market Analysis

1. realistic projections.

Above all, make sure that you are realistic in your projections about how your product or service is going to be accepted in the market, otherwise you are going to seriously undermine the credibility of your entire business case.

2. Laser Focus

Discuss only characteristic of your target market and customers that are observable, factual and meaningful, i.e. directly relate to your customers’ decision to purchase.

Always relate the data back to your business. Market statistics are meaningless until you explain where and how your company fits in.

For example, as you write about the market gap and the needs of your target customers, highlight how you are uniquely positioned to fill them.

In other words, your goal is to:

  • Present your data
  • Analyze the data
  • Tie the data back to how your business can thrive within your target market

3. Target Audience

On a similar note, tailor the market analysis to your target audience and the specific purpose at hand.

For example, if your business plan is for internal use, you may not have to go into as much detail about the market as you would have for external financiers, since your team is likely already very familiar with the business environment your company operates in.

4. Story Time

Make sure that there is a compelling storyline and logical flow to the market information presented.

The saying “a picture is worth a thousand words” certainly applies here. Industry and market statistics are easier to understand and more impactful if presented as a chart or graph.

6. Information Overload

Keep your market analysis concise by only including pertinent information. No fluff, no repetition, no drowning the reader in a sea of redundant facts.

While you should not assume that the reader knows anything about your market, do not elaborate on unnecessary basic facts either.

Do not overload the reader in the main body of the business plan. Move everything that is not essential to telling the story into the Appendix. For example, summarize the results of market testing survey in the main body of the business plan document, but move the list of the actual survey questions into the appendix.

7. Marketing Plan

Note that market analysis and marketing plan are two different things, with two distinct chapters in a business plan.

As the name suggests, market analysis examines where you fit in within your desired industry and market. As you work thorugh this section, jot down your ideas for the marketing and strategy section of your business plan.

Final Thoughts

Remember that the very act of doing the research and analysis is a great opportunity to learn things that affect your business that you did not know before, so take your time doing the work.

Related Questions

What is the purpose of industry & market research and analysis.

The purpose of industry and market research and analysis is to qualitatively and quantitatively assess the environment of a business and to confirm that the market opportunity is sufficient for sustainable success of that business.

Why are Industry & Market Research and Analysis IMPORTANT?

Industry and market research and analysis are important because they allow you to gain knowledge of the industry, the target market you are planning to sell to, and your competition, so you can make informed strategic decisions on how to make your business succeed.

How Can Industry & Market Research and Analysis BENEFIT a Business?

Industry and market research and analysis benefit a business by uncovering opportunities and threats within its environment, including attainable market size, ideal target customers, competition and any potential difficulties on the company’s journey to success.

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Market Sizing: Key to Strategic Business Planning

Learn how market sizing can help you make informed strategic decisions for your business. Discover the key steps and benefits with this market sizing cheat sheet.

As a business operator, you already understand the value of strategic planning. When you gather data and perform analysis before making essential decisions, you can avoid a lot of pitfalls and steer the business in a healthy direction.

One aspect of strategic planning that many businesses still overlook is market size. It’s a process that can help you determine the value of a new business strategy before it is instituted.

If you’re looking to expand your products or services, grow your audience , or if you’re looking to break into new locations, using a market sizing approach should be one of your first steps.

Take a few minutes to learn more about what market sizing is, how it works, and how it can help you with your strategic planning. When you learn how to fit it into your existing operation, you’ll have one more tool pushing your business to greater heights.

What is market sizing?

As the name suggests, market sizing is the process of figuring out how large a market size is for a particular product or service.

More specifically, it’s an attempt to estimate the total number of buyers in a target region for that good or service and how much revenue those buyers can generate.

Figuring out how many people are potential customers (your target market) is essential for businesses. It enables you to gauge the true potential of your business model, and using that information, you can allocate resources accordingly.

Here’s a simple market sizing example. Imagine Walmart wants to open a new store in a small town.

Understanding their market size, they can estimate the monthly revenue for the new store. That can help them determine how large the store should be and how much product to carry. Without these estimates, they could overinvest in the town, and the store might fail.

While Walmart provides an opaque example, this applies just as well to any niche market .

How to determine market size

You can get an extremely generalized estimate of your market size by doing a simple calculation.

First, what is the population size of the people in the market (or what is the market size?)?

For the Walmart example, it’s the total number of adults in the new town. For a business that sells web development services, it’s the total number of businesses in the area that could benefit from a website.

Multiply the population size by your average sale (or average expected sale) value. That’s your market potential.

Naturally, this is a high-end estimate, but it can help you determine the upper limit of your business plan’s potential.

Benefits of market sizing for businesses

At this point, the market sizing question might sound interesting, but there’s still a lot to cover. Estimating a new market size is a tricky business.

What makes it worth the effort and cost?

Implementing a market sizing approach comes with some powerful benefits. The information you gain can inform all kinds of business decisions. In particular, market sizing can help you understand demand, find customers, size up the competition, and figure out long-term market trends.

Understanding the demand for your product or service

Estimating total market demand can be tricky , but it’s invaluable. When you have a clear grasp on how popular or in-demand your offer will be, it cleans up revenue estimates.

That, in turn, gives you mathematical values to determine marketing budgets, profit margins, and all of the numbers that go into determining your bottom line.

Understanding demand empowers you to make informed decisions at every step.

Identifying target customers

Identifying target customers is useful for estimating the market size in the first place, but that’s only the beginning.

Identifying your target market can help you figure out exactly when and where to focus your marketing efforts. You have to find customers in order to sell to them, and market sizing can give you a head start on that front.

Evaluating competition

Advanced market sizing methods won’t just tell you how big your potential market currently is. It will also estimate market saturation. In other words, the research will tell you how many people have access to competing products or services.

When you combine this type of competitor analysis with other metrics like demand, you can make even cleaner business estimates. You can also get a feel for what it will take to compete with existing businesses, and you can build that into your marketing strategies early.

Determining market trends

Lastly, you can estimate market trends while you gauge the overall market for your new business line. Obviously, it’s important to know if your industry and market are likely to grow or shrink.

In either case, you can strategize around trends and think about your specific market fit . Maybe your new service is best used as a temporary means to boost business.

Maybe, it’s the future direction for the whole organization. Market trends can help you think in these terms.

How to calculate market size

Comprehensive market sizing involves a deep look at many different metrics and aspects of the target market. It’s an involved process.

Whether you perform all of the research on your own, or you outsource market sizing to specialists, you want to make sure the research hits four major areas.

Conduct market research

Market research is where you get detailed information about potential buyers. This is where you investigate closely to determine how many people in an area are likely to purchase your product or service.

This is best done by taking a look at competitors (to see how much they’re already selling things similar to your offer), direct feedback (with surveys, social media polls, and/or focus groups), and population data (like total spending in the area and household spending reports).

Analyze market data

Once you collect all of your market data, it’s time for analytics. There are a few limits to how deep you can go with your analysis, but there are a few key points to include.

First, try to get a timeline for all of your data. This helps you establish trends to see if interest and/or spending is growing or shrinking over time. Time-dependent trends are helpful in any area you want to analyze.

Second, be meticulous about variance in the data. Some data will be extremely valuable. Other groups of data won’t be as telling. Diligent reporting of variance will help you tell the difference.

Third, try to tie your metrics to monetary value. The primary goal of this research is to figure out how to allocate resources, so in any reasonable way possible, figure out the dollar value of each metric.

Calculate market size

With all of this information, you’re going to try to estimate your expected total sales. You want high and low estimates to really set the stage for your business strategy. Remember to calculate revenue and profit margins while you’re at it.

The goal here is to see the raw finances in your new market before you fully invest.

Use industry benchmarks

Lastly, you can take a deeper look by running your numbers through standardized benchmark comparisons. Cash flow forecasting, NPVs, and IRRs are examples of well-established analytics that can set benchmarks for comparison.

The industry benchmarks will also help you highlight your modeling assumptions, and you can further test the impact of those assumptions on your projections. This helps you clean up your estimation ranges and ultimately improves the value of your market sizing overall.

Potential limits of market sizing

Market sizing is a powerful tool that can help you make better business decisions while you’re still in the planning phase. But, it’s not perfect, and it’s not a magic bullet. It’s just a way to increase the amount of information you have available to inform your business decisions.

It can help to look at some of the common limitations of this analytical process.

The first limitation has to do with your assumptions. At the end of the day, you don’t know how many people will buy your stuff, and you don’t know how much they will buy when they do make a purchase. You can only guess, and regardless of how hard you try, your guess will never be perfect.

Another limitation is something that impairs any attempt to predict the future. There are always complete unknowns that you can’t anticipate. Natural disasters can reshape your market in an instant. Unexpected legislation or regulations could change the rules of your industry.

The unexpected is vast, and market sizing can’t account for it at all.

Last, and most important, is that market sizing can breed overconfidence. It’s a way to gauge potential, not a guarantee.

When market sizing data looks promising, it can be easy to get overly optimistic, and that can lead to risky investment behavior. If you keep decisions grounded, though, market sizing is on your list of useful tools that can improve your business strategy.

Use market sizing for strategic business planning

As we know by now, market sizing is a crucial step in strategic business planning that involves estimating the potential market demand for a product or service.

It provides an understanding of the size and growth potential of the market, the competition, and the market share that a company can capture.

By using market sizing, businesses can identify growth opportunities, optimize pricing, develop marketing strategies, and make informed decisions about investments and resource allocation.

By following the key steps of market sizing, businesses can make informed decisions about their products, services, and overall business strategy. Incorporating market size data into your planning process can help you stay ahead of the competition and achieve long-term success.

If you haven’t been utilizing market sizing for your business strategy, it’s time to take a closer look, and Mailchimp can help. You’ll find a long list of resources that can amplify your market sizing and many other aspects of business planning and execution.

How to Determine Market Size for a Business Plan

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If you do things right, your business plan is the first step in your journey toward becoming an entrepreneur, but the key is to ensure that every detail is correct. One of the most important aspects of your business plan is to determine the market size for the products or services that you intend to offer your target audience. Any legitimate investor will want to know that his investment has the potential for a sizeable return, and he will base his decision, in large part, on the size of the market that you’re trying to enter. Sizing up your market is also beneficial for developing new products and services.

Define Your Ideal Customer

You can’t begin to determine the market size without defining your ideal customer, who is also known as your targeted audience. The best way to figure this out is to know exactly what problem your product or service solves for the people most likely to be interested in making a purchase. For example, if you’re selling a gadget that can locate any remote control device in a person’s house, research may tell you that your ideal customer is a man in the 25- to 50-year old age range.

You arrived at this targeted consumer because your research told you that men dominate possession of television remote control devices, and are therefore more likely to misplace them, and then will be more likely to need your device. This process isn’t simply to determine not only who will buy your product or service, but also to help you eliminate people who will not be attracted to what you’re selling.

Define Your Piece of the Overall Market

The good news is that there isn't any company that's already established in your market that has a monopoly on that market. However, to have any chance of success, you must define the piece of that market that you are going to target. You can do this by taking the biggest player in the field and finding out how much of the market it has captured. For example, if you’re entering the TV device market, you may learn that customers spent $2 billion on these devices in 2017.

You also learn that Panasonic accounts for $1.5 billion of that market, so you know that the remaining $500 million is spread out among multiple smaller companies, and is the piece you'd would like to bite from.

Determine Your Percentage of that Piece of the Market

Just because you have now defined the size of your piece of the market doesn’t mean that you’re done because you still have to figure out your percentage of that piece. To do that, you have to know where you intend to sell your product or service, how many of that product or service you project to sell in a year, as well as the number of similar products and services that sold in the market the previous five years.

The projected number of sales will tell you what percentage of the market you can reasonably hope to capture, typically somewhere between 1 to 5 percent.

  • GrowThink: How to Size an Emerging Market in Your Business Plan
  • Entrepreneur: 5 Strategies to Effectively Determine Your Market Size
  • Startups: How to Calculate the size of Your Target Plan
  • Include potential market, target market and market share in your business plan. This will show readers how you arrived at your figures. You want to demonstrate a rational process that starts with a very large number and gradually reduces it to a smaller number you can expect to sell to. Showing the entire process will prove that your method was not arbitrary.

Sampson Quain is an experienced content writer with a wide range of expertise in small business, digital marketing, SEO marketing, SEM marketing, and social media outreach. He has written primarily for the EHow brand of Demand Studios as well as business strategy sites such as Digital Authority.

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Spreadsheets for Business – Using Excel to Help with your Small Business Questions

Market Size for a Business Plan – 2 Methods to Gauge It

In order to estimate how much in sales your startup can hope for, you’re going to have to estimate the market size for your product/service(s). This is critical for your startup because it will give you an idea of your business’ potential. It will also help you plan for capacity-related issues.

2 approaches to estimating the market size for a business plan

I cover this topic more in-depth in a post on market size and growth rate on my sister site, InvestSomeMoney.com.

The context there is focused on investing your money in a publicly-traded company. Though that’s a little different than what we are doing here, the fundamental principles remain the same.

The goal is to determine how many potential customers there are for a business and how much they are willing to spend. In order to do that, we can employ two general methods. These methods are a top-down analysis and a bottom-up approach to understand market size and growth.

One way to think about this is that a bottom-up approach uses multiplication and a top-down analysis uses division to arrive at an estimated market size.

After writing on this subject several times, I’ve come up with another way to think about these methods. I think a bottom-up approach should look internally, at things like unit size and capacity. A top-down analysis should look externally at things like demographics and market research.

Looking at this from these two different perspectives opens the door for further analysis. When you’re done, you should know whether you can expect to be capacity constrained or demand constrained. You’ll also start to flesh out some ideas that will help you further into your business plan.

If you do an analysis with both approaches, you can compare the results. For instance, if your bottom-up approach is higher, you’ll know that you could have excess capacity issues. You need to consider scaling that back or otherwise expanding your product/service offering to drum up additional demand.

Conversely, if your top-down analysis reveals that demand is in excess of capacity, then you are leaving money on the table. Time to start thinking about what you can do to scale up and capture as much of the market as possible.

Let’s start by taking a look at a bottom-up approach to estimating the market size for a business plan.

Bottom-up approach example

On my sister site, InvestSomeMoney.com, I researched three real-life examples of a bottom up market sizing approach . In those examples, you’ll see that they sometimes mix in a little top-down analysis with their bottom-up approach and vice versa. There’s no rule against doing that, but I would rather look at things from two totally different perspectives.

When using a bottom-up approach, try to start with the most simplistic piece of firm information you can get your hands on. Then, start to build on it with other information, or the best guess you can muster.

You can think of a bottom-up approach as one that focuses on how much and how often customers will buy.

This information might be something you have internally. Or, it might be from the information you found by researching online. Start with a single “serving size” of your product/service. Then, think about how often a customer would buy. Work your way up from there.

A bottom-up approach for my business plan

As mentioned in earlier posts about business plans – I’m building one as I write these. My theoretical product is an all-natural topical hair loss treatment.

In the post linked above, I performed something of a top-down analysis of market size for a business plan. I later discovered that I was operating with incomplete information .

There’s still a lot to consider regarding packaging volume and dosage. That will require more thought. But, for the time being, I’m going to estimate the volume of a one month’s supply and the daily dosage to be the same as Rogaine. If that changes as I progress with my business plan, I can easily circle back to this and plug in different numbers.

With Rogaine as my benchmark, I know that a dosage of my product would be 1 mL. The product would be used twice a day. My product would come in 2 oz (60 ml) bottles. Each bottle would be one month’s supply, as I said.

Thinking about capacity

Okay. Now that I have a grasp on the package size – what about blending and packaging? If this idea were to come to fruition, I don’t picture myself blending batches in my bathtub and filling bottles with a ladle and a funnel. I would need access to some sort of industrial equipment.

Fortunately, a quick internet search shows that there is no shortage of contract blenders and packagers out there. Especially for food and supplements. What it costs, remains to be seen. That’s an issue for another time. For now, I just want to get an idea of how much I could manufacture.

This company claims it can blend 1.25 million pounds per workday. We’ll assume, for now, this represents the average contract blender/packager. What does that translate into in terms of 2 oz bottles?

First of all, I wouldn’t need all 26 of their kettles. Only one, tops, especially at startup. So, if we divide the 1.25 million pounds by 26, we get a per kettle capacity of about 48,000 lbs per day.

Pounds are a weight unit of measure (UOM) and ounces are a volume UOM. To make the conversion, we’re going to have to do some more estimating.

Water weighs a little over 8 lbs/gallon. We’ll assume my product has roughly the same density.

8 lbs ÷ 128 oz (per gallon) = .0625 lbs/oz. With each bottle containing 2 oz, we know that it’ll weigh approximately .125 lbs/bottle.

This means that with one of this company’s kettles, I could blend 384,615 bottles worth of product per day. 96.5 million bottles per year. At an approximate sales price of $7.50 per bottle, that translates into nearly $725 million in revenue per year.

Okay, I’ve looked at things from a bottom-up, capacity-focused approach. Let’s now consider a top-down, demographic-focused analysis.

Market Size for a Business Plan capacity

Top-down analysis

Not surprisingly, I also wrote a post on InvestSomeMoney.com with examples of a top-down analysis to determine market size for a business plan . When you read through it, you might notice that some of the examples use Census data (or something similar). They take big chunks of information and start narrowing down their market from there.

Which brings us to three important terms for performing a top-down analysis. These are:

Total addressable market (TAM) Serviceable available market (SAM) and Serviceable obtainable market (SOM)

A SOM is a fraction of the SAM. In turn, a SAM is part of the TAM.

The TAM can be thought of as every potential customer that you can reach geographically. The SAM is what’s left when you niche down a little into the population that is a good fit for your unique selling proposition. Finally, the SOM represents the percentage of the SAM you can realistically expect to take.

It’s unlikely that you will ever capture 100% of the SAM. Even in a specific niche, you can’t be everything to everyone. That’s alright, though. The goal of this exercise is to make realistic estimates so that you have a sound business plan to work from.

When doing a top-down analysis, start with a large population or an overall industry size. From there, narrow down your customer until you arrive at your SOM. It helps to have a “customer avatar” in mind before starting a top-down analysis so you know where to niche down to.

I would suggest you perform a business plan demand analysis first to get a crystal clear picture of what that avatar is. You might think you know it intuitively. But you might be surprised at what you find – like I was!

A top-down analysis for my business plan

I know that not every person in the U.S. (much less the world) is going to want or need an all-natural topical supplement for hair loss. Who might though???

I’ll refer back to my handy-dandy business plan demand analysis (linked above) to see what I can find.

Here, I’m reminded of the ages that men and women first started experiencing hair loss. I’m reminded of the percentage that has sought any sort of treatment. Finally, I’m given an idea of what types of treatment they have tried.

A quick visit to Data.Census.Gov and I find table S0101, which gives me the U.S. population by age and sex. I customize and filter the table real quick. Then, I copy and paste the data I need into my spreadsheet.

Market Size for a Business Plan data census gov

Next step is to narrow these numbers down. I’ll use the “regular” numbers and the pessimistic numbers from sensitivity analysis from my business plan demand workbook .

I want to know the percentage of men who have had hair loss and tried any sort of treatment. Then, I want to go deeper and estimate the number that has found supplements to be effective. I’ll do this for both the most-likely and the worst-case scenarios. On the women’s side, I’ll do, more or less, the same thing.

TAM and SAM

You’ll see that I didn’t use the same age ranges for men and women. I assumed that males would start experiencing hair loss earlier, but would also stop caring about it earlier too.

The age range for males in my TAM was 20 – 54. For females, it was 25 – 59. This translates into a TAM of 151 million people in the U.S.

For the SAM, my worst-case scenario estimated that .9% of the male population in the target age ranges would be part of my market. 1.54% of females in the target age ranges were also assumed to be part of my market. This translated into a worst-case SAM of 1.8 million people.

As for my most-likely SAM, I estimated that 1.41% of males and 2.4% of females in the target age ranges were potential customers. This resulted in a SAM of 2.88 million people. Over a million more potential customers.

SOM is tricky.

Who’s to say what percentage of the SAM my company could capture? Obviously, it would start at 0% and work its way up from there. Where would it stop though?

It will depend, in part, on the number of companies vying for this niche. As I often do, I will refer to the Pareto principle. The Pareto principle states that 20% of the inputs will be responsible for 80% of the outputs. Put another way, 20% of the companies will have roughly 80% of the market share.

I’ll refer back, again, to my post on business plan demand. In it, I found three direct substitutions for my topical hair loss product. I won’t include Minoxidil (Rogaine) in that group, because of its unnatural chemistry.

Again, without getting too mired in math, I estimate that there are approximately thirty companies in the topical hair loss supplement space. This was a quick and dirty estimate based on the results of an internet search.

Six of those thirty companies probably control 80% of the market. That leaves 4.2% (1 ÷ 24) of the remaining 20% as my short-term SOM. Obviously, if my product were to take off, that amount could grow considerably and could approach the SAM.

What that means as far as the market size is 15K people worst-case and 24K people most-likely. At 12 bottles purchased per year, this translates into 184K and 287.5K bottles per year respectively.

Here’s a look at the spreadsheet breaking that all down:

Market Size for a Business Plan top down

Comparing a bottom-up and top-down analysis when determining market size for a business plan

Obviously, a couple hundred thousand bottles (top-down) is a far cry from 96.5 million (bottom-up). So, it would appear I will not be capacity constrained in the near future. In fact, as this startup moves forward, I need to make sure I’m not over-buying capacity. Those huge fixed costs could kill my business before it has a chance to get off the ground.

Speaking of fixed costs, the information from this analysis has given me good data to build my pro forma financials – when that time comes.

Now, at some point in the future, selling my product internationally could be an option. However, in this tiny niche, it is unlikely that I’ll ever need that much capacity for this one product.

Market size for a business plan

What were there factors I didn’t consider (but should have) when estimating my potential market size?

How might you have approached this differently?

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Estimating Market Size: The Complete Guide For Startups And Small Businesses

Example of Market Size

By Gregg Jackowitz, Managing Director of Sales and Marketing, Bond Collective

Estimating market size is a crucial first step in the development of any startup or small business. And it really doesn’t matter what industry you’re in — or want to be in — getting an accurate picture of your market size reveals insights that can drive both the present and future success of your business.

Why is knowing your market size so important? And how can you get started putting together a realistic profile of your target market? We’ll answer those questions in this article.

Why Is Knowing Market Size Important?

Put simply, estimating your business’s market size will provide you with key data points. Those data points will then inform your decisions for the present and help you grow your business over time.

Here are four key variables that you can uncover by evaluating your market size.

1) Strategy

Tools for estimating market size

Market size has a dramatic effect on the strategy your startup uses in the present and near future. Think of market size as a roadmap that you can reference to get to your destination.

If you know where you are and where you want to go, you can use the map — the data that market size reveals — to plot out a course and make decisions. With a map in hand, your choices are clearer because you’re not trying to target everyone, just a distinct group of people.

More specifically, market size influences components of your business such as:

Office space (i.e., how much)

Raising capital

Developing new products

2) Advantage

Every startup needs a competitive advantage. Estimating market size before making any big moves helps that advantage coalesce.

While your product (or service) has a wide potential market, realistically, your business can only capture a small percentage of that market. Once you’ve identified that percentage — through estimating market size — you can determine what features and what value-adds will give your startup a competitive advantage over all the other startups vying for the same market share.

This will help you set your product apart, position it as unique, and achieve the success you’re looking for.

Women shopping

The business market as a whole is a big place. Even your specific piece of that market (let’s say pens) is a big place. But after estimating your market size, you’ll get a much clearer picture of your target demographic (the people who will be buying your pens).

This knowledge will allow you to do two things that your competitors can’t:

Identify trends in consumer behavior

See whether your industry is growing or declining

Armed with that knowledge, you can begin to formulate your business strategy and gain the competitive advantage we talked about earlier.

4) Profitability

Profitability is the goal of every startup and small business. Identifying your market size makes profitability possible, or at least more probable.

Estimating your market size reveals whether or not there are enough potential customers who will actually buy your product. With that number, you can find out if the price you’ve set will move your business into the black. It will also show you whether the market you’re going after is too small to create the profit you need.

Now that you understand why estimating market size is crucial to your business’s success, we’ll show you how to get started doing it.

5 Essential Steps For Estimating Market Size

1) clarify the problem your product solves and the value it generates.

This is a step that many startups and small businesses skip because they’re excited about the product and are chomping at the bit to get going. Resist the urge to jump right in before clarifying the problem your product solves and the value it generates ( understanding your own brand ).

For example, if you produce a pen that uses 50 percent less ink than similar pens, you’ve solved the problem of people quickly running out of ink. As a result, your customer doesn’t have re-fill or replace their pen as often, which is also better for the environment. That’s the problem solved and the value it generates.

Of course, this is a very simple example and there are doubtless other problems solved and value-adds associated with our hypothetical pen. But this basic information will help you narrow down your target audience in the steps below.

2) Identify Your Market & Define Your Target Customer

Customer and barista at a coffee shop

The next step in estimating your market size is to identify your market and define your target customer. If we continue with the pen-as-product analogy started above, then our market is all pen users. That immediately eliminates young children who are more likely to use pencils or crayons.

Even without the young children, we still have an extremely large market (all people over the age of 12, let’s say). But are we trying to sell to all of them? No. The problem(s) our pen solves and the value it generates eliminate even more of the market.

With this information, we define our target customer as business people with an appreciation for quality writing instruments. Let’s say, for the sake of argument, that those people — our target customer — make up 20 percent of the total pen market (all pen users). Hypothetically, then, that leaves us with 2.3 million potential customers.

3) Estimate Your Part Of The Market & The Number Of Target Customers

As a startup or small business with realistic expectations, you know you won’t achieve 100-percent market share (even the largest, most established businesses never do). So what part of that 20 percent can we access right away?

Most startups and small businesses can expect to access somewhere between one and five percent of their target market at the beginning.

To make the math easier, let’s say that our pen startup expects to achieve five percent of the target market (or one percent of the total) from day one (0.05 x 0.20 = 0.01). Applying that estimate to our 2.3 million potential customers reduces the number to 23,000 (0.01 x 2,300,000).

So that’s our part of the market and the number of target customers: one-percent or 23,000 people.

4) Calculate Your Market Volume

The first step to calculating market volume is to estimate your market penetration. Products that are mission critical (like computers) or are mandated through regulation have a higher penetration rate (indicated as a percentage). Products with a specialized purpose (like oil-drilling bits) have a lower penetration rate.

We’ll estimate our penetration rate in the lower-middle percentages (40%) because, although they’re not mission critical, our pens are still very necessary for our target customers.

Now, we’ll use that number (40%) to calculate our market volume. Here’s the equation:

Number of target customers x Penetration rate = Market volume

23,000 target customers x 40% penetration rate = 9,200 market volume

With that number, we can then calculate our potential market value.

5) Calculate Your Potential Market Value

Pile of cash

We can calculate our potential market value in one of two ways: based on the price we charge for our pen or on the profit we make after production. We suggest doing both to get a more accurate picture of your business’s profitability.

For simplicity’s sake, we’ll stick with the price we charge for our pen. Here’s the equation:

Market volume x price = market value

9,200 market volume x $2.00 = $18,400

That tells us that we can expect to make an estimated $18,400 from just 1 percent of our target market. It also tells us there’s plenty of room for growth.

Armed with these numbers and your estimated market size, you can position your startup or small business to have the highest chance for success . But there’s one more thing to keep in mind.

Be Realistic About Your Market Size Estimates

If you want to get an accurate picture of your market size, you need to be realistic in your estimates and projections. What realistic means for you depends on your business, your experience, the data available, and a host of other factors.

But the foundation of it all is remaining objective and impartial throughout the entire process. When you can do that through all 10 steps, you’ll be able to get a very realistic — very accurate — estimate of your market size. With that information, you can set your startup or small business on the road to success.

To learn about how coworking space can benefit startups, small businesses, remote workers, and companies of all sizes, visit BondCollective.com today.

How to Determine Market Size for a Business Plan

by Sean Butner

Published on 1 Jan 2021

Business plans help business owners and leaders identify their goals and think through the steps needed to accomplish those goals. A vital part of any business plan is the market research section, which describes the demand for the company’s product and the current competitors. The market research section should tell how large each market for the product is, providing readers with a sense of how much business the company could do. Determining market size is a necessary step in writing a business plan.

Identify Your Markets

Identify types of potential clients. Think about the features of your product, and to whom those features would be benefits. List traits that people who would be interested in your product might have in common. For example, a gym might appeal to both fit people and moderately overweight people.

Determine factors that might exclude customers. For example, a luxury item may be unavailable to lower income households, or a customer might not be willing to go more than 15 minutes out of his way to go to a gym.

Put the traits and limiters together. For example, single overweight men who make at least $25,000 a year.

Calculate Market Size

Find statistics, preferably surveys conducted by a professional or governmental organization, on the demographics of your service area.

Add up the total number of people who meet your limiters. For example, a gym looking for single overweight men who make at least $25,000 a year and who live within 15 minutes of the location could use Census block information to determine the number of single men living within a 15-minute radius.

Reduce the total number of people who meet your limiters by the traits you identified. Multiply the total number by the percent of the total population that have the traits you identified. For example, if 87 percent of the population makes more than $25,000, and 10,000 single men live within a 15-minute radius, then 8,700 of those men likely make more than $25,000 per year.

Repeat with each additional market segment. Identify the size of each segment in your business plan, and sum up the entire size of the market for your product.

What Is an Industry Size Business Plan?

An industry size business plan is necessary for budgeting and marketing, especially for those who will seek third-party financing. 3 min read updated on February 01, 2023

An industry size business plan is necessary for budgeting and marketing, especially for those who will seek third-party financing. Most venture capitalists want to know the potential size of the market for the businesses they're investing in. Ultimately, the size of the potential market for the products or services your business is offering determines the value of your business, and to most venture capitalists, the larger that market, the better.

TAM, or Total Available Market, refers to the maximum size of the market for a business's offerings, and it may include both people and revenue. SAM, or Served Available Market, refers to the segment of the TAM consisting of people who will be able to use the business's solution. The SAM will be the business's target market.

Market Size Presentation

The section of your business plan pertaining to market size can be presented in any number of ways. One of the easiest ways to do this is with a simple columnar format that outlines the TAM and SAM now and in five years. This will allow the investor to quickly determine the potential size of the market and its growth over the course of your business plan.

While sizing of the market is important, it is only a plan. The market size section of your business plan can only provide an educated guess at how large the available market will be. This is your opportunity to demonstrate your plans for a successful launch and continued growth.

Available Data and Statistics

Market sizing is largely based on trade association data and any other available statistics. Begin with verifiable base data, including government statistics when available. Cross-reference your information with alternative sources whenever possible. Make sure that your findings make sense.

You should also be specific. For example, you wouldn't want to say, "There are millions of properties in the world with pools, and if we take a small percentage of that, our business plan will work." Rather, keep the industry definition very narrow.

Your analysis will differ depending on whether or not you're dealing with a pre-existing market or a new market. If you're dealing with an existing product, there will be industry and market data available to you. If you're dealing with a new product , you may need to conduct market research, consult with potential customers, and go from there.

Determining Your Market Size

Determining your market size will help you make a clear distinction between two categories:

  • Addressable market - the total revenue opportunity for your product or service
  • Available market - the portion of the addressable market you can realistically compete with

If you don't have a firm grip on your market size, you'll put your business's success at risk, both in these early stages and through its life cycle.

Estimating Your Market Size

Market sizing will allow you to gain a sense of current market trends. It can help you uncover the drivers of demand, since movements or changes in the market tend to continue for a period of time. Furthermore, studying these trends can reveal whether there's another product on the way that could potentially affect your market size.

When estimating market size, the best place to start is to consider the problem you intend to solve and how much value your product or service will have to consumers. This is actually something many entrepreneurs tend to overlook because they become engrossed in the product they've developed and not its benefits to the audience.

To estimate your market size, follow these steps:

  • Clearly define the customer you're targeting.
  • Estimate how many customers you will be targeting.
  • Figure out your penetration rate.
  • Calculate both the volume and the value to your potential market size.
  • Apply the data.

Determining Your Market Potential

It doesn't matter if you're seeking third-party financing or not. Understanding the potential for your market will help you in the following areas:

  • Product development
  • Organizational design
  • Distribution
  • Partnerships
  • Employee skills

Beyond this, understanding your market potential will help you address more mundane issues, such as selecting a bank, hiring an account, or seeking legal counsel .

If you need help with your industry size business plan, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

Hire the top business lawyers and save up to 60% on legal fees

Content Approved by UpCounsel

  • Market Analysis: Everything You Need To Know
  • Business Plan for New Company
  • IT Company Business Plan
  • Creating a Business Plan
  • How to Value a Company
  • Business Plan Outline: Everything You Need To Know
  • How to Evaluate a Startup
  • Real Estate Rental Business Plan
  • Parts of Business Plan and Definition
  • Import Export Business Plan

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Market Sizing & Trends Analysis

Written by Dave Lavinsky

Market Sizing & Trend Analysis at Growthink

In this article you’ll learn about market sizing and trends and how to identify them for your business.

Why You Need to Know Your Market Sizing & Trends

When you’re developing a simple business plan template to start or grow your company, you need to understand the size of your market and trends affecting it.

The market size confirms the market is big enough to warrant an investment of your time, and potentially investor/lender funding, into pursuing the opportunity. If the market is too small, you nor investors will not be able to get a reasonable return on your investment (which will dissuade angel investors and/or VC funding ).

Likewise trends tell you if the market is increasing or decreasing, and how the market is changing. This can help you improve your strategy. For example, if you were starting a fitness center and you learned that there was a trend towards personal training services, it would be important for your strategy and plan to offer such options.

Market Sizing & Trend Analysis Questions to Answer

The following questions should be answered in the industry analysis component of your business plan :

  • How big is the business (in dollars)?
  • Is the market declining or increasing?
  • Who are the key competitors in the market?
  • Who are the key manufacturers and/or suppliers in the market?
  • What trends are affecting the industry?
  • What is the industry’s growth forecast over the next 5 – 10 years?
  • What is the relevant market size? That is, how big is the potential market for your company. The relevant market size equals a company’s sales if it were to capture 100% of its specific niche of the market. It is calculated by multiplying the number of prospective customers by the amount they could realistically spend on your product/service each year.

Need Help with Market Research?

With Growthink’s Expert Market Research service, you will get solid market research to give lenders and investors confidence in your market opportunity, your competitive advantage, and your financial projections.

Click here to have our team craft your market research to help ensure your success.

How to Conduct Market Sizing & Trend Analysis

We like to determine market sizes using both a top-down (what percent of the market can we reasonably expect to penetrate) and bottom-up (e.g., how many units can we expect to sell at what price) methodology.

As many assumptions are required when sizing a new or emerging market, we tend to rely heavily on case studies of thousands of other companies and clients who have penetrated new markets. We also access paid industry reports from other companies who have done deep dive research into the relevant industries.

In assessing markets, looks at the current market size and what the market size might be in the short, mid and long-term. Specifically, answer the folowing key questions such as the following:

  • How has the relevant market size changed over the past one to five years?
  • What is the projected growth of the relevant market?
  • What factors will affect this growth? Economic factors? Changing regulatory conditions? Changing consumer needs? 

Need Help Understanding Your Market Size & Trends?

Would you like Growthink to provide an assessment of your market size and for you? If so, please contact us below.

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business plan market size

Market Size Calculator (With AI Summary)

business plan market size

Whether you're a seasoned entrepreneur or a budding startup enthusiast, understanding your potential market size is crucial. It helps validate your business idea, attracts investors, and forms the backbone of your business plan. But how do you estimate market size without spending a fortune? Let's explore the principles of market sizing and introduce our free Market Size Calculator tool.

What is Market Size?

‍ Market size refers to the number of potential customers or the total revenue potential for your product or service. It gives you an idea of the potential growth and profitability of your business idea.

Top-Down vs. Bottom-Up Approach

  • Top-Down : This method begins with a broader view, usually a global or national statistic, and then narrows down. For instance, if you're starting a makeup brand, you'd look at the global beauty market's value and estimate your brand's potential share.
  • Bottom-Up : This starts with granular data, perhaps a survey or pilot, and then scales it up. If you sold 100 products in a test market of 10,000 people, you'd predict sales for a larger population.

Factors to Consider

  • Segmentation : Segment your market by age, location, gender, interests, etc., to get a clearer picture.
  • Growth Rate : Understand how fast your industry or target market is growing. A stable market might mean less potential, but also less volatility.
  • Market Trends : Stay updated with industry trends. For instance, a growing trend towards remote work might mean an increasing market for home office supplies.

Best Practices and Tips

  • Use Multiple Sources : Don’t rely on just one statistic or survey. Using various data sources can give a more accurate picture.
  • Stay Updated : Markets change. Regularly update your data, especially if there's a significant shift in the industry.
  • Validate with Primary Research : After your secondary research (existing data), validate your findings with primary research, such as surveys or interviews.
  • Consider the Competition : While assessing the market size, remember that you're not alone. Factor in competitors and their market share.

Using Our Free Market Size Calculator Tool

Our easy-to-use Market Size Calculator tool provides a quick estimate based on the inputs you provide. Here's how to utilize it:

  • Business Idea : Describe your business idea briefly. This gives context to the estimation.
  • Target Geography : Select where you plan to operate or sell. This could be as specific as a country or as broad as globally.
  • Trend : Is your industry growing, stable, or declining? Your estimate will be adjusted based on this trend.
  • Characteristic Traits : Mention specific traits of your target market. This helps in refining the estimate. For instance, if you're selling a high-end tech gadget, traits like "Tech enthusiasts" or "High income" might be relevant.
  • Click 'Estimate Market Size' : Once you've filled in the relevant fields, hit the button. Don’t worry if you're unsure about some inputs; you can leave them blank.
  • Interpret the Results : GPT-4 will generate an estimate and a summary. This result considers various factors based on the inputs provided. It gives you an immediate sense of potential reach and revenue.

Estimating your target market size doesn’t have to be a daunting task. With the right understanding and tools, you can get a fairly accurate picture without investing in expensive research. Our free Market Size Calculator tool, powered by GPT-4, simplifies this process, providing entrepreneurs with valuable insights within seconds. Whether you're drafting a business plan, seeking investment, or just evaluating an idea, understanding your market size is the first step towards entrepreneurial success.

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What are market trends in a business plan?

Table of Contents

What are market trends?

Why do i need market trends in my business plan, how to keep up with market trends, what market trends to monitor frequently, customer behaviours, technological advances, industry regulations, how to write the market trends in your business plan, using countingup to streamline your business.

Market trends in a business plan are key pieces of information that share where your company sits in the wider picture of your industry. Your business plan should prove why your business is viable, show where you fit in the market and what customers you serve. Examining what the market looks like is a smart business move when starting out.

This article on market trends in a business plan will cover:

  • What are market trends
  • Why market trends are necessary in my business plan

Market trends are the direction changes of a specific industry and can be influenced by customer behaviours or developing technology. 

Take the mobile phone industry for example, as technology has improved over the last twenty years consumers have moved from bulky handsets to slimmer smartphones, that can do everything a computer can and more. Consumers have even gone back to the fashion of flip phones now that technology has allowed a bigger screen that can be folded to save space. This is a good example where both technology and customer demand has influenced the direction of the industry,

Acknowledging these trends when running a business ensures that you stay on the same path as the industry itself, moving with customer needs and adapting your business as the sector and technology evolve. Ignoring market trends in the long term could mean you are left behind by customers, as they may move to businesses that meet their needs more. 

Your market trend research should be part of wider market analysis in your business plan. Understanding where you fit in a sector and what separates your company from competitors will help you shape everything from your product to pricing and marketing plans.

It’s important to focus on trends in this process so you can understand what appeals to your target audience. By analysing the market landscape and trends, you will be able to serve your customers better. It will also feed into your marketing messaging and content creation strategy later on.

A market and trend analysis should be both quantitative (using numbers and statistics such as projections and financial forecasts) and qualitative (based on experience or observation). Trends will fit into both categories of research and you should be able to find data and non-numerical information to support your examination of trends when writing your business plan. 

It’s important to remember that a business plan is not set in stone. It can be a document that you regularly update to reflect changes in your industry and company.

Keeping pace in a fast-changing market is not easy – after all, you’ve got a business to run. Using social media and subscribing to relevant industry emails make it simpler to get the information you need. Doing this will allow you to stay on top of market trends to include in your initial business plan and for more long-term future planning. 

Follow influencers in your industry to see what they talk about and how they create content for the audience that you serve. This will give you an idea of what resonates with your target customers when it comes to content and the form of content the influencer tends to use (video, written blogs, imagery etc.).

Read relevant publications in your sector to find out what is making headlines. Magazines or online blogs that share up-to-date opinions and thought leadership (influential content) will help you stay on the pulse of what is currently important to the industry.

Reading detailed reports and research can be time-consuming but will give you a good overview of the industry’s current state and any new developments. You can then update your business plan to follow the trends that arise from any data you’ve seen. 

Some common areas will affect the running of your business, the trends in your business plan and the whole market landscape. Keeping on top of the following aspects and regularly checking in on them will ensure your business develops as the market does.

Your customer can make or break your business. If you don’t cater to their needs and wants, your business will not be on the radar of your target audience. 

Let’s take an example – if your target customer is under 45, and you primarily do business online, you will need to ensure your website is optimised for mobile. This is because consumer behaviours have changed in recent years, and most searches are now conducted via mobile . If you don’t pick up on this development, your business risks being left behind when competitors optimise for mobile and you don’t.

Like our previous example, customer behaviour often changes with advances in technology. As mobile phones, and then smartphones, have become more able to operate as a computer, consumers have moved to using their phones out of convenience. 

Keep on top of developments that are relevant to your business and make sure you can move with, and not against, the technology changes.

Every now and again, there will be a law change or new regulation that rocks many industries – such as GDPR in 2018. Staying up to date with regulations that could affect the way you run and market your business will save you weighty fines (especially in the case of data protection).

There may be more frequent regulation updates if you operate in an industry that requires you to follow safety guidelines or best practices, such as those that an electrician or builder will have to follow. 

Ensuring that you are up to date on precautions and rules, as well as renewing any professional certifications you need to operate, will ensure your business plan reflects the changing face of your industry.

Using your research on your target customers and the sector,  use the following steps to write up the market trends section of your business plan:

  • Current market overview, including which company has the biggest share or most influence
  • Where you fit in that market, what gives your business a competitive edge.
  • Current trends that impact your business operation
  • Any upcoming trends that may impact your business or the products/services you offer
  • Outline any plans on how you will keep up with trends
  • Upcoming regulatory changes

You can then follow this with your competitor research in your business plan, to give a full picture of your industry and where you fit in.

Now that you have the answers to questions like ‘what are market trends in a business plan’, you will be able to prepare a thorough market analysis to set up your new venture for success. 

Countingup can help your new business by making your business accounting simple, too. Countingup is the business account with built-in accounting software. The app is helping thousands of business owners across the UK save time and money by automating the time consuming parts of accounting. Find out more here and get started today.

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6 Tips for Creating a Great Business Marketing Plan

E very successful company needs a well-thought-out business plan to outline its course of action. A marketing strategy is one key part of that plan: It spells out critical information, including how a business will distinguish itself from competitors and what the team will aim to achieve.

While marketing plans don't always produce immediate results, they are still a crucial aspect of a business plan and should be given a considerate amount of attention. A complete and effective marketing strategy can reveal opportunities through new audience segments, changes in pricing strategy or by differentiating the brand from the competition.

Here's how to create an effective marketing plan for your business. 

How to develop a business marketing plan

A focused marketing plan sets two goals. The first is to maintain engagement and customer loyalty , and the second is to capture market share within a specific audience segment of your target audience.

Your marketing plan outlines the strategies you'll use to achieve both goals and the specific actions your marketing team will employ, such as the specific outreach campaigns, over which channels they will occur, the required marketing budget and data-driven projections of their success.

Marketing is a science-driven commitment that typically requires months of data to refine campaigns, and an interconnected marketing plan keeps your business committed to its long-term goals. 

All marketing guidelines will circle back to the four P's: product, price, place and promotion. The following tips are starting points that will ingrain the habit of continually returning to these four P's.

1. Create an executive summary.

Marketing campaigns should not be considered individual functions. Marketing is the story of your brand as told to customers; like any narrative, its tone and characters should remain consistent. An executive summary details your marketing goals for the next year and helps tie each campaign together. 

When establishing your marketing goals, they should be specific, measurable, attainable, relevant and time-bound – or SMART. These goals should work together to achieve both internal and external harmony, telling a consistent story that informs customers of your exact message while building on its previous chapters. 

For example, you may set a SMART goal to increase your company's social media traffic by 15% in a 90-day time frame, and plan to achieve this by creating four relevant, informative and high-quality posts per week on each platform, using your company's brand kit. 

2. Identify your target market.

Before you write a marketing plan, you need to find and understand your niche. Ask yourself who the specific demographic is that you're targeting. For example, if your business sells 30-minute meals, then those who work traditional 9-to-5 jobs are likely in your market. Study that group of individuals to understand their struggles and learn how your business can solve the problem.

FYI: Targeting your audience can drastically improve the effectiveness of your marketing efforts and help you avoid wasting resources on fruitless campaigns.

3. Differentiate your brand with inbound marketing.

Inbound marketing utilizes internal tools – such as content marketing, social media activity and search engine optimization (SEO) – to attract a customer's attention primarily through online communication. Content marketing can include informative blog posts, interviews, podcasts with relevant industry figures or supplementary guides on how to best use your product. For example, if you sell cooking supplies, consider posting several fun recipes around the holidays that your tools can help prepare.

Each of these strategies empowers the others in a loop to achieve greater customer attention. A strong content offering can improve your search engine ranking, which brings more people to your website and social pages. You can then share those developed content pieces to that wider audience, who will again improve your search engine rankings. All of this can be done without the expense of a famous endorser or commercial advertising campaign. 

4. Identify competitors that also target your customers.

No matter how original your product or service may be, there is always competition for your target customer's dollar. Small business personnel seldom take the time to study their competitors in-depth or pinpoint companies outside their industry that are just as capable of luring customers away. Knowing who your competitors are, their core competitive advantages, and how they might respond to your offerings – like price cuts or increased communication – helps you devise strategies to combat such losses. 

By seeking out these competitors, you can develop ways to differentiate your business by providing consumers with the things they may be lacking from your competition. Observe how your competitors operate to find ways in which you can stand out and steer your target audience toward your business. 

Did you know? According to SmallBizGenius, 19% of small businesses fail because of their competitors. 

5. State your brand position for your target customers.

Ultimately, your brand – and what it symbolizes for customers – is your strongest advantage. You should be able to write a simple declarative sentence of how you will meet customer needs and beat the competition. The best positioning statements focus on solving a problem for the customer in a way that promotes the best value.

6. Budget the plan. 

When implementing a strategy, consider the marketing budget you will allot. Marketing requires money for various reasons, including paid promotions, marketing software, events and outsourced costs. Consider your budget when creating the plan so that there is money available to spend on marketing tactics to achieve your goals. 

While drafting the plan and evaluating your course of action, note the estimated cost, assets, and time required to achieve the stated goals; this will help when it comes time to set the actual calculated budget. Any goals that you create should be realistically achievable within the budget you have set. 

Key takeaway: When developing your marketing plan, you should know why a customer would use your product, differentiate your brand from competitors, and audit your product offering and message to ensure consistency.

Channels to include in your marketing plan

Once you know the elements of your plan, the next step is to develop the blueprint of how you will reach your target customers. Aside from traditional print and broadcast media, here are three digital marketing channels that many business owners utilize.

Social media

Social media is an essential part of businesses' marketing plans, because every type of customer is on some type of platform – such as Facebook , Twitter or LinkedIn . You may feel overwhelmed at the possibilities, but focus on the sites that can benefit your business the most.

Brett Farmiloe, founder of internet marketing company Markitors, advised companies starting out in social media to get to know their customers and the platforms they use.

"Figure out where your customers are spending their time, and set up shop on those platforms," he told Business News Daily. "Develop a content strategy that can be executed internally, [and then] execute your strategy by posting branded content on your selected platforms."

Though email marketing is not as new as social media marketing, it is an effective and popular choice for small business owners. Companies can implement email marketing techniques in many ways, including newsletters, promotional campaigns and transactional emails. For instance, Mailchimp and Constant Contact help companies manage their email drip campaigns .

Farmiloe added to set your email marketing efforts apart from the others by segmenting your markets.

"Not all subscribers want to receive the same blast," he said. "Smart email marketers take the time to segment subscribers at the outset, and then continue to segment based on subscriber activity. Through segmentation, companies reduce the amount of unsubscribes, increase open rates and, most importantly, increase the amount of actions taken from an email send."

The popularity of smartphones and tablets has changed how companies target consumers. Since people have these devices with them nearly all the time, companies are looking to implement strategies that reach customers on their gadgets.   

"Mobile marketing is interruptive," Farmiloe said. "It's because of this power that a marketer has to let the consumer determine how and when to receive marketing material. That's why almost every app comes with the option to turn notifications on or off. The consumer has to hold the power with mobile marketing."

Key takeaway: Use digital marketing channels – such as social media, email and mobile – to reach customers, but only after researching each channel in depth and developing a strategy to capture consumers' interest. 

Monitoring results

Well-defined budgets, goals and action items – with appropriate personnel assigned to each – can make your marketing plan a reality. Think about how much you're willing to spend, the outcomes you expect and the necessary tasks to achieve those outcomes.

Analytical tools that track customer behavior and engagement rates can serve as a helpful guide for your marketing strategy . Unlike billboards or commercials, digital channels allow you to assess each step of the customer journey and gain insights on the individual patterns and intent of prospects. Intention can soon develop into prediction, empowering your marketing team to develop campaigns that consistently reach target audiences at the right time. 

You can find more tips for measuring your marketing ROI here.

Jordan Beier and Adryan Corcione contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.

Every successful company needs a well-thought-out business plan to outline its course of action. A marketing strategy is

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Free business plan template (with examples)

Alan Bradley

Sierra Campbell

Sierra Campbell

“Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy.

Updated 3:37 a.m. UTC Feb. 12, 2024

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Starting a business can be a daunting undertaking. As with so many large projects, one of the most difficult challenges is just getting started, and one of the best ways to start is by putting together a plan. A plan is also a powerful tool for communication and can serve as a cornerstone for onboarding new partners and employees or for demonstrating your philosophy and priorities to potential collaborators. 

A solid business plan will not only provide a framework for your business going forward but will also give you an early opportunity to organize and refine your thoughts and define your mission statement, providing a guidepost that can serve as a beacon for your business for years to come. We’ve provided a business plan template below to help guide you in the creation of your new enterprise.

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Business plan template

What should a business plan include?

Regardless of the type of business you own or the products and services you provide, every business plan should include some core elements:

  • Mission statement. The definition and executive summary of your business.
  • Market analysis. A breakdown of the market segment and customers you hope to reach, built through primary (gathered by you) and secondary (gathered from outside sources) research.
  • Organization and logistics. The nuts and bolts of how your business is operated
  • Products or services. What your company provides its customers.
  • Advertising and marketing. How you intend to get your products in front of your customers.
  • Forecasting. Revenue forecasting for partners or potential investors.

Why do you need a business plan?

A business plan is a framework for success. It provides a number of key benefits:

  • Structure. The outline around which to design your business.
  • Operational guidance. A signpost for how to run your business from day to day.
  • Expansion. A vision for the future growth of your enterprise.
  • Definition. A platform to consider every element of your business and how best to execute your plans for them.
  • Collaboration. A synopsis of what’s exceptional about your business and a way to attract funding, investment or partnerships.
  • Onboarding. An efficient summary of your business for new or potential employees.

Business plan examples

We’ve created two fictional companies to illustrate how a business might use a business plan to sketch out goals and opportunities as well as forecast revenue.

Bling, Incorporated

Our first hypothetical example is a jewelry and accessory creator called Bling, Incorporated. A hybrid business that manufactures its products for sale both online and through physical retail channels, Bling’s mission statement is focused on transforming simple, inexpensive ingredients into wearable statement pieces of art. 

Market analysis includes gathering data around sourcing sustainable, inexpensive components, aesthetic trends in fashion and on which platforms competitors have had success in advertising jewelry to prospective customers. Logistics include shipping products, negotiating with retailers, establishing an e-commerce presence and material and manufacturing costs. 

Bling, Incorporated advertises initially through social platforms like TikTok and Facebook, as well as with Google AdSense, with plans to eventually expand to television advertising. Revenue forecasting is structured around a low overhead on the basis of inexpensive materials, no dedicated storefront and broad reach through digital platforms.

Phaeton Custom Cars

Phaeton is a custom car builder and classic car restoration business with a regional focus and reach. Its mission statement defines it as a local, family-owned business serving a community of auto enthusiasts and a broader regional niche of collectors. 

Market analysis breaks down the location and facilities of other competitor shops in the region as well as online communities of regional car enthusiasts likely to spend money on custom modifications or restoration projects. It also examines trends in valuations for custom parts and vintage cars. Logistics include pricing out parts and labor, finding skilled or apprentice laborers and mortgaging a garage and equipment. 

Phaeton advertises in regional publications, at local events and regional car shows and online through Facebook and Instagram, with an emphasis on a social presence highlighting their flashiest builds. Revenue forecasting is built around a growing reputation and high-value commissions.

Frequently asked questions (FAQs)

A business plan may not be a prerequisite for every type of business, but there are few businesses that wouldn’t benefit from one. It can serve as an important strategic tool and help crystalize a vision of your business and its future.

Business plans do just that: they help you plan the future of your business, serve as a platform to brainstorm ideas and think through your vision and are a great tool for showcasing why your business works to potential investors or partners.

Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.

Blueprint has an advertiser disclosure policy . The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.

Alan Bradley

Alan is an experienced culture and tech writer with a background in newspaper reporting. His work has appeared in Rolling Stone, Paste Magazine, The Escapist, PC Mag, PC Gamer, and a multitude of other outlets. He has over twenty years of experience as a journalist and editor and is the author of the urban fantasy novel The Sixth Borough.

Sierra Campbell is a small business editor for USA Today Blueprint. She specializes in writing, editing and fact-checking content centered around helping businesses. She has worked as a digital content and show producer for several local TV stations, an editor for U.S. News & World Report and a freelance writer and editor for many companies. Sierra prides herself in delivering accurate and up-to-date information to readers. Her expertise includes credit card processing companies, e-commerce platforms, payroll software, accounting software and virtual private networks (VPNs). She also owns Editing by Sierra, where she offers editing services to writers of all backgrounds, including self-published and traditionally published authors.

How to start a small business: A step-by-step guide

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Alibaba shares drop 5% after revenue miss, $25 billion boost to buyback plan

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  • Alibaba missed market expectations for revenue in the December quarter but announced it is increasing the size of its share buyback program by $25 billion.
  • U.S.-listed shares in the Chinese e-commerce giant were are one point more than 5% higher in pre-market trade, but reversed course.
  • Alibaba had a tumultuous year in 2023, carrying out its biggest corporate structure overhaul in changes while changing its CEO and cancelling the spin-off of the cloud computing business.

In this article

Shares of Alibaba fell Wednesday, as the company missed market expectations for revenue in the December quarter, even as it announced it is increasing the size of its share buyback program by $25 billion.

U.S.-listed shares in the Chinese e-commerce giant were are one point more than 5% higher in premarket trade, but reversed course and closed down more than 5%.

Alibaba said the $25 billion increase is added to its share repurchase program through the end of March 2027, bringing the total available under the plan to $35.3 billion.

The company said in a statement that the increased buyback shows the "confidence in the outlook of our business and cash flow."

The announcement comes after a tumultuous year for Alibaba in 2023 , when the company carried out its largest-ever corporate structure overhaul . It also separately implemented several high-profile management changes, with company veteran Eddie Wu taking over the reins as chief executive in September.

Alibaba on Wednesday released financial results for its December quarter.

Here's how Alibaba did in its fiscal third quarter, compared with estimates from LSEG, formerly known as Refinitiv:

  • Revenue: 260.35 billion Chinese yuan ($36.6 billion) versus 262.07 billion yuan expected.

Revenue missed expectations, growing just 5% year over year, logging a slowdown from the previous quarters as growth in the company's China e-commerce business and cloud computing division remained slow.

Meanwhile, Alibaba's net income in the December quarter fell 69% year on year to 14.4 billon yuan. The company said this was "primarily attributable to mark-to-market changes" to its equity investments and to a decrease in income from operations due to impairments related to its video streaming service Youku and supermarket chain Sun Art.

China e-commerce, cloud business slow

Alibaba has been grappling with a difficult macroeconomic environment in China, where the consumer has remained weak, even after Beijing removed its Covid-era restrictions. Amid economic uncertainties, local shoppers have flocked to discounting platforms such as Alibaba rival Pinduoduo.

The Taobao and Tmall business, Alibaba's China e-commerce platforms, brought in revenue of 129.1 billion Chinese yuan in the December quarter, up just 2% year on year.

Alibaba's cloud computing business, which investors have seen as critical to the tech giant's future growth , had sales of 28.1 billion yuan, a 3% year on year rise.

In a statement, recently appointed Alibaba CEO Wu said the company's focus is on growth in e-commerce and cloud.

"Our top priority is to reignite the growth of our core businesses, e-commerce and cloud computing. We will step up investment to improve users' core experiences to drive growth in Taobao and Tmall Group and strengthen market leadership in the coming year."

Earnings before interest, taxes and amortization, a measure of profitability, rose 1% at the Taobao and Tmall business for the fiscal third quarter.

For the cloud computing business, EBITA rose 86% year on year as Alibaba focuses on profitability.

One bright spot in Alibaba's numbers was the international commerce business, which includes platforms like AliExpress and Lazada, which posted revenue of 28.5 billion yuan, up 44% year on year.

Alibaba's reorganization

Alibaba has gone through some major changes over the past year.

Daniel Zhang, the previous CEO of Alibaba Group who became  acting head of the cloud business in December 2022,  was supposed to stay on to lead the business unit, but  unexpectedly quit in September  of last year.

When Alibaba carried out its corporate restructuring last year, it created six separate business groups and announced some of these units will be able to go public and also raise outside financing. Among those being touted for initial public offerings were Alibaba's cloud unit, logistics arm Cainiao and Freshippo grocery arm.

Alibaba scrapped the hotly anticipated spinoff of its cloud computing business last year.

Joe Tsai, chairman of Alibaba, said on the earnings call Wednesday that any business spinoff or outside financing will be "subject to market conditions.

"Market conditions currently are just not in a state where we believe we can really truly reflect the true intrinsic values of these businesses," Tsai said.

He added that "generating synergies" within the companies under Alibaba is the "best way to reflect the value of the entire group."

While Alibaba will "continue to explore separate financing for its business," according to Tsai, the company is "not in a hurry on the timing of these transactions.

— CNBC's Evelyn Cheng contributed to this report.

Correction: Freshippo is a grocery unit of Alibaba. An earlier version misstated its name.

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IMAGES

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  2. The Simple 2-Step Process for Calculating Your Market Size

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  3. Target Market

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  4. How To Accurately Determine Your Market Size And Boost Your Potential

    business plan market size

  5. How To Accurately Determine Your Market Size And Boost Your Potential

    business plan market size

  6. What is Market Sizing and Why is it Important for Investment

    business plan market size

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COMMENTS

  1. The 2 Simple & Straightforward Methods for Market Sizing Your Business

    The 2 Simple & Straightforward Methods for Market Sizing Your Business Clifford Chi Published: September 21, 2023 When you're considering a new venture, one of the first things you should do is determine whether there is a valuable market for it.

  2. Market Size in a Business Plan

    The TAM is calculated as follows: TAM = 6 million x 3% x 150 = 27 million per year This means that if your business operated throughout the entire region with no competition its revenues would be 27 million per year. TAM defines the maximum size for the market the business operates in.

  3. How to Write a Market Analysis for a Business Plan

    Objective Industry outlook Target market Market value Competition Barriers to entry Regulation Let's dive into an in-depth look into each section: Step 1: Define your objective Before you...

  4. How to Determine Your Market Size

    To estimate your total addressable market (TAM), you may use various methods, including top-down analysis, bottom-up analysis, or industry reports and research.

  5. How to Write the Market Analysis Section of a Business Plan

    What is the Market Analysis in a Business Plan? The market analysis section of your business plan is where you discuss the size of the market in which you're competing and market trends that might affect your future potential such as economic, political, social and/or technological shifts.

  6. How to do a market analysis for your business plan

    Industry analysis The industry analysis is the section of your business plan where you demonstrate your knowledge about the general characteristics of the type of business you're in. You should be able to present statistics about the size of the industry, such as total U.S. sales in the last year and industry growth rate over the last few years.

  7. Estimating market size

    How to estimate market size: Business and marketing planning for startups We assume each sale to a hospital will yield an average value of $2.5 million. To find the market value, we calculate the following: For all startups, sizing the market is a necessary task for business and marketing planning, and budgeting.

  8. How to Write the Market Analysis in a Business Plan

    Reviewed by David Kindness Fact checked by Emily Ernsberger Photo: Paper Boat Creative / Getty Images The market analysis section of your business plan comes after the products or services section and should provide a detailed overview of the industry you intend to sell your product or service in, including statistics to support your claims.

  9. WHAT is Market Analysis?

    Step 1: Industry Analysis How Do You Define an Industry? Industry consists of all businesses offering a similar product or service, other businesses closely related to that product or service, and supply and distribution systems supporting such companies.

  10. Market Sizing: Key to Strategic Business Planning

    By using market sizing, businesses can identify growth opportunities, optimize pricing, develop marketing strategies, and make informed decisions about investments and resource allocation. By following the key steps of market sizing, businesses can make informed decisions about their products, services, and overall business strategy.

  11. How to Determine Market Size for a Business Plan

    Tips Writer Bio Your business plan is the first step. To determine market size for your business plan, you must define your ideal customer, understand the piece of the total market that...

  12. Market Size for a Business Plan

    Market Size for a Business Plan - 2 Methods to Gauge It August 29, 2019 by KCB In order to estimate how much in sales your startup can hope for, you're going to have to estimate the market size for your product/service (s). This is critical for your startup because it will give you an idea of your business' potential.

  13. Estimating Market Size: The Complete Guide For Startups And Small

    Market volume x price = market value. 9,200 market volume x $2.00 = $18,400. That tells us that we can expect to make an estimated $18,400 from just 1 percent of our target market. It also tells us there's plenty of room for growth. Armed with these numbers and your estimated market size, you can position your startup or small business to ...

  14. How to Determine Market Size for a Business Plan

    Calculate Market Size. Find statistics, preferably surveys conducted by a professional or governmental organization, on the demographics of your service area. Add up the total number of people who meet your limiters. For example, a gym looking for single overweight men who make at least $25,000 a year and who live within 15 minutes of the ...

  15. How To Effectively Determine Your Market Size

    How to Determine Market Size. To calculate your market size, you'll either be looking for data on the number of potential customer, or number of transactions each year. For example; if you are ...

  16. Market Sizing: What is the Size of Your Market?

    To begin, companies must present the size of their " relevant market " in their plans. The relevant market equals the company's sales if it were to capture 100% of its specific niche of the market.

  17. What Is an Industry Size Business Plan?

    Table Of Contents What Is an Industry Size Business Plan? An industry size business plan is necessary for budgeting and marketing, especially for those who will seek third-party financing.3 min read updated on February 01, 2023

  18. How to calculate your market size

    Penetration Rate = (Number of Customers ÷ Target Market Size) × 100. For instance, let's imagine you sell sugar free soda to gyms to load into their vending machines, and your region has 2000 gyms. If you have managed to sell to 150 gyms so far, your penetration rate is 150/2000 x 100 = 7.5%.

  19. Market research and competitive analysis

    Market size: How many people would be interested in your offering? Economic indicators: What is the income range and employment rate? Location: Where do your customers live and where can your business reach? Market saturation: How many similar options are already available to consumers?

  20. Market Sizing & Trends Analysis

    When you're developing a simple business plan template to start or grow your company, you need to understand the size of your market and trends affecting it. The market size confirms the market is big enough to warrant an investment of your time, and potentially investor/lender funding, into pursuing the opportunity.

  21. Market Size Calculator

    Market size refers to the number of potential customers or the total revenue potential for your product or service. It gives you an idea of the potential growth and profitability of your business idea. Top-Down vs. Bottom-Up Approach Top-Down: This method begins with a broader view, usually a global or national statistic, and then narrows down.

  22. What Is Market Size and How Do You Determine It?

    Updated July 21, 2022 Determining the number of potential buyers in a particular market segment is crucial before launching a product or service in the market. When you understand the market size, you can distinguish between the general market and the specific demographic that you need to target for your business.

  23. What are market trends in a business plan?

    1 June 2021 6 mins Running a business Market trends in a business plan are key pieces of information that share where your company sits in the wider picture of your industry. Your business plan should prove why your business is viable, show where you fit in the market and what customers you serve.

  24. What Is a Marketing Plan? And How to Create One

    A marketing plan is a document that a business uses to execute a marketing strategy. It is tactical, and, as later sections of this article explore, it typically includes campaign objectives, buyer personas, competitive analysis, key performance indicators, an action plan, and a method for analysing campaign results.

  25. 6 Tips for Creating a Great Business Marketing Plan

    Marketing is a science-driven commitment that typically requires months of data to refine campaigns, and an interconnected marketing plan keeps your business committed to its long-term goals.

  26. Free Business Plan Template (With Examples)

    Regardless of the type of business you own or the products and services you provide, every business plan should include some core elements: Mission statement. The definition and executive summary ...

  27. Unlocking Growth: Seven Ways To Tailor Marketing Plans

    Looking within your industry can help you advance, but it can also hold a business back from true innovation. Expand your horizons beyond your industry's boundaries and stop playing small by ...

  28. Exclusive: Nvidia pursues $30 billion custom chip opportunity with new

    The Santa Clara, California-based company controls about 80% of high-end AI chip market, a position that has sent its stock market value up 40% so far this year to $1.73 trillion after it more ...

  29. Alibaba (BABA) Q3 2023 earnings report for December quarter

    Alibaba missed market expectations for revenue in the December quarter but announced it is increasing the size of its share buyback program by $25 billion. U.S.-listed shares in the Chinese e ...