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.
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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?
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