How to Calculate Your Startup’s Market Size

Practical Startup: Guides for Entrepreneurs

I want to introduce you to a new project I’m working on called Practical Startup, a series of premium step-by-step guides to launching a business.

So many of you have an idea, you’re passionate, and you’re looking for a blueprint on how to start your own business. I’m taking the learnings from launching my startup and creating a set of practical guides to teach other entrepreneurs the necessary skills and advice to get started on their own. We will cover topics from new idea formulation, to financing, to scaling your business and beyond.

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Read a snippet of the introduction to our first guide, MARKET SIZING below:

One of the most important determinants of a new venture’s success is calculating the total potential market size and value. Knowing this figure helps determine how much money your business can make and also competitive market share. Whether you’re creating a business around a new product or service, or coming out with a different version of something that already exists, it’s important to determine the overall size of your market. This information will be highly valuable as you reach out to potential investors for funding and banks for loans. Additionally, you should always be aware of how many customers you could potentially serve.

What does market size mean? Basically, it’s the number of customers potentially interested in your product or service, and the total possible amount of money that could be spent on that product or service. It sounds easy enough, but how do you measure something intangible?

This guide breaks down the five steps to estimating your market size providing specifics on where to find the information. The following are key steps in calculating both the market size in quantity of people, and market value:

1. Define the total geographical population

2. Define the market segment and estimate the percentage of target

customers in that area

3. Estimate average number of items purchased at a time

4. Estimate average purchase frequency

5. Calculate selling price

The following formula is used to estimate the total size of your product or service’s market. Keep in mind that this is not necessarily how much your company can capture, but the total amount possible in the market. The market size is calculated by determining a value for all of the variables and then multiplying them together. MS = N * TC * Q * F * P

MS = Market Size

N = Total Geographical Population

TC = Percentage of Target Customers in Geographical Area

Q = Quantity purchased at a time

F = Purchase Frequency in a year

P = Price of Product
This formula is simple but powerful, providing a holistic view of the market you are entering, including the potential revenues, and sales volume. As a beginning entrepreneur, it can sometimes be difficulty to estimate values for each of the variables.

Download my new e-book for a detailed step by step blueprint for calculating each of the variables from www.PracticalStartup.com

Jordan Buckner

Written by

Entrepreneur and Design Thinker: I am fascinated by the moment when people, business, and design come together and influence each other in meaningful ways

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