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Is Your Target Market Large Enough?

June 27, 2010

by Susan Oakes
Estimating the size of your potential target market will determine how many potential customers there are available for your brand or business. It will also assist in setting your sales and marketing objectives, establishing your marketing strategies and implementing your tactics. It is important to note that when determining your potential target market size that you factor in the percentage of people who could have a need for your product or service and not just everyone. For example, if you provide an internet service for small businesses you will only be interested in small businesses in your target area that own computers and use the internet.
To estimate your target market size you need to consider the following:

Total number of potential customers
This is the maximum number of customers who may be eligible to purchase your product or service.

Percent of customers who could have a need for your product or service
This is important as you need to estimate the percentage of potential customers who will have a need for your product or service.

Number of times they could purchase per year
This is the usual number of times your potential customers could purchase your product(s) or service(s) during one year.

Average market price of the product(s) or service(s)
This is just the average price competitors in the market you want to enter charge.

Potential target market number of customers
This is the potential number of customers who have a need and could purchase your product or service. Remember not all potential customers will become your customers as some may purchase your competitor’s product or service.

Potential target market dollar value
This is the dollar value of your potential target market.

To illustrate, a potential target market size can be calculated as follows:

Potential number of customers                               1,000
% of customers who have a need                                10%
Number of times they could purchase per year                  10
Average price                                                             $50

The calculation is:

  • 1,000 x 10% = 100 potential number of customers who have a need
  • 100 customers x 10 = 1,000 potential purchase opportunities
  • Total target market dollar value (1,000 x $50) = $50,000

This estimation is a guide only; however it can assist in the planning stages so that you do not enter markets that may in fact be too small to run a viable business.

How do you estimate the size of your target market?

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