how to determine market size for a business plan

The 2 Simple & Straightforward Methods for Market Sizing Your Business

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.

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.

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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.

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.

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.

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.

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

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 .

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.

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 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.

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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.

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• 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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Market Size Calculator (With AI Summary)

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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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.

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Market Sizing

Estimating product potential.

By the Mind Tools Content Team

Imagine that you've just spent three years building a fantastic business – your product is great, your website is cutting edge, your people are well-trained and enthusiastic, and your customers love what you do.

The problem is, you're running at a loss – there simply aren't enough customers in the market to support the business.

This is a heartbreaking, and very common, position to be in. It's why many professional entrepreneurs and investors conduct "market sizing" exercises before they invest in a new business.

In this article, we'll look at how you can analyze your market size, and how you can use this data to make informed strategic decisions.

What Is Market Sizing?

The "market size" is made up of the total number of potential buyers of a product or service within a given market, and the total revenue that these sales may generate.

It's important to calculate and understand market size for several reasons.

First, entrepreneurs and organizations can use market sizing to estimate how much profit they could potentially earn from a new business, product or service. This helps decision-makers to decide whether they should invest in it.

If you choose to move forward, this analysis will also help you to develop a marketing strategy that addresses the unique needs and potential of your core market.

Market sizing can also help you to estimate the number of people that you may need to hire before you launch a new product or service, rather than "feeling your way" as you test your new market. If you know this from the start, you can optimize your approach to recruitment, so that you have the right people in place when you need them.

Market Sizing Methods

There are two methods that are commonly used for market sizing:

1. Top Down Market Sizing – although the top-down method is simple, it's often unreliable and overly optimistic. It looks at the "relevant" market size for your product or service, and then calculates how much your organization might earn from it.

For example, imagine that your organization markets learning resources to schools. Your research shows that there are 6,000 relevant schools in your country. You know that the average sale per school is around $50,000, which means that your market size is $300 million.

Of course, this is an incredibly optimistic and unrealistic figure. Not every school needs your products, and they're unlikely to purchase $50,000 worth of goods each, so it could be a real challenge to capture even a small percentage of this market. A top-down approach gives you inflated data, and you often can't rely on it to make good decisions.

2. Bottom-Up – This approach is often more time-consuming than top-down market sizing, because you do all of your own market research and you don't rely solely on generalized forecasts and trends. However, you'll get a more realistic and accurate assessment of your market's potential.

In this article, we'll focus on how you can use a bottom-up approach to determing your market size.

How to Calculate Market Size

Follow these three steps to identify your market size:

1. Define Your Target Market

To predict the size of your market, you need to know the type of person that your product or service is best suited to. Your offering has to fulfilll a need – or solve a problem – uniquely well for a group of people, and you need to define who these people are.

Also, think about how you can access these customers – there's no point considering them if you can't reach them cost-effectively.

You can use market segmentation to divide your market into specific groups. This will give you a greater understanding of each group that your product or service will appeal to, and will enable you to tailor your offering to the specific needs of each group.

Once you've identified the different possible segments in your market, choose the ones that you want to focus on to build your business.

Now you need to determine how large the market is for each segment you've identified. To do this, contact business organizations, data providers, civic organizations, city and state development offices, or regulatory agencies that handle business and commerce; and do what you can to source a list of potential clients in your chosen segments.

Your organization wants to develop point-of-sale software for mid-sized grocery stores. But, before you invest the time and money to develop the software, you need to make sure that the market is large enough, and that people are interested enough in your product to buy it.

After researching online and contacting your region's business and commerce department, you determine that there are roughly 10,000 mid-sized grocery stores in your country, and you source a list of these stores.

2. Use Market Research to Assess Interest in Your Product

Obviously, not everyone in your target market will want to buy your product. So your next step is to estimate realistic interest.

One way to do this is to focus on competitors who target the same group of buyers. What is their market share? And what are their annual sales for similar products or services?

If your competitors are exclusively focused on this market, this can give you a good estimate of potential market size. However, it can be almost impossible to source this information if they focus on other markets as well, or if they are part of larger business groups.

Another way to assess interest is through individual interviews, focus groups , and surveys. Question a sufficiently large sample of people or businesses that fall within your target market, and explain what you have to offer. The larger your sample, the better your analysis will be.

Ask them questions like:

• Does this product interest you?
• What would they feel comfortable paying for it?
• How likely would you be to purchase this product or a similar product within the next two years?

It's important to draw conservative conclusions based on the feedback you get from these focus groups or surveys. Often, people will say one thing and do another. People often "think twice" before actually making a purchase, and this is especially true as budgets, interests, and market conditions change.

Over the course of three months, you talk to 100 randomly selected mid-sized grocery stores, which represent one percent of your target market. You explain the idea behind the new software, and the benefits it will provide to the store owners.

After the presentations are finished, 35 stores express a strong interest in the software, and a willingness to buy once it's available. To be conservative, you reduce this number to 18. So, 18 percent of stores in your market will be interested in this product. Out of 10,000 possible grocery stores, this means that 1,800 could buy.

It will obviously take a lot of time to set up and conduct this type of research. Think carefully about any other market research information you might need, and, where appropriate, gather this at the same time.

Step 3: Calculate Potential Sales

You now have a more realistic figure that represents how popular your product or service could be to your target market. Use this data to decide whether your product is worth the investment and risk.

To do this, develop a financial model of your business using the data you have gathered (see our articles on Cash Flow Forecasting and use of NPVs and IRRs for more on this.)

Then, identify key assumptions within your model, and test these using a technique such as Scenario Analysis .

You've determined that 1,800 grocery stores might invest in your software, which costs $30,000. If 100 percent of these stores purchase the software, this would result in a return of $54 million.

Your organization has already estimated that it will have to invest at least $7 million to develop, test, and market the new software. This investment is only 13 percent of potential annual revenues, so the risk is low, even if the response isn't as positive as predicted. Your organization therefore decides to move forward with the development of new software.

Your "market size" is the total number of likely buyers of your product or service within a given market. This information can be particularly useful to businesses and entreprenuers looking to invest in new products. It can also support strategic decision making and enable you to create an evidence-led marketing strategy.

There are two methods you can use to determine your market size:

• Top Down – this looks at the "relevant" market size for your product or service, and then calculates how much your organization might earn from it.
• Bottom Up – you complete your own market research to get a more realistic and accurate market size for your product or service.

To calculate market size using the bottom-up approach, follow these three steps:

• Define your target market.
• Use market research to assess interest in your product.
• Calculate potential sales.

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How to Use TAM, SAM, SOM to Determine Market Size

Caroline Cummings

3 min. read

Updated October 27, 2023

Having viewed several business plans over the years, a common (and very important) item missing from most plans is a breakdown of the company’s TAM, SAM, and SOM.

Wondering what these acronyms mean? Well, you’re not alone—many entrepreneurs are not familiar with these terms.

• What is TAM?

TAM   = Total Addressable/Available Market  is the total market for your product. This is everyone in the world who could buy your product, regardless of the competition in the market.

• What is SAM?

SAM   = Serviceable Available Market  is the portion of the market that you can acquire. For example, your product may only be available in one language, so your SAM would be the subset of the TAM that speaks the language that your product is developed for.

• What is SOM?

SOM = Service Obtainable Market  is the subset of your SAM that you will realistically get to use your product. This is effectively your target market that you will initially try to sell to.

• How do you identify TAM, SAM, and SOM?

Identifying your TAM, SAM, and SOM  requires some market research  (levels of research vary depending on your product and market potential), but once you gather the research through your  market analysis , you’ll have a better idea of the percentages that coincide with each area.

• Why is identifying your SOM important?

Identifying your SOM, or your  target marke t, is an important step because building a marketing plan around your TAM—in other words, everyone—is a huge waste of resources. Figuring out who exactly you think will actually buy your product will help focus your reach.

What’s an example of TAM, SAM, SOM?

You’re starting a concierge service in your city that focuses on doing tasks/running errands for busy people.

Your  TAM (total available market)  would be all people who may have a need for help doing tasks and running errands in your town. If your town has 150,000 people, you may find (through market research) that the total possible demand for your business in your city is 33 percent (or 50,000 people). You might arrive at this number by excluding people who are under 18 years old and other groups of people who can’t purchase your services.

Your  SAM   (serviceable available market)  would be the portion of that 50,000 whom your current  business model  is targeting (this will be outlined in your business plan). For example, your business model focused on serving people who are ages 35 to 55, with small children and disposable income. You may then discover that there are 20,000 of these people, which means your SAM is 40 percent of your TAM.

Your  SOM   (serviceable obtainable market)  would be the portion of your SAM that your business model can currently realistically serve. For example, you may only have three employees (yourself and two others) and can only serve people who live within a 2-mile radius of downtown, so realistically what percentage of your SAM (20,000 people) can you reach in the first 2 to 3 years?

Let’s assume your company can effectively provide concierge services to 100 people a month or 1,200 people a year. This means your SOM is about 6 percent of your SAM.

If you’re seeking funding, savvy investors will ask you for these items in your business plan, and they’ll want you to be able to back up your numbers. This is why conducting some  market research upfront  is important—and even advisable before you begin writing your business plan. It gives you the validation of your market potential.

Hopefully, this clears up a bit of the market reach acronym soup!

See why 1.2 million entrepreneurs have written their business plans with LivePlan

An entrepreneur. A disruptor. An advocate. Caroline has been the CEO and co-founder of two tech startups—one failed and one she sold. She is passionate about helping other entrepreneurs realize their full potential and learn how to step outside of their comfort zones to catalyze their growth. Caroline is currently executive director of Oregon RAIN . She provides strategic leadership for the organization’s personnel, development, stakeholder relations, and community partnerships. In her dual role as the venture catalyst manager, Cummings oversees the execution of RAIN’s Rural Venture Catalyst programs. She provides outreach and support to small and rural communities; she coaches and mentors regional entrepreneurs, builds strategic local partnerships, and leads educational workshops.

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

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

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.

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

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

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.

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How to calculate market size potential in 3 easy steps

Got an awesome product you’re ready to bring to market? You’ll need to do your homework, and that means learning how to calculate your market size potential.

Conducting an in-depth market segmentation or sizing study can cost a lot of money and often requires research expertise. Here’s how to get a solid steer on your potential market size without saying goodbye to your (entire!) marketing budget. Hint: we can help!

How to quickly calculate market size potential

Calculating market size can help you create better marketing, sales, and development strategies for that specific market. How can you quickly calculate it though?

TL;DR—You’ll need to follow these simple three steps:

• Step 1: Define your audience and total addressable market (TAM)
• Step 2: Gather wider market size intel
• Step 3: Use the market size calculation formula

We’ll get down to what each of these steps entails, but first let’s find out what market size actually is .

What is market size?

Market size is the number of individuals in a certain market who are potential customers of your product or service. Depending on your distribution strategy, you’ll probably also want to look at the number of potential sellers of your product or service . 

When measuring market size there are two ways to approach it: top down and bottom up. 

Let’s look at each:

Top down market sizing

The top down market sizing approach focuses on seeing what the current market is like and applying what you find to your business.

For example, let’s say you sell your services to creative agencies and there are 100 creative agencies across the UK, however you currently only sell to eight of these agencies. You can calculate that your average sale among the eight creative agencies that you work with is £5,000. This would mean that your top down market size is £500,000.

However, this number is likely unrealistic and it won’t really tell you much. After all, not all the agencies will decide to work with you, nor will you sustain the same selling average.

Bottom up market sizing

For the bottom up approach you look at your own segment data, and then you look at secondary research to understand what’s expected to happen to those segments.

Although the bottom up approach can be more time consuming and will require you to better study and analyse your market, at the end it results in a more realistic and trustworthy number.

For example, let’s say 60% of your marketing agency business goes to big corporations, and 40% goes to small and medium-sized companies. If secondary research of your market says that big corporations are relying less on agency work because they’re hiring in-house teams and you know there’s an increase in the number of new startups entering your market, then you can act accordingly and focus on providing better solutions to SMBs.

These two ways to calculate market size help you understand the size of the opportunity in any given market . That said, it’s also important to consider other factors such as the indirect competition – we’ll address this in a bit. 

Find out how big your market really is

Calculate your market size, its pain points, attitudes and price sensitivity with quality consumer insights from Attest.

Let’s understand why market size is important.

Why is market size important?

If you create a business plan that doesn’t cover market size, you’re likely to be sent packing by any potential investor. Without market size data you can’t create a viable business plan, it’s the only thing that gives you an idea of the potential value of your product or service. Market size is essential even if you’re not seeking third-party funding.

Let’s say you have the patent to a revolutionary new software tool; it’s easy to assume everyone will want it. So you might say: “my market is all American adults,” but this is naive and not backed with evidence. You’ll never sell your product to all American adults, no matter how great the product is! 

There will be a certain type of person who really does want to buy your tool and your job is to nail down who that person is—and then work out how many of those individuals like them there are in the market. This might sound difficult, but thanks to the wealth of data tools available nowadays, it’s easier than you think.

How to use your estimated market size

Before we cover how to calculate your market size, it’s important to know how you’ll be able to use this number.

Market size helps business owners answer the following questions: 

• What’s the potential revenue from this particular market?
• Is the market big enough? Will it be worth it to invest time and money in? 
• Is this a growing market? Will there be opportunities after three, five, or ten years?

These are key questions when trying to start or maintain any business. Now, without further ado, let’s take a look at how to calculate market size.

How to calculate your market size

Calculating your market size shouldn’t be complicated. In fact, it can be done in three simple steps:

1. Define your target audience and Total Addressable Market (TAM)

Your target customers are the people for whom your product or service solves a specific problem.

Identifying who these people are is a lot easier if you’re already active in one market. There are three ways to group your target audience’s market: TAM, SAM, and SOM – worry not, we’ll go through what each of these mean.

Total addressable market (TAM) TAM is the total demand there is for a product like yours. If you’re creating an energy drink, your TAM will be estimating everyone that might consume your product: students, drivers, athletes, the lot.

Serviceable available market (SAM) SAM is the people in the TAM that could feasibly reach your product. Let’s say you’ll only sell it at a specific supermarket that’s only available in the southern cities of England, those within your TAM that are also in the southern cities of England will be your SAM.

Serviceable obtainable market (SOM) SOM is the smallest subset of the available market that you’ll want to capture through your marketing and sales efforts. These are those customers that are in your SAM, but are currently not being served, or are unhappy with the existing market offerings, or those that would actually be willing to try a new version of the product they already use.

If you can use existing data

Examine the profiles of your existing customers – what do you know about them? In addition to looking at demographic information like age, gender, geographical location and socio-economic background, engage in a conversation with your customers to find out why they buy your product and why they buy your brand specifically.

If you need to start from scratch

If you’re starting from scratch with a new product or service, you’ll need to come up with some hypotheses to test. 

For example, let’s say you’ve invented a wearable device that automatically tracks how many calories you’ve consumed. You can probably assume it will be of interest to men and women trying to live a healthier lifestyle, as well as sportspeople who need control over their diets and workout routine. There could be further demand from employers or health insurance providers who want to incentivise people to maintain a healthy diet.   

You can gather initial data from a bit of desk research – for example, this government-published statistic tells us that 62% of adults in the UK are overweight . But don’t stop there, now’s the time to delve a bit further by carrying out some consumer research.

Through a market research and brand tracking tool like Attest, you can access more 125 million people in 59 countries, which means you can test real demand with a subset of your target audience.

For example, you could find out:

• How many people are actively trying to live a healthier lifestyle? 
• Why is a healthier lifestyle important to them?
• What are their pain points when trying to do this?
• What products do they currently use to help them improve their health?
• Would they be interested in your product?
• How likely would they be to buy it?
• How much would they be willing to spend if they are interested?

To further define your target customer, you can then analyse their demographics (these are built-in to the Attest platform) and look for trends. Perhaps you see that professional women, living in London and the south east, aged between 30 to 50 are showing the highest purchase intent. You can then create profiles of your prime potential customers.

Once you’ve got a good indication of who your product or service is relevant to, a larger market segmentation exercise makes sense – it’ll help you prioritise your efforts and understand the true potential size of the market. 

2. Gather wider market size intel

To get the full picture, you’ll want to enhance your findings by gathering further information on your industry. 

Most industries have formal associations which compile and track industry size data. You can find out, for example, how much the industry is worth, how much is spent annually on specific product types and average retail prices. 

It’s worth spending some time working out which industry your product or service actually sits in. Knowing your industry helps you understand who your competition is.

To get more clarity on who your competitors are, try drawing up a market map. Market mapping involves arranging competing products on an axis according to their positioning. For example, whether they are high or low-cost or whether they are complex or basic (see the below example.) 

In an ideal world, market mapping will highlight that your product falls into a unique niche. For example, your product could be the highest quality product being offered at a low price point. This immediately gives you a point of difference, giving investors a compelling reason to believe you’ll be able to steal market share.

Use consumer research

You can use your consumer research to back up your market positioning, like social enterprise Divine Chocolate did. The chocolate bar maker identified that some consumers were prepared to pay a premium price for very high-quality chocolate made from Fairtrade cocoa. It saw that there was little competition in this space and successfully claimed the position. 

If you do find a gap in the market, it’s important to be sure why others aren’t filling it. It may be that the demand from consumers just isn’t there, so be sure to combine your study of the market with actual feedback from consumers.

Discover the potential value of your product or service

Get the market size data you need to carry out your marketing strategies with confidence.

Run brand perception research

Brand perception is about what your consumers think and feel about your brand. Not just as an opinion, but as a deeper subconscious sentiment that they have developed after interacting with your brand, your products, your international marketing and messaging, and yes, even your competition.

Brand perception is not what you want customers to feel towards your brand. It’s about what the customers believe you stand for. Ideally, these two would be the same, but in reality it’s hard to influence your customers so directly; that’s why you need to research your brand perception – and also that of your competitors.

Brand perception can affect the type of customers you attract, your price point, and the partnerships you can build with other brands. So, make sure you measure your brand’s reputation and perception .

Use market research surveys

The best way to gather market-wide information is through market research surveys using market research services . These tools will help you collect important information from various demographics, and types of customers.

Market research used to be done face-to-face or through lengthy, cumbersome calls. Today  you can have great insights, data ready for reporting, and a global reach with online market research surveys . They help you take the guesswork out of market research while keeping your process scalable and inclusive.

Once you’ve narrowed down your target market size and customers, and you’ve studied the market at length, you’re ready to calculate market size.

3. Use the market size calculation formula

Your market research will give you a lot of information that you’ll need to analyse and understand. Let’s look at how to plug this information in a formula for estimating market size.

For example, let’s say you produce chocolate. If you plan to be stocked in independent food stores, but you find there are few of these types of outlets in the Midlands – a location where you see high purchase intent– this will affect these consumers’ ability to buy and will reduce your potential sales. 

You have to take factors like this into consideration and look at the ‘ available market. ’ The available market is those who have both interest and the ability to buy – this is your number of target customers.

Once you have this figure, you need to multiply it by the quantity of your product an average buyer will purchase in a given time period, like a year. In the case of our fictional calorie counting device, this is likely to be a one-off purchase, but if it’s a consumable you’re selling, purchase frequency will be far higher. Use your industry data and consumer brand research to estimate this figure – and be realistic!

Making projections about the size of a market

Market size is the maximum total number of sales or customers your business can see, often measured over the course of a specific period of time – often a year. Knowing what your potential market size is will help you when gauging your next business steps, whether or not an investment in a new product is worth it, or what growth is to be expected.

The next step in calculating market size is to engage in a bit of future-gazing. Is your market likely to grow or shrink in the future? You can look at historical data to analyse the market’s performance – is it on an upward trajectory?

Now, think about your customer base—is that likely to get bigger? If we go back to the example of the calorie tracker, there’s plenty of available data to show that the overweight population is growing . Will there be more prospective customers in your market in the next few years? If you can show your marketplace isn’t static and is instead evolving, there’s greater reason to believe in a successful future for your product.

When presenting market size and market value statistics for your business, try to make one, two and three-year projections. Don’t forget to factor in your anticipated roll-out to other geographic areas over time or improved distribution plan. 

You also need to consider your own impact on the industry. What’s your disruptive potential? Most startups are coming to market with an innovative product or service and this can dramatically change the landscape. Think of the way digital cameras virtually destroyed the market for film cameras – and film developing – or the effect Amazon’s Kindle had on regular bookstores.

On the other hand, are there other companies’ products or services on the horizon that threaten the industry as you know it? Do as much research as possible by looking at patents being filed, reading industry media and setting up Google alerts for relevant keywords to keep abreast of things in development. 

How to calculate market size: an example

Let’s say your product is a face wash for people with acne – you can reasonably expect people to get through one tube of it per month. If there are 500,000 target customers in your market, this means the total volume of market demand for acne face wash is 500,000 x 12 (months a year) = 6 million a year. If the average price of acne face wash is £10 a tube, then market value is 6 million x £10 = £60 million.

Another calculation you can do is estimating the percentage of market share you will be able to command. For example, if you know the face wash and cleanser industry as a whole is worth £1 billion annually, you can realistically expect to capture between 1% to 5%. In terms of value, that equates to between £10 million and £50 million.

Summing up your market sizing exercise

Now you’ve learned how to determine market potential (number of target users x purchases expected in a given period of time = market size or volume). Now, you can add this information into your pitch deck so potential investors can see what the estimated earnings can be. 

Bear in mind that most VCs and angel investors would like to know they’re investing in a market with a large potential size (typically, at least £1 billion). If your numbers are smaller than this, don’t be tempted to over-inflate them. Be honest and explain why you believe in the market’s potential… or why it’s important to bring your product to market. For example, it’s going to make the world a better place. 

Investors’ investment philosophies differ, so there’s every chance you can find your match with the right research in hand.

Understand your market size to ensure success

Make smart decisions for your brand with Attest’s combination of cutting-edge tech, human research expertise and a quality global audience of 125 million in 59 countries.

Market Size FAQ

To calculate market size you need to follow three simple steps: 1. Define your target audience and total addressable market (TAM) 2. Use consumer, brand perception, and market research to gather wide market size intel to find out which gaps in the market there are,  the current and future competitors, and what consumers think of your brand.  3. Use the market size calculation formula (number of target users x purchases expected in a given period of time = market size or volume) to better understand your target market potential.

Here’s an example of a market size calculation: let’s say your product is a face wash for people with acne. You estimate that people will get through one tube per month. If you have 500,000 target customers, this means that the total volume of market demand for acne face wash is 500,000 x 12, because there are 12 months in a year. This is equal to 6 million a year.  Now, to calculate market value you take the 6 million and multiply it by the average price of your product: 6 million x £10 = £60 million. That’s your potential market size and value. 

A good market size will depend on your industry and product. However, investors will normally be looking for a market potential size of at least £1 billion. Don’t get discouraged if you didn’t find that’s your potential market, there are other factors to consider when entering a market.  

Customer Research Lead 

Nick joined Attest in 2021, with more than 10 years' experience in market research and consumer insights on both agency and brand sides. As part of the Customer Research Team team, Nick takes a hands-on role supporting customers uncover insights and opportunities for growth.

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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.

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.

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.

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:

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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How to Use TAM, SAM, SOM to Determine Market Size

• March 21, 2024
• Business Plan , How to Write

Understanding the market size is pivotal for any entrepreneur looking to launch a new product or service. It gives you a clearer picture of the potential revenue opportunities and helps in making informed decisions about market entry and resource allocation. The concepts of Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM) are essential tools in this analysis.

This guide will explain how to calculate and use these metrics to determine your market size. Let’s dive in!

Understanding TAM, SAM, and SOM

• TAM (Total Addressable Market) : The overall revenue opportunity available if a business achieved 100% market share.
• SAM (Serviceable Available Market) : The portion of TAM that can be served by your products or services within your geographical reach.
• SOM (Serviceable Obtainable Market) : The portion of SAM that you can capture, considering current competition, market conditions, and your capacity.

Define Your TAM

Start by identifying the broadest potential market for your product or service. This involves understanding who could potentially use your solution, regardless of the current market limitations or your business’s capacity.

• Example for a Hair Salon: The TAM could be all individuals seeking hair care services in the city, the SAM might be those seeking high-end services, and the SOM could be professionals in the downtown area looking for organic hair treatments.
• Example for a Fitness App : For the fitness app, the TAM could be all individuals interested in fitness apps globally, the SAM might be those in countries you plan to operate in, and the SOM could be busy professionals in those countries looking for quick workout solutions.

Narrow Down to Your SAM

Next, refine your focus to the market you can actually serve with your current business model and distribution channels. This step requires a more detailed analysis of your target demographics and operational geographies.

• For a Fitness App: If the app focuses on high-intensity interval training (HIIT), the SAM narrows to those who prefer HIIT over other fitness methods and can access the app through their devices.
• For a Hair Salon: If the salon specializes in luxury hair treatments and eco-friendly products, the SAM would include individuals in the area who prioritize premium, environmentally conscious hair care services.

Calculate Your SOM

Your SOM is your realistic target market share in the short to medium term. Assess your competition, market entry barriers, and your business’s unique value proposition to estimate this figure.

• For a Fitness App: Considering the competitive market of fitness apps and the specific target demographic (e.g., young professionals aged 20-35), the SOM might be the achievable market share within this group, given the marketing budget and current brand recognition.
• For a Hair Salon: For a newly opened salon in a competitive urban area, the SOM could be the number of eco-conscious clients it can realistically attract in its first few years, considering local competition and marketing efforts.

How to Calculate TAM, SAM, and SOM

The calculation of TAM, SAM, and SOM involves a combination of market research , industry reports, and financial models. You can use a bottom-up approach, starting with specific data points like sales figures or pricing models, or a top-down approach, using broader industry data and applying percentages to hone in on your market size.

Calculating TAM, SAM, and SOM for a Fitness App Salon

Calculating tam.

To calculate the TAM for a fitness app, identify the total global population interested in fitness apps. Assuming there are 1 billion people worldwide with interest and access to smartphones or computers for fitness purposes, your TAM would be:

• TAM : 1 billion people

Calculating SAM

If your app specializes in high-intensity interval training (HIIT) and you initially plan to launch in English-speaking countries only, you must consider the population of these countries interested in HIIT. Assuming 20% of the smartphone-owning population in these countries is interested in HIIT, and there are 300 million such individuals, your SAM would be:

• SAM : 60 million people (20% of 300 million)

Calculating SOM

Assuming you can capture 1% of the SAM in the first few years due to competition and market penetration efforts, your SOM would be:

• SOM : 600,000 people (1% of 60 million)

Calculating TAM, SAM, and SOM for a Hair Salon

To find the TAM for a hair salon, determine the total number of people seeking hair care services in your country. If the population of your country is 100 million, and surveys suggest that 60% of the population visits a hair salon at least once a year, your TAM would be:

• TAM : 60 million people (60% of 100 million)

If your salon is located in a metropolitan area with a population of 2 million, and you offer luxury and eco-friendly hair treatments that appeal to roughly 10% of the city’s population, your SAM would be:

• SAM : 200,000 people (10% of 2 million)

Considering the competitive nature of the salon industry in metropolitan areas and your marketing strategies , if you estimate to capture 5% of your SAM in the first few years, your SOM would be:

• SOM : 10,000 people (5% of 200,000)

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Market Sizing & Trends Analysis

Written by Dave Lavinsky

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? 

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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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Home > Calculators > Market Size Calculator

Market Size Calculator

This market size calculator allows a start-up business to estimate the size of the local market for its new venture and to ascertain whether the venture is a feasible proposition by calculating the market saturation point and break even.

The use of the calculator should be read in conjunction with our market size estimation tutorial which provides the background to the techniques and method involved.

Using the Market Size Calculator

The Excel market size calculator assumes that the local (town, city etc.) area in which your business operates is too small to be able to obtain satisfactory sales data to determine market size. However, by using regional data (State, County etc.) available from publicly available information such as government and industry reports, it is possible to estimate the market size for the local area. The information entered should relate to the industry in which the new business is intended to operate.

The calculator is available for download below and is used as follows:

• Enter the regional information Enter the sales, population, and number of businesses data for the region in which the business is located. The size of the region will depend on the publicly available information. The market size calculator works out the average sales per head of population and the population per business for the region.
• Enter the local information The estimated population and number of businesses in your industry is entered. Although sales information might not be available for your local area, the census reports or other industry reports should reveal this information. The calculator works out the market size in terms of sales value for the local area in which the business is to operate.
• Enter the target percentage By entering a target market share percentage which you hope to achieve, the market size calculator will work out the forecast sales for the business. This should always be compared with a bottom up sales forecast carried out using one of our revenue templates .
• Saturation point Based on the regional population per business and the size of the local population, the market size calculator works out the number of businesses the local area can support, the number of additional businesses it could support, and the under-utilization percentage. All of these are indicators or whether there is room in the market place from an additional business or whether the local market is already saturated
• Enter details of your business Enter the fixed operating expenses and gross margin percentage for your business. The calculator works out the sales and population needed for your business to break even. In addition, the calculator also shows the percentage of the local market place and the percentage of the average regional population per business needed to reach break even. Both of these percentages are useful indicators of the difficulty of establishing a new business in the local market place, the higher the percentage the harder it will be to reach a break even position.

Calculator Download

The marker size calculator is available for download in Excel format by following the link below.

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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Market Sizing | How to Calculate Market Size?

Figuring out how to calculate market size is a challenging task that every business owner, marketer or a startup wants to learn. You might have a great product to sell, but you don’t know if there is a quantifiable audience who would be interested to buy the product.  

Most small business owners fall in the trap of assuming that everyone’s their target audience. Don’t make that mistake.  Not everyone falls within your market. 

What is Market Size / Market Sizing?

Market sizing is a exercising that all business owners should do on a regular basis to estimate the size of their potential audience. This helps businesses to forecast their potential sales, identify where to put the marketing efforts, and estimate profitability.

You can’t sell a house to a person who does not have the means to afford one – even through a bank’s housing loan.

A middle-income worker won’t be able to afford a fine dining restaurant on a regular basis – unless he’s saving up money for a special occasion.

Market size estimation is very important because it helps to understand the feasibility of whether to invest your time, skills and money, to market a certain product.

“Size the market, not what’s being sold.” – strategyn.com

It is one of the tools besides consumer research and competitor analysis that can show you the realistic market opportunity.

Oftentimes, we’ve seen people go in businesses based on their gut feeling. Or they do it because everyone is doing it. Or maybe, the business just seems to profitable.

It’s good to follow your passion. But if you’re passion’s not going to make you money. Don’t make a living out of it.

Be realistic.

How to determine market size?

Market size analysis depends on a number of different factors. You may need to dig in some key market insights and data to be able to draw relevant conclusions. You would also need to get your hold on to some audience insights; this helps to filter out your core audience.

There is no market size estimation formula, but several methods that you should follow to estimate your market opportunity.

What you should be concerned with is the Total Addressable Market (TAM) when looking at market size calculation. But you can’t get 100% share of the TAM. So you need to plan on getting a considerable share of the market .

There are many different market size estimation models, and following are a few of them:

• We get an estimate of the total market size through published data and reports to obtain a holistic view of the market
• Then narrow down to the Total Addressable Market (TAM)
• Start with estimate potential number of customers
• Extrapolate that number to the overall market: users, frequency of consumption, price, etc.
• Assess the statistics of how many people/businesses need what you are offering to assess the total demand
• Look at all the suppliers currently in business
• Estimate their business volume and total them up to get an estimated market size

The best way is to look at the market opportunity through multiple models, and then compare each of them. If your estimations are good, you will arrive at close market size estimates from all methods.

Towards the end, take a judgement call and consolidate your learnings from all methods to arrive at a TAM.

Take a look at this infographic by B2B International , that details how and why you should size your market before jumping into business.

I’m a marketing strategist by day. Marketing and strategy are 2 things that I enjoy because they give me the chance to do what I do best: think, identify opportunities, and connect the dots. By night, I love to inspire people to think big. I truly believe and advocate that every individual has the potential to go beyond what he or she thinks they’re capable of.

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How to Write a Marketing Plan

By Joe Weller | March 28, 2024

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A  marketing plan is a guide for achieving marketing initiatives on a set timeline. It includes analysis of a company's target audience, competitors, and market sector. Teams can build an organized strategy with that information to reach their goals.  

Inside this article you’ll find a detailed, step-by-step guide to writing a marketing plan, with a free, downloadable  marketing starter kit for beginners .

A  marketing plan includes analysis of the target audience, the competitors, and the market so that teams can determine the best strategy for achieving their goals. The plan’s length and detail depend on the company's size and the scope of the marketing project. A marketing plan is useful for all types of marketing, including digital, social media, new product, small business, B2C, and B2B. Follow the steps below to write a comprehensive marketing plan. 

1. Prepare for Success 

Before you begin writing your marketing plan, set yourself up for success by conducting thorough market research and assembling a team with diverse skills in marketing strategy, content creation, digital marketing, and data analysis. Be sure to consult all your team members as you progress through these steps. It might also be helpful to assign leaders to complete different sections of the plan, depending on their areas of expertise. For example, you might assign the market analysis section to a team member with strong analytical skills and experience in data analysis.  

2. Use a Marketing Plan Template

Download a free marketing plan template to ensure consistency and thoroughness in your final marketing plan.

For more template options, see this collection of  free marketing plan templates and examples.   

3. Identify Your Target Customers

To identify target customers for your marketing plan, collect information about their location, demographics (such as age, gender, and income), interests, values, and purchasing behaviors. This knowledge enables you to focus your marketing goals and tactics to meet their specific needs and preferences.

A  customer persona is a fictional representation of your ideal customer that provides valuable insights for strategic decision-making. Use one of these  customer persona templates  to craft a detailed profile of your ideal customer.   

4. Conduct a SWOT Analysis

A SWOT analysis is an important part of any marketing plan, because it helps identify a company’s strengths, weaknesses, opportunities, and threats in relation to the market environment. To start, divide a page into four quadrants and label each as strengths, weaknesses, opportunities, and threats. Next, brainstorm with your team to fill in each section. Be as honest and specific as possible, considering factors such as market trends, competition, and your own resources and capabilities. This information will allow the team to capitalize on strengths, prepare for challenges, and make sound strategic decisions throughout the marketing plan. 

See this collection of  marketing plan SWOT analysis templates  for additional guidance.   

5. Conduct a Market Analysis 

A  market analysis is an assessment of a market's size, growth, trends, customer segments, and competitor dynamics. Include it in your marketing plan to provide critical insights for strategic decision-making, helping to tailor products to customer needs, differentiate from competitors, and identify new opportunities. 

To conduct a market analysis for your marketing plan, determine each of the following factors:    

• Market Size: This is the total potential sales that a particular product or service can achieve within a defined market. Determine the market size by estimating the number of potential buyers for a particular service and multiplying that by the estimated number of purchases over a specific timeframe. (Number of Target Customers) x (Number of Purchases in a Given Time) = Market Size Imagine your company sells wireless headphones, and you estimate that the average consumer purchases a new pair every two years. If your market includes 1 million target customers, and assuming each customer buys one pair of headphones every two years, the calculation for annual market size would be as follows: (1 million target customers) x (0.5 purchases per year) = 500,000 pairs of wireless headphones per year   
• Market Growth Rate:  This measures the change in a market’s size over a specific time period and is typically expressed as a percentage. To determine the market growth rate, use the following formula: [(Current Market Size − Previous Market Size​) ÷ Previous Market Size] × 100% = Growth Rate For example, if the market for wireless headphones was worth $1 billion last year and is worth $1.1 billion this year, the market growth rate would be as follows: [($1.1 Billion – $1 Billion) ÷  $1 Billion] x 100% = 10%  

Market Share:  This is the percentage of total sales in an industry generated by a particular company over a period of time. It provides a benchmark for assessing performance relative to competitors. Use this formula for calculating market share: (Company’s Revenue ÷ Total Industry Revenue) x 100% = Market Share  

Tip:  Keep in mind that the market size, share, and growth rate are all estimates. It’s impossible to be exact. To obtain the most accurate numbers, review the latest industry reports and seek insight from experts.  

• Market Demand:  This is the amount of a product or service a consumer is willing to purchase and how much they are willing to pay for it. To determine market demand in a market analysis, begin by conducting comprehensive research on consumer behavior, preferences, and purchasing patterns related to your product or service. Use tools such as surveys, SEO analytics, and interviews to gather data on potential customer interest and willingness to pay, and analyze competitor pricing and offerings.  
• Market Trends:  This is the growth or decline direction of a product or service’s price over a specific timeframe. To identify a market trend, monitor industry developments, consumer behavior, and technological advancements over time. Review industry reports and expert analyses to understand broader market movements and future projections. Summarize these observations and include them in your plan to highlight the direction in which the market is heading.        

Market Segments:  The broader market includes specific groups, categorized by shared characteristics. Generally, there are four types of market segments: geographic, demographic, psychographic, and behavioral. In your marketing plan, detail how you'll target each segment by adapting your strategies to their unique characteristics. This targeted approach ensures more effective engagement with each segment.   

• Competitor Analysis:  A competitor analysis involves examining your competitors’ strengths, weaknesses, market positioning, product offerings, and marketing strategies. Describe how you'll conduct a comprehensive evaluation of key competitors by analyzing their market share, pricing, distribution channels, and promotional tactics. For more guidance, try downloading this competitor analysis template. Use it to identify areas where your rivals succeed and why. Their strengths indicate areas for improvement, while their weaknesses indicate opportunities.  

6. List Your SMART Goals 

Include SMART goals in your marketing plan to ensure that objectives are specific, measurable, actionable, relevant, and time-bound, providing a clear direction for strategic actions and performance evaluation. Start by identifying key performance areas that align with your overall business strategy. Then, for each goal, apply the SMART framework. 

Here are two examples of SMART marketing goals:   

• By Q4 end, increase search results page (SERP) position from 14th to the top three for keywords pertaining to our brand and lead to more organic traffic. 
• Increase social media following, reach, and engagement by 25 percent in six months and 50 percent in one year.

Learn more about SMART goals and find a customizable SMART goals worksheet  in this comprehensive  guide to writing SMART goals . 

7. Create a Marketing Strategy

A  marketing strategy is the plan for achieving your SMART goals.   

“A marketing plan should include strategic and tactical elements,” says Gayle Kalvert, Founder and CEO at  Creo Collective , a full-service marketing agency. “From a strategic standpoint, it is critical that the marketing plan aligns to the overall goals of the organization. Tactically, what initiatives will the marketing team execute, and why? Tactics with no strategy lead to spotty results and poor-quality leads.”

Use one of these  marketing strategy templates to get started. A successful marketing strategy will include the following elements: 

7a. Customer Buying Cycle

The  customer buying cycle is the path a potential customer follows from first having exposure to a product or service to becoming an advocate for it. Understanding this process allows marketers to effectively target communications and strategies at each stage in their marketing plan. 

Pro Tip: “Consider your persona’s buyer's journey and ensure marketing has a role at each stage of the journey, especially after the close,” says Kalvert. “That is when customers can become advocates, sources of referral, and great subjects for marketing content for future buyers.”

7b. Unique Selling Proposition

A  unique selling proposition (USP) is a specific benefit or advantage that sets your product or service apart from the competitors. By including a USP in a marketing plan, you help ensure that the team communicates why customers should choose your offering over others. 

For example, Google’s USP is its powerful and accurate search algorithm that delivers relevant search results faster and more efficiently than its competitors.

7c. Branding 

Branding is the development of a unique identity, image, and experience for a company. Marketers convey a brand through messaging, tone, logo, colors, and web design. The marketing strategy needs to align with the company’s brand in order to maintain consistency in messaging and experience, which ultimately builds customer trust.

7d. Marketing Mix A marketing mix refers to the set of actions that a company takes to promote its brand or product in the market, typically encapsulated by the four Ps: product, price, place, and promotion. Go through each of these steps when including the marketing mix in your strategy:  

• Product: Describe the product and the problem it solves for your target customers. What makes your product or service different from the competition? Why is it special? 
• Price: Explain how much your target customer is willing to pay for the product or service based on its real and perceived value. What do your competitors charge for a similar product? Will you run any seasonal promotions or discounts? 
• Place:  Describe where your product or service will be available for purchase by your target customers. Will you sell it online, through retail partners, or both? How will you manage logistics and supply chain to ensure your product is accessible to your target market?
• Promotion:  Detail the strategies you will use to communicate your product’s value to consumers. This includes advertising, public relations, social media marketing, email campaigns, sales promotions, and direct marketing tactics.    

7e. Channels 

Identify the specific mediums and platforms — or  channels — where you’ll share your message to your target audience. These should include distribution channels, communication channels, and engagement channels. 

As you list them, explain how they will be used to effectively reach and engage with your target audience. For example, if you’re marketing a new fitness app, one distribution channel would be a direct download from the App Store to reach fitness enthusiasts directly on their smartphones. An engagement channel could be an in-app community feature for users where they can share progress.

Here is a brief list of popular marketing channels:  

• Affiliate marketing
• Email marketing
• Social media
• Website marketing

7f. Tactics Tactics are the specific actions you will take to reach the goals outlined in your strategy. They cover everything from the creation and distribution of marketing materials to the scheduling of campaigns to the platforms used for advertising and engagement.  Detail the specific actions and tools you will use to execute your marketing strategy, along with timelines, responsibilities, and budget allocations for each activity. This includes specifying the exact steps for product promotion, customer engagement, content creation, digital marketing efforts, and any other methods chosen to reach and convert your target audience. “Equally as important as using data is to build in time and resources to be flexible,” says Kalvert. “The marketing landscape is evolving at such a rapid pace. Tactics that worked last year may not work this year. Be open to experimenting with new tactics and adjusting your approach based on feedback and results.”

8. Determine the Budget 

Start by estimating the costs associated with each tactic and channel outlined in your strategy, taking into account factors such as content creation, platform fees, and personnel costs. Next, prioritize spending based on the expected ROI for each tactic. Finally, document the budget in a clear, detailed format within your marketing plan, including an itemized list of costs for each tactic, total expenditure, and a contingency fund.

For more resources and help estimating marketing project costs, take a look at this collection of helpful free  marketing plan budget templates . 

9. Create a Calendar

Create a calendar to schedule and track deliverables. Include time for brainstorming, planning, executing, and analyzing results. List objectives, start dates, end dates, due dates, and responsible parties. Keep the calendar in a central location so that team members can easily access it.

10. List Marketing Tools and Technology

List any marketing tools or technologies your team will use to help achieve their goals. These can include email marketing software, blogging software, social media management software, or any other programs you plan to use.

11. Identify Metrics and KPIs

Identify the metrics for measuring and tracking your marketing goals. Metrics and KPIs eliminate ambiguity so that you can accurately measure progress. Select indicators that directly reflect the success of your marketing objectives, such as conversion rates, website traffic, lead generation, and customer acquisition costs.

12. Write an Executive Summary

Once you’ve completed all the sections in your marketing plan document, return to the first section to write the executive summary. Completing this section last ensures that you have a thorough understanding of all key elements before summarizing them. 

Concisely highlight the main objectives, target market, and key strategies of the plan, providing a snapshot of the market analysis and expected outcomes. Outline the budget, resources required, and the metrics for measuring success. This section serves as a compelling overview, enticing stakeholders to delve into the plan.

For more detailed information on executive summaries, see this guide to  writing an effective executive summary. You can also download a helpful template from this collection of  free executive summary templates

Marketing Starter Kit for Beginners

Download Marketing Starter Kit for Beginners

Get everything you need for creating a marketing plan with this free, downloadable marketing plan starter kit. The kit includes an executive summary template, a customer persona worksheet, a SWOT analysis template, a competitor analysis template, a SMART goals worksheet, a marketing strategy template, and a calendar template with a budget tracker, all in one easy-to-download file.

In this kit, you’ll find the following:  

• An executive summary template for Microsoft Word to help you introduce the content of your marketing plan.    
• A customer persona worksheet for Microsoft Word to collect information about your ideal customer.  
• A SWOT analysis template for Microsoft Word to guide strategic decision-making based on the company’s strengths, weaknesses, opportunities, and threats. 
• A competitor analysis template for Microsoft Word to help you compare and evaluate your competitors. 
• A SMART goals worksheet for Microsoft Word to ensure each marketing objective follows SMART guidelines. 
• A marketing strategy template for Microsoft Word to outline the plan for achieving your goals. 
• A calendar template with budget tracker for Excel where you can organize, track, and manage marketing deliverables and their costs. 
• A marketing plan template for Microsoft Word to ensure consistency and thoroughness in your final marketing plan.

Master Your Marketing Plan with Real-Time Work Management in Smartsheet

The best marketing teams know the importance of effective campaign management, consistent creative operations, and powerful event logistics -- and Smartsheet helps you deliver on all three so you can be more effective and achieve more. 

The Smartsheet platform makes it easy to plan, capture, manage, and report on work from anywhere, helping your team be more effective and get more done. Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed.

When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time. Try Smartsheet for free, today.

Improve your marketing efforts and deliver best-in-class campaigns.

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How To Write a Business Plan: A Step-By-Step Guide

April 23, 2024.

No matter how unique your ideas are, launching a successful business without a well-crafted plan is tough. That’s why learning how to write a business plan is key to seeing success from the start. 

An actionable business plan helps you and potential investors understand exactly where you want to go and how to get there. And if you aren’t trying to secure funding, a lean business plan can summarize the highlights to help you in other areas. Here’s everything you need to write a business plan that clarifies your company’s vision.

Business Plan Basics

A business plan outlines the company’s products or services, how it makes money, and its customers. It should also identify the business’s long-term goals and how it’ll achieve them.

But what does a business plan look like? There’s no singular format, but most contain the following core elements:

• Executive Summary . The executive summary is a high-level summary of your business plan’s key points. Include this early in the document, but write it last so you can accurately describe what’s in it.
• Company Description . This section covers your company’s mission, leadership team, and goals. If your business has operated for several years, include a history.
• Market Analysis . This is where you’ll write out your market research. Gather data on your industry. That includes target customer segments and the current competitive landscape. This info demonstrates the viability of your business idea. 
• Product and Service Offerings . Describe your company’s offerings and what sets them apart from competitors. This is your unique value proposition.
• Marketing Plan . Outline your marketing tactics and overall strategy. Mention your plan for pricing, promoting, selling, and distributing your products. This helps investors know you have a strategy in place to grow your business. 
• Logistics and Operations Plan . After describing your products and how you plan to generate demand, lay out how you intend to drive, accept payment for, and support sales.
• Management Overview . Potential investors want to know who they’re betting on. This section provides crucial information about who’s in charge. Include their track records of success, relevant expertise, and roles and responsibilities.
• Financial Analysis and Projections . If you have them, include any historical financial details and performance metrics. This includes assets, liabilities, expenses , projected financial statements, cash flow statements, and anything else offering insights.
• Appendix . This final section is a catch-all for any miscellaneous but valuable background information. Examples might be licenses or patents.’

RELATED ARTICLE — How to Keep Track of Business Expenses

How To Create a Business Plan

With a clear understanding of these documents, it’s time to learn how to write one. Here’s how to put together a strong business plan for your company:

• Carry out a Market Analysis on target demographics, competitors, industry trends, and market.
• In the Company Description and Products and Service Offerings sections, explain what makes your offerings unique.
• Outline your Marketing Plan and sales strategy. Describe your target market and ideal customer. Include factors like geographic region, age range, and education level.
• Map out your Financial Analysis and Projections. If you’re an established business, include data like profit-and-loss statements, a balance sheet delineating your assets and liabilities, and cash flow statements or projections. If you’re still in the early stages, focus just on financial projections instead. Mention anticipated startup costs and your current cash flow.
• Your Logistics and Operations Plan explains how you’ll execute your ideas. Describe any relationships with suppliers, office space, or equipment. Make sure to mention production logistics and any shipping and fulfillment plans. This demonstrates that you understand the day-to-day operations of producing your product.
• Introduce yourself and/or your Management Team and principal hires. Emphasize past successes in related sectors and any unique expertise your staff has.
• Regardless of what order you prepare your business plan in, write the Executive Summary last. Do this by turning your market research and value proposition into tangible objectives and key milestones. This section is typically the first your readers see, so it should make them want to read more.

Be sure to get feedback from colleagues, industry contacts, and friends and family. The more eyes you get on your business plan, the less likely you are to make mistakes or leave out details.

RELATED ARTICLE — How to Offer Net 30 Terms  

What Are Business Plans For?

Writing and adhering to a business plan allows you to think through every aspect of your business. This helps you clarify your vision and shows where your ideas aren’t as developed.

But business plans don’t just clarify the company’s mission and direction. Entrepreneurs hope to answer this tough question with a business plan: how to attract investors. A well-written document can instill confidence by showing how supported it is. This is the main reason many business owners create a comprehensive overview.

And investors aren’t the only ones you’re trying to impress. An inspiring business plan attracts top talent in your industry. It proves that your team is organized, knows what it wants, and has ideas for the future.

Exploring Different Types of Business Plans

Business plans can be categorized based on type and style. Let’s explore three of the most common types.

A traditional business plan is the most common. This is what lenders and investment funds want to see before making any decisions. Traditional business plans are typically long. That’s because they provide a thorough overview of your company’s abilities, finances, and prospects

If you’re not courting investors, you might prefer a lean business plan. This type of document is shorter, focusing on the highlights instead of completeness. A lean business plan is great for brainstorming or onboarding new team members with reduced time and effort. But, because they’re less comprehensive, lean business plans aren’t ideal for seeking outside investment. Investors might not see how viable your business is without the added details. 

Finally, if your organization is a nonprofit, focus on the impact you hope to make for your chosen cause, not how you’ll grow revenue. But donors may want to see a more detailed business plan before making sizable donations.

RELATED ARTICLE — How to Write an Invoice in 5 Steps

Caveats To Watch Out For

An actionable step-by-step business plan requires a strong understanding of how it will help you reach your company’s goals. Now that you know how to start a business plan, here are some common mistakes to avoid when you start writing:

• Putting on Rose-colored Glasses . When you believe in your company and its mission, it’s easy to be too optimistic about future prospects. You might also overlook potential roadblocks. Be sure to keep one foot on the ground to avoid misrepresenting your company’s potential.
• Focusing Too Much on the Details . If your company is new or not yet established, focus on high-level strategy and vision. Save the details for when you’ve generated some actionable data.
• Setting Fuzzy Goals . Keep milestones concrete and measurable to meaningfully track progress.
• Overcomplicating . There’s nothing wrong with being comprehensive, but creating an overly intricate strategy makes it harder to execute. Keep it simple.
• Setting It in Stone . Your business plan won’t be much of a guide if you’re constantly making changes. But it’s important to move on from ineffective strategies or unachievable goals. Striking the right balance between stable ideas and flexible methods ensures your business plan is a help, not a hindrance.

5 Tips for an Effective Business Plan

Now that you know what to avoid, let’s learn some tips for making your business plan as effective as possible:

• Clearly Articulate Your Value Proposition . What unsolved problem does your company provide the solution for?
• Don’t Skimp on Market Research . A seemingly great idea won’t sell if no one is interested in buying it.
• Set Quantifiable Goals You Can Track . It’s difficult to measure progress toward vague, qualitative milestones.
• Hype up Your Team . Lenders and investors want to see that qualified personnel run your company.
• Manage Expectations . Don’t make promises you can’t keep. Surpassing your targets is impressive; falling short isn’t.

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What the New Overtime Rule Means for Workers

One of the basic principles of the American workplace is that a hard day’s work deserves a fair day’s pay. Simply put, every worker’s time has value. A cornerstone of that promise is the  Fair Labor Standards Act ’s (FLSA) requirement that when most workers work more than 40 hours in a week, they get paid more. The  Department of Labor ’s new overtime regulation is restoring and extending this promise for millions more lower-paid salaried workers in the U.S.

Overtime protections have been a critical part of the FLSA since 1938 and were established to protect workers from exploitation and to benefit workers, their families and our communities. Strong overtime protections help build America’s middle class and ensure that workers are not overworked and underpaid.

Some workers are specifically exempt from the FLSA’s minimum wage and overtime protections, including bona fide executive, administrative or professional employees. This exemption, typically referred to as the “EAP” exemption, applies when: 

1. An employee is paid a salary,  

2. The salary is not less than a minimum salary threshold amount, and 

3. The employee primarily performs executive, administrative or professional duties.

While the department increased the minimum salary required for the EAP exemption from overtime pay every 5 to 9 years between 1938 and 1975, long periods between increases to the salary requirement after 1975 have caused an erosion of the real value of the salary threshold, lessening its effectiveness in helping to identify exempt EAP employees.

The department’s new overtime rule was developed based on almost 30 listening sessions across the country and the final rule was issued after reviewing over 33,000 written comments. We heard from a wide variety of members of the public who shared valuable insights to help us develop this Administration’s overtime rule, including from workers who told us: “I would love the opportunity to...be compensated for time worked beyond 40 hours, or alternately be given a raise,” and “I make around $40,000 a year and most week[s] work well over 40 hours (likely in the 45-50 range). This rule change would benefit me greatly and ensure that my time is paid for!” and “Please, I would love to be paid for the extra hours I work!”

The department’s final rule, which will go into effect on July 1, 2024, will increase the standard salary level that helps define and delimit which salaried workers are entitled to overtime pay protections under the FLSA. 

Starting July 1, most salaried workers who earn less than $844 per week will become eligible for overtime pay under the final rule. And on Jan. 1, 2025, most salaried workers who make less than $1,128 per week will become eligible for overtime pay. As these changes occur, job duties will continue to determine overtime exemption status for most salaried employees.

The rule will also increase the total annual compensation requirement for highly compensated employees (who are not entitled to overtime pay under the FLSA if certain requirements are met) from $107,432 per year to $132,964 per year on July 1, 2024, and then set it equal to $151,164 per year on Jan. 1, 2025.

Starting July 1, 2027, these earnings thresholds will be updated every three years so they keep pace with changes in worker salaries, ensuring that employers can adapt more easily because they’ll know when salary updates will happen and how they’ll be calculated.

The final rule will restore and extend the right to overtime pay to many salaried workers, including workers who historically were entitled to overtime pay under the FLSA because of their lower pay or the type of work they performed. 

We urge workers and employers to visit  our website to learn more about the final rule.

Jessica Looman is the administrator for the U.S. Department of Labor’s Wage and Hour Division. Follow the Wage and Hour Division on Twitter at  @WHD_DOL  and  LinkedIn .  Editor's note: This blog was edited to correct a typo (changing "administrator" to "administrative.")

• Wage and Hour Division (WHD)
• Fair Labor Standards Act
• overtime rule

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Money latest: Which cereals have least sugar? Your guide to eating a healthier breakfast without paying a fortune

Our series on how to eat more healthily for less is back - and we're looking at a breakfast staple. Read this and all the latest consumer and personal finance news below, plus leave a comment in the box.

Friday 3 May 2024 07:14, UK

• Prescription charges rose this week - but there are ways to pay less
• 'Outrageous': Billie Eilish fans complain about ticket prices
• Mortgage rates are rising - here's everything you need to know if you're a first-time buyer right now

Essential reads

• Which cereals have least sugar? Your guide to a healthier breakfast without paying a fortune
• How to nab yourself a free upgrade on a flight
• You're probably washing and storing your clothes wrong. Here's what you should do instead
• Money Problem : 'Builders won't repair dodgy work - what are my rights?'
• '£2,000 landed in my account' - The people who say they're manifesting riches

Ask a question or make a comment

If you earn significantly more or less than your partner, how do you split payments for things like housing, food, household essentials, entertainment and holidays? 

Do you both pay equally, do you split costs according to income, or do you have another method? 

Get in touch with an outline of your situation in the  box above or:

• Email [email protected] with the subject line "Money blog"
• WhatsApp us  here .

It can be hard to balance getting nutritious foods that make you feel good without spending a lot.

In this series, we try to find the healthiest options in the supermarket for the best value - and have enlisted the help of  Sunna Van Kampen,  founder of Tonic Health ,  who went viral on social media for reviewing food in the search of healthier choices.

The series does not aim to identify the outright healthiest option, but to help you get better nutritional value for as little money as possible.

Today, we're looking at the breakfast staple - cereal. 

A sugar trap?

"Protein and good fats are what fill you up and satiate you to get your day going," Sunna says.

"Cereal unfortunately is a sugar and carb-heavy start which causes your blood sugar to spike and as a result you feel hungry way before lunch time."

A glance at the nutrition labels and you'll see the problem. 

"Some popular brands contain 35% sugar or up to 12g of sugar per 30g serving - that's already half of the daily recommended intake for children," Sunna says. 

That's before accounting for the fact that most people double up on recommended portion sizes. 

"According to research the average bowl weighs 73g rather than 30g suggested portion size - that means your child could be having their daily sugar quota for breakfast before school," Sunna says.

Healthier cereal choices

"The key to healthier cereal bowls is to ensure minimal sugar and maximum fibre - which is where options like Weetabix come to the forefront as a better option - at 4.2% sugar and 10% fibre," Sunna says. 

Among the main brands, this is hard to beat.

Frosties and Crunchy Nut don't fare well at 35% and 37% sugar respectively. Cornflakes at 8% and Coco Pops at 17% are better - but still high.

Alternative breakfasts

Greek yogurt:  "High in protein and packed with probiotics, Greek yogurt is my breakfast go to. Top it with some fresh berries and a sprinkle of seeds for an antioxidant boost."

Porridge:  "Oats are a great breakfast staple, offering a good dose of fibre, but context matters.

"It's great before a run or the gym but if you are just sitting at your desk all day it will spike your blood sugar and may be best to add more protein and fats to it. 

"Try adding peanut butter or protein powder for a more filling breakfast with more stable blood sugar."

Eggs:  "Boiled, poached, or scrambled, eggs are a protein-rich option that can keep you fuelled till lunch. Pair them with sourdough toast and you have possibly the most well-rounded value breakfast."

"Switching to these alternatives can drastically cut down your sugar intake and increase your energy levels."

We know cereal is a value-for-money and easy breakfast option, but let's have a closer look at the numbers. 

If we take the average cereal bowl at 73g, a cost per bowl looks like 50p for Crunchy Nut cereal and about 25p for the 250ml of milk that goes with it. 

"So, your daily breakfast is costing you 75p per day or £273.75 per year for the privilege of 9.3kg of sugar per year," Sunna says. 

In contrast, a typical medium free-range egg is 25p. 

Put three on a slice of sourdough (15p per slice) and an optimal breakfast has only cost you 90p a day or £328.5 a year. 

"So, you can swap over 18g of sugar every morning for over 18g of protein for just £54.75 extra per year," Sunna says. 

"A health investment, well worth the money."

However, if you want to stick with cereal - supermarket own-label brands are usually 60% cheaper than branded versions. 

Read more from this series... 

With the mortgage market proving more volatile than expected this year, and rates rising again, we're launching a feature providing an overview of the market at the end of each week - and outlining the best deals.

The independent experts at  Moneyfactscompare.co.uk  will be here every Friday. Commentary this week comes from their finance expert Rachel Springall, who has focused on the first-time buyer market...

Fixed-rate mortgages are once again on the rise, with many of the UK's biggest high-street lenders upping rates this week, including Santander, Halifax, Nationwide and NatWest. Lenders have been reacting to growing speculation that interest rates will remain higher for longer. 

Economists predict that the Bank of England will hold interest rates next Thursday but might cut base rate in the summer. Week on week, the overall average two- and five-year fixed rates rose to 5.91% and 5.49%.

This week the lowest two-year fix for first-time buyers with a 5% deposit comes from Loughborough Building Society, priced at 5.49%, which comes with a free valuation incentive and carries a £999 product fee.

First-time buyers with a 10% deposit will find the lowest two-year fixed rate offered by Clydesdale Bank, priced at 5.19%, which does not carry any incentives and charges a £1,499 product fee.

Those new buyers with a 5% deposit who want to fix for longer will find the lowest five-year fixed mortgage comes from The Co-operative Bank this week. Priced at 5.21%, this deal carries a £999 fee but borrowers get £250 in cashback and a free-valuation incentive.

Borrowers with a 10% deposit who wish to fix for five-years will find Clydesdale Bank offering the lowest rate this week priced at 4.64%, which charges a £1,499 fee but does not carry any incentives. 

As a first-time buyer, it's possible you have exhausted your savings on building up a 5% deposit and will use surplus cash to cover removal costs and legal fees. 

If you are looking to save on the upfront cost of your loan, then a Best Buy mortgage could be the most cost-effective choice.

This week one of the top packages on a two-year fixed mortgage comes from Coventry Building Society priced at 5.74% and HSBC priced at 5.79%, both of which come with a free valuation, but HSBC will also pay you £750 as cashback and Coventry Building Society will pay £500 in cashback.

A five-year fixed mortgage may be more appealing for you to guarantee your monthly repayments for longer. 

HSBC has a deal priced at 5.30% which carries a free valuation and £1,000 cashback, but if you want a lower rate, then Coventry Building Society is priced at 5.27%, and offers a free valuation and £500 cashback.

If you live in Wales, Scotland or Northern Ireland you don't have to pay for your NHS prescriptions - but in England they now cost £9.90 after a 25p rise this week.

Fee-free options remain in place for some, such as those who are pregnant, have certain disabilities, students or the elderly.

But if you're not exempt, there are still some means of cutting the costs of treatments.

Prepayment certificates

Prescription prepayment certificates (PPC) cover NHS prescriptions over a given time period, no matter how many medicines you need.

There are two options: A three-month PPC (£32.05), which will start to save you money if you buy four or more prescriptions in that period, or a 12-month PPC (£114.50), which pays off if you buy 12 or more in a year.

Ask for a larger prescription

Doctors may agree to prescribe a longer course of medicine - such as two months' worth instead of one, halving the cost.

Just ask the question - they might say yes, especially if there's no danger of overuse.

Menopause medication

The NHS offers a particular PPC for hormone replacement therapy.

It lasts for 12 months and costs £19.80.

Women can use the PCC as many times as they need within the year.

You might not need a prescription

For some ailments, there are over-the-counter options sold cheaper than their prescribed alternative. You can ask your doctor or pharmacist for advice.

Pint-sized bottles of wine will be allowed on UK shelves from autumn under new post-Brexit trade rules - although doubts have been raised over their demand.

Seven changes to pre-packaged wine sizes are due to come into force on 19 September.

The move to introduce the 568ml size of wine, to sit alongside 200ml and 500ml measures already available, was announced in December and hailed by ministers as a Brexit "freedom".

Pint bottles of Champagne were sold in the UK before Britain joined the European Common Market and were on shelves until 1973.

Read more here ...

JD Sports has told head office staff they must return to the office at least four days a week .

The new amendment to the hybrid working policy will be effective from 1 July and will impact employees at the retail chain's head office in Bury, Retail Gazette reports.

However, the chain will still allow flexibly depending on individual roles.

Pubs could stay open late during the Euros this summer, according to The Sun .

Home Secretary James Cleverly hinted he was looking into extending pub opening hours for the tournament on The Sun show Never Mind The Ballots.

He said: "I will certainly look into it."

We've been bringing you news of plenty of bank switch deals offering free cash these past few months, but Virgin Money has a different kind of incentive for switchers - a 12% interest rate. 

People who switch to its M Account, M Plus Account or Club M Account will be able to get bonus interest rates of 10% gross/10.47% AER (fixed). 

This is on top of the 2% gross/2.02% AER (variable) interest rate already offered on current account balances up to £1,000 - meaning customers can get an interest rate of 12%. 

No other savings accounts offer interest rates this high, and the bonus applies for a year.

TikTok will restore millions of songs to its app after settling a royalty dispute with Universal Music Group. 

Users had been unable to make videos featuring songs from the likes of Billie Eilish and Ariana Grande due to a row over how much TikTok was paying. 

The fight had led to Universal withdrawing music from some of the world's most famous singers. 

The dispute appears to have been settled as the companies announced "improved remuneration" for artists.

More than 10,500 black cab drivers in London have launched a £250m legal case against Uber. 

They accuse the app of breaking the capital's taxi booking rules and deliberately misleading authorities to secure a licence. 

Transport for London (TfL) rules state drivers cannot take bookings directly from customers and must instead use a centralised system. 

The drivers, who are being advised by law firm Mishcon de Reya, argue they have faced unfair competition from Uber and that it knowingly broke these rules. 

Uber has denied these allegations and said the claims are unfounded.

The company has faced numerous challenges in London, including refusals from TfL to renew its licence which were later successfully appealed. 

Billie Eilish fans are complaining about "outrageous" ticket prices for her Hit Me Hard and Soft tour.

The 22-year-old singer unveiled an 81-date tour programme this week, sending fans rushing to secure tickets.

But some expressed disbelief on social media at the prices.

"I know I moan about this all the time, but look at the price of Billie Eilish tickets," one fan called Marianne wrote on X, sharing a screenshot of seated tickets priced at £398.50. 

"Something seriously needs to be done about ticket prices, it's f*****g outrageous!" 

Another complained they had paid less for Taylor Swift's Eras Tour, which was also criticised for high ticket prices.

A fan called Liv tagged Eilish, Live Nation and Ticketmaster, writing: "Are you ok? £145 for standing tickets is atrocious."

Thousands of people who receive government benefits, including Universal Credit, will be paid as early as tomorrow.

This is because there's a bank holiday coming up on 6 May which will affect benefits paid by both the Department for Work and Pensions (DWP) and HMRC (they don't pay benefits on bank holidays).

A statement on the government website reads: "If your payment date is on a weekend or a bank holiday you'll usually be paid on the working day before. This may be different for tax credits and child benefit."

Here are the 11 different government benefits that are expected to be paid early:

• Universal credit;
• State Pension;
• Pension Credit;
• Disability Living Allowance;
• Attendance Allowance;
• Carer's Allowance;
• Child Benefit;
• Income Support;
• Jobseekers Allowance;
• Personal Independence Payment;
• Tax credits (such as Working Tax Credit)

Will your benefit payment change?

No, you'll be paid the same amount you usually receive.

Benefits are usually paid straight into your bank, building society or credit account.

Goldman Sachs is removing a cap on bonuses for London-based staff, paving the way for it to resume making multimillion pound payouts to its best-performing traders and dealmakers.

Sky News can exclusively reveal the Wall Street banking giant notified its UK employees today that it had decided to abolish the existing pay ratio imposed under European Union rules and which the government recently decided to scrap.

In a video message to staff, Richard Gnodde, chief executive of Goldman Sachs International, which comprises its operations outside the US, said it had decided to bring its remuneration policy in Britain in line with its operations elsewhere in the world.

"We are a global firm and to the extent possible we adopt a consistent global approach across everything we do," Mr Gnodde said in the message, which has been relayed to Sky News.

"The bonus cap rules were an important factor preventing us from being consistent in the area of compensation."

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