Introduction to Determining Your Market Opportunity
How well do you understand your customers? If you’ve been in business for more than 1 month, then hopefully you’ve done the work to identify the volume of people that consistently purchase your product or service. If not, read through this article carefully to introduce yourself to the 4 levels to defining your market opportunity.
In a previous article, we wrote about Defining Your Target Market. Once you’ve identified WHO you believe will benefit most from your product or service, the next step is to understand more about who they really are. Identify the demographics of your customer base as well as their psychographics (see “The Difference Between Demographics and Psychographics”).
Now, you’ll want to calculate the number of people within your specified target market. To do this, there are several steps that will help you to right-size your market opportunity area into a more reasonable volume. Why is this important? Every business has a marketing budget and one of the biggest benefits to knowing your market opportunity size, is you can optimize your marketing spend to specific platforms that your target market use regularly minimizing financial waste. Aside from better understanding your business and industry, targeting your market better and increasing your chances for investment are additional benefits to understanding your market opportunity size.
There are four distinct levels in determining your market opportunity size.
Total Market Potential – This is the total market size for a product at a specified period of time
Total Available Market - The total revenue opportunity available for your product or service or the total amount of demand for your product or service
Serviceable Available Market – The potential sales value of a specified market segment over a specified period of time that is limited to available demand for a particular product/service
Serviceable Obtainable Market - The market size your business is realistically targeting. This factors in the competitive environment and the resources available to your business.
First, you will start with your target market and conduct research to calculate the total population size that fits within your target market demographics (i.e. age, gender, education status, annual income, etc.). Then compare your previous insights of psychographics (i.e. hobbies, interests, values, social platform preferences, etc.). As you delve deeper and deeper into an attainable market size, you’ll be able to continuously confirm the psychographic traits. In our upcoming articles, we’ll offer a deeper dive into each of these four levels and how to calculate them.