In this blog post, my aim is to solve two common problems for startups.
- What is your total market potential?
- How much of that market can/will you capture?
Although it may be impossible to answer these questions accurately, you can use a data-driven, bottom up, and logical approach to help answer these questions in a way that will satisfy potential investors and bankers.
Calculating Market Potential – Example
I want to start by giving you a few tips and tools that you can use to help calculate your total market potential, and then I want to show you a real example of how I calculated the market potential for a product I created for this blog.
- Industry Reports – Depending on your market, it may be that a market research firm has already done this work for you. Don’t make things hard on yourself, if you sell dog food try Googling “Size of Dog Food Industry.” When I did this I found www.petfoodindustry.com which told me that by 2015 the global pet food industry should reach $56.4 billion. I am certain that their extensive report will break down the industry by type of pet, so you would be able to find the market potential for the dog food industry.
- Competing Websites – This does not work for every industry, but for many industries I think this will be a good data point to use when determining the market potential. Go to www.compete.com and search for your competitors websites. If their websites are getting significant traffic you should be able to see an estimate of their traffic. If you know that your competitor has 100,000 website visitors per month, at least you know that the market potential for your website is at least 100,000.
- Google Adwords Keyword Tool – Finally, I would suggest that you use the Google Adwords Keyword Tool to determine how many searches related to your market take place on Google each month. The data that Google provides through this keyword tool gives marketers no excuse for building a product or service that no one wants, because Google users are telling you exactly what they want through search data.
Now let me show you exactly how I determined the market potential for a product that I released on my blog.
First, there are no industry reports that show what total market is for business plan executive summary resources, and there are not any other websites that compete specifically for executive summary related keywords only. There are a number of business plan websites that compete with me. Based on the Compete.com data on Bplans.com they receive over 160,000 visits per month. This gives some idea of the scale of the potential market. B-Plans is the leader in business plan software, templates, examples, and advice, so this number helps me know that my market is probably not 10 million visitors per month, but it is also more than a couple thousand visitors per month.
Determine Market Potential with Google Keyword Tool
Now armed with info from Compete.com on my major competitors, I use the Google Adwords Keyword Tool to find out how many searches occur every month related to executive summaries.