June 26, 2011
It is important that you give enough data to your investors to attract them in funding your business. One of the data you will need to present is your business’ market potential. These are your actual consumers that you plan to target.
In formulating your business plan, you will need to exactly know your market size and market growth rate. There are two ways that you can calculate this:
1. Peeling Back the Onion
In order to get the right size of your target market, you have to use the process of elimination. First, you determine the total market size and then start removing segments and sectors that you will not be targeting.
For instance, if the business you will operate is planning to sell a $600 espresso machine, then your direct target market are people who serve coffee or drink coffee. Now, start removing segments that have low-income, households that doesn’t have the finances to buy a new appliance in the past 5 years and those people who drink coffee at coffee shops.
Once you peel off the sector and segments you won’t be targeting, you will end up with the profile of your exact target market which you will then use for Customer Analysis.
2. Market Factors Assessment
These are factors that will have a direct effect to your target market:
You must calculate the percentage of customer share that your competition might get from you. This is important data to show your investors as they want to see realistic numbers.
You must do your customer research and know their demographic and psychographic details. Do research on their lifestyle, income and locations. For targeted businesses, know how many employees and customers they have daily.
Are there any recent government regulations that will affect your business? Are there changes in material pricing?
You can also discuss some case studies which is similar to your business. The information here can be used for your Competitive and Industry analysis.
If you provide your investors with a detailed picture of your market potential, this helps build the trust and confidence of the investors towards you and your management team.
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