One of the most significant phases in launching a business is calculating the market size. The market size impacts the attractiveness and possibility for success. Making it easier for founders to decide whether or not to enter the market. Market size is often evaluated throughout a year and shows the total volume of the prospective market that exists. Therefore, defining the best approach how to determine market size as a start-up company will be necessary.
Top-Down Analysis on How to Determine Market Size as a Start-up
As the name indicates, a top-down strategy begins with the highest market size and gradually reduces it to the final amount based on company and industry knowledge and assumptions. Consider a business whose core value proposition is to offer online fruit purchasing services. To assess market size from the top down, first determine how much people are presently spending on your product. This is a necessary part of how to determine market size as a start-up company.
Using large numbers, you may calculate the annual cost of purchasing items. Assume that not everyone buys your product. Furthermore, it is not operationally feasible to serve all of them. Therefore, the analysis will help to define whether your start-up is later worth building or not.
Bottom-Up Analysis on How to Determine Market Size as a Start-up
Although the top-down technique is very simple to start up the market size, it might be deceptive. Is it feasible to have access to the whole market? Even if the answer is affirmative, what are the expenses of entering the full market?
The bottom-up approach offers a clear image of the details. The size of the start-up market may be calculated using this technique by taking into account the present condition. Such as the product, price, clients, and scalability of each sector. The market size for the hypothetical in question is estimated using bottom-up analysis. Therefore, it can be another way how to determine the market size of a start-up company.
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Total Addressable Market Approach
The total addressable market is the number of clients or profit that a company may hypothetically achieve. Why only theoretically? Because this quantity is unreachable without infinite resources and the absence of competition. This method, on the other hand, is an important aspect of any start-up pitch. Since it may determine the size of your market and define the course for your company’s future growth.
The method to perform this analysis can be through external examination. This is one of the recommended approaches how to determine market size as a start-up. It is the quickest approach to locating your market size. This strategy relies on ready-made market size estimations. However, the main disadvantage of this approach is that you cannot follow the entire computation process.
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Value Theory as One of the Ways How to Determine Market Size as a Start-up
Another way how to determine market size as a start-up company is through value theory. It is another option to choose from start-up owners. Value theory is frequently employed for new features added to current products and newly generated products. It is primarily based on speculation. To estimate your market size using this technique, you must first evaluate the value of your product and what pricing can capture it. So that later you can get the exact estimation of your possible market size.
Served Addressable Market
The served addressable market is the component of TAM that takes into consideration external aspects. Those aspects including such as culture, market competition, location, local restrictions, and so on.
Served Addressable Market or segmented addressable market, allows you to divide your target clients into sub-markets based on the type of product or service. For example, if you sell bikes, you will segment your market into men, women, and children, who will then be further segmented into professional and amateur riders, and so on.
While a Total Addressable Market is unlikely to be obtained, a corporation can capture a Served Addressable Market in the long run. Therefore, if you want to choose between these two approaches, you need to carefully consider which one is the most appropriate for your start-up company.
Serviceable Obtainable Market on How to Determine Market Size as a Start-up
Finding a functional and accessible market is the final stage of market sizing. This is also another approach how to determine market size as a start-up. It is the percentage of Serviceable Obtainable Market that you can realistically acquire in a reasonably short amount of time. You should consider your company’s existing resources when calculating your serviceable attainable market.
Evaluating resources necessitates an examination of your start-up’s internal financial and human resource data to understand its revenue and growth patterns. It is also recommended to consider industry estimates, partnering prospects, and your company’s development plan. All of which may have a significant impact on your market size.
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Defining your start-up’s market size is a simple step that may have a big impact on your business. And, if you want to learn the ins and outs of running a successful business, this is necessary to define at first. Find out all the approaches above about how to determine market size as a start-up. So that later your start-up can run well and get profit as expected.
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