Startup: How to Estimate A New Market Share

Estimation of new market potential is a crucial point for the business planning behind any startup or enterprise expansion.
Hopefully, after reading this post, you will be better equipped to make grounded decisions in terms of the level of initial investments in MVP, market share planning and further scalability.
It’s a great idea to incorporate a separate budget for R&D into your business plan. However, if this isn’t possible, you still need to find a relatively cheap way to evaluate the market volume. Even when all you can do is to implement a DIY approach. Here I’ll share what can be done.
Before getting to the point, let’s check some definitions. This will help make the logic of the market volume calculation more transparent. Later on, I’ll illustrate how market volume can be calculated for one particular project and how to evaluate your share of the pie.
Qualified available market – those who are allowed to use the products or services you offer. For example, for UK alcohol sellers, the qualified available market would be limited to buyers aged 18 and over.
The quickest, cheapest and most precise way to estimate the market is to collect the evaluations that have already done by professional marketers. (Buying a report about your segment can be a good start to save you time and avoid building your forecast on the wrong data).
The market volume can be easily calculated with a reasonable degree of accuracy if you know the industry figures and its general trends (increase or stagnation). You can estimate your market volume by approximating these figures and estimating the percentage your particular market can hold.
If you’re coping with a new product or competing on an extraordinary local market, there can be no chance to estimate the market volume based on open-source data.
Field research will give you real data, and a better understanding of your customer needs if implemented professionally.
Practically, it’s a very complicated, time-consuming and costly method, where respondents must be collected based on the particular probability deviation. A typical error is to base the strategy on the opinions of several friends or neighbours. Properly managed research will serve as a strong foundation for future business planning.
If you need some guidance on the field research preparation, check it here.
Do IT Yourself: A rough estimation will not provide you with real buyers’ feedback or the exact figures. However, it can help you to evaluate the market volume. This can be done quickly and doesn’t require anyone’s help. Your data will lack real users’ opinions but can solve the main issue – calculating the volume.
Look at this example: when you need to estimate how many piano tuners you need to hire to cover all the pianos in the town, you need to count all the pianos and divide this number by the average breakage rate per year. So, spreading the result across monthly periods, you’ll see how many orders there are on the market. This is precisely what we’re looking for: the monthly market volume. This method has a strong mathematical background and works perfectly well for a rough estimation.
Let’s think about localisation. Are you working for a nearby city or ready to cover the whole country? If you do a global market estimation, concentrate on the population of the main cities. Later on, you’ll add the correction index, which describes the deviation of city and country dwellers to cover everyone.
Now we’ll count all the figures for the above definitions for our hypothetical project.
Our case is the creation of a web platform where people can exchange their ebooks.
For this particular case, I will set our target audience as Londoners.
So, the general population of London is 8,787,892 people (based on official statistics).
To calculate the total available market, we need to deduct those who cannot read or use ebooks yet – let’s take children for the sake of simplicity.
Our next statistical source, https://www.trustforlondon.org.uk/data/londons-population-age/, provides us with the figures that 7% of the inner London population are children aged 0-4 and another 6% are children aged 5-9.
Our case: the platform is not expensive, and anyone can afford to join it for a small fee. I suggest setting the assumption at 50%, meaning that only half of the entire group will have the desire to use the platform and be ready to pay. So, we have to deduct ½ of the above-mentioned amount. The figure now stands at 3,822,733.
For our book-exchange platform, we plan to set a fee of 1,99 GBP per year. And Served Available Market will be 3,440,460 *1.99=6,846,514 GBP. Let’s set our goal for the first year to attract 5% of the target market: 172,023 people. Also, accordingly, the market value is calculated as 342,326 GBP. The alternative definition for this percentage is the market share by value.
If you count the same figures for the particular market, as we’ve been calculating from the beginning, this will be your local market share by volume.
*Why should I set my goal as 5%, not 1% or 50%?
- This is the critical point, where we have to guess. The main business issue is to set realistic goals.
Now you’re ready to set a clever percentage of the market share which you can achieve. And again, even on an absolutely new market, you can find some similarities with your approach. Analyse non-direct competitors, but focus on market pioneers to plan your efforts and evaluate the prospects.
In our case, such competitors can be stores selling e-books. Instead of exchanging the ebooks, your target user can buy a new one. So, it’s vital not to overestimate your market potential.
It’s relatively easy to evaluate figures on your local market. However, calculating the global market figures in the same way is tougher because the approximation of the rough data to large volumes leads to more significant statistical discrepancies.
To implement the global market estimation, I personally recommend inviting R&D firms or an independent marketing agency.
The next step after the estimation of the current market volume should be the forecasting of future periods. To understand the potential for your company’s growth, it’s vital to see the general market trends: increase, stability or stagnation.
It’s hard to believe, but in some cases, business “stagnation” is actually better than growth. Here are the most common reasons why:
Quite often, in order to understand the market situation, you do not need the exact figures. Even if it’s something totally innovative, the calculation of the market share and volume can be done via table research.
So, begin with the market volume, set a realistic goal to cover the market share and calculate the ROI for your startup. Jump to the next article for ROI calculation guidelines.
At Magora, we have an expert team to implement initial analysis before taking any blind steps towards software development. The discovery phase is a stable basis for further planning. Do not hesitate to contact the Magora team to discuss your project in detail.