What and how important is market validation

Market size and volume: how big is your market?

Determine market size and volume

As the first step of the market analysis, you determine the market size, which quantifies the turnover in your industry. The market volume describes the number of units sold. Both factors, market size and market volume, are important later in sales planning and are therefore elementary areas of the business plan.

The size and volume of the market are also of great importance for potential investors, as this enables the attractiveness of the market to be better assessed. Take a step-by-step approach to determining the market size and volume:

1. Market description

Similar to the target group analysis, you start with the definition of your target market with the market size. You can describe the target market using the following factors and thus clearly narrow it down.

  • Business idea: WHAT do you offer, what range of products do you have?
  • Sales area: WHERE will you offer your products / services, which cities, regions or countries are relevant?
  • Target customer: WHO will buy your product / service?
    You have already defined the target customers under target group, so you can simply adopt the target group definition.

Describe your target market as precisely as possible. The clearer the definition, the easier it will be for you to determine market size and market volume. A precise description also helps for the other areas of the market analysis and the business plan.

Example for the description of a target market: You want to sell a mixed beer drink (What) in Bavaria (Where). The product is aimed at all men and women with a middle income who are between 18-35 years old and who do not want to go without a trendy, fruity-fresh mixed beer drink when partying (target group).

2. Quantify the market size

Once you have described the target market, the next step is to determine the market size. The market size describes the turnover (in euros) that is generated in your target market in a certain period of time. Determining the market size is usually not that easy, which is why we recommend the following procedure:

  1. Use existing industry data
    It is of course easiest if the data on the market size is already available. We have summarized various sources of information for you under industry tips, where you can search for the market size.
  2. Estimate market size based on available data
    If you haven't found what you are looking for on industry tips, then you need to estimate the market size. Use existing data for guidance. You may not have sales figures for a particular federal state, but there are often information about the size of Germany's market. Using the available data, you can then estimate or calculate the market size.
    Example: You know the sales generated in Germany in the area of ​​drinking milk. But you have not found any sales figures for NRW (your target market). Nevertheless, you can roughly calculate the size of the market for NRW based on the number of inhabitants in NRW.
  3. Estimate market size for a new market
    If you can't find any relevant market size data at all, you need to estimate the market size. You can do this using the following formula:
    Number of buyers * buying frequency * price = market size
    Tip: Compare the result of your calculation of the market size with other comparable industries in order to verify your result for the market size.

Once you've figured out the market size, you should also find it easier to determine the size of the market.

3. Determine the market volume

The market volume is particularly relevant for your sales planning. The market volume does not describe the turnover in the industry (e.g. in euros), but the quantity sold. Based on the quantity sold - the market volume - you can then calculate the consumption per capita, which will help you, among other things, to draw up the financial plan.
Often, figures on the market volume are already available. You can also look here to see whether you can find the necessary figures under Industry Tips.

Use a systematic approach if you can't find the right market volume data right away. Example: The following graphic shows how you can divide the overall market for beer beverages into individual segments and determine their market volume. In this way you can systematically narrow down your market and determine the value for the relevant market volume. On the basis of the market volume, you then determine the market shares of the most important competitors.

The goal is ...

... that you can clearly describe the market size and volume in your business plan and put them into figures. Both numbers form the basis for the next part of the market analysis, the market dynamics.

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Author: Für-Gründer.de editors

As editor-in-chief, René Klein has been responsible for the content of the portal and all publications by Für-Gründer.de for over 10 years. He is a regular interlocutor in other media and writes numerous external specialist articles on start-up topics. Before his time as editor-in-chief and co-founder of Für-Gründer.de, he advised listed companies in the field of financial market communication.