market potential, definition, method to calculate market potential

1. Estimation of Market potential and Sales
Potential

2. Market Potential
• Market potential is a calculation of potential revenue for a particular
product or service at a given time. The market size can include a target
market or a market segment.
• Market potential is usually measured either by sales value or sales
volume.
• Sales Volume represents the number of units you
can expect to sell, and the Sales value represents
the amount of revenue you make from it.

3. Importance
• 1. For Expansion of Existing Business : A market potential is crucial when a
company expands its Product line or customer base. A brand can
continue reaching its current customers and target new
demographic groups to increase sales and profits.
• 2. For introducing new Product : For It is very important for a new
business to know and determine the market potential of the
product of service being offered. If the market potential is very
low then there is no point spending a lot of money on the
product.

4. • 3. To knowthe amount of Revenue generatedby Product :
• One of the most important aspects of market potential is
the amount of business a product can generate in future as
compared to today. Companies can also evaluate the
market share of companies in the market.
• 4. For Better Allocationof Resources :
• Market potential helps business plan better and launch
their products and services with better preparation.
Depending upon the overall market potential.
• 5.To makeentry/ Exit Decision:
• The estimate of market potential are used for making entry/
exit decision to a particular market. These estimate provide
a true understanding of the market

5. 5 steps how to determine market potential to develop
business
• Step 1. Verify market size
• Step 2. Market growth
• Step 3. Competition
• Step 4. Consumers
• Step 5. Profitability

6. Step 1. Verify market size
• The basis for determining the market potential is to
examine its size, which can be done in two ways –
overall volume
overall value of the market.
• Volume means the total number of potential
consumers, who can make transactions on a given
market.
• The overall value of the market should be interpreted
as the total financial value that consumers are able to
pay for market products.
• This information is the starting point for further
analysis. They allow to determine the basic values
characterizing a given market. After verification, you
can proceed to the next steps.

7. Step 2. Market growth
• The market size does not give full information about its
potential. Therefore, the development trends should be
carefully analyzed. In this case, factors such as
short and long-term forecasts,
number of companies,
risk of undersized development
current market trends are taken into account.
• It is worth tracking the financial analysis from a few
years back and then determining its growth dynamics
and factors that stimulate the market.
• In the event of any growth disturbance, situation needs
to be assessed and verified whether they may have an
impact on your business in the future.

8. Step 3. Competition
• When analyzing the possibility of entering a new market you
cannot forget about competition. A large number of competing
companies does not necessarily mean less potential.
• If there are many companies operating on the market, but they
are on a moderate stage of development, there is a good chance
that their domination will be achievable.
• First, weaknesses and strengths of Competitors should be
analyzed, after which possible solutions should be defined.
• This will allow to effectively compete on the market with the other
companies. Analyzing competition also directly links barriers to
entry.
• In some industries, the position of competitive companies is so
strong that it becomes a really difficult barrier for any new
companies to overcome. This fact should be also taken into
consideration.

9. Step 4. Consumers
• The profile of potential consumers, their
preferences and behavior give another piece of
important
• information that should be examined at the stage of
assessing market potential. Each industry is
characterized by its specificity.
• The target group, is a important element of the
analysis. Currently, there are many tools available
on the web that allow you to automate such
research. They can also be made on the basis of
generally available statistical data.

10. Step 5. Profitability
• What is most interesting for everyone, who is
thinking about starting a business on a given
market, is a potential chance of profit from
investment.
• Finding a balance between the size of the financial
outlay, the amount of work and the potential
profit will also give an answer about its potential.
Using the available statistical data, this analysis
can be carried out without any problems.

11. Method of calculating market Potential

12. 1. Using Market Volume And Market Value
• The market volume is the potential market volume
determined with the help of the number of target
audiences and the penetration rate.
• Suppose if you have determined the number of
your target audience as 10,000 people and
penetration rate as 60%, your market volume will
be:
• Market volume = number of target audience x
penetration rate i.e. 1000 x 60% = 600 people

13. 2: Using An Average Selling Price
• To calculate the market potential in monetary
terms, market value is calculated. If the market
volume is 600 people and the average value of a
product is estimated as $10 (if a product is a pen
etc.). Then, market value will be
• Market value = market volume x average value i.e.
600 x $10 = $600.

14. 3. Using An Average Selling Price
• Market potential = number of target customers x average
selling price x average annual consumption
• So, if the number of the target customer is 600, the
average selling price is $10 per unit, and the
average annual consumption is 1000 units
• The market potential will be
• 600 x $10 x 1000 = $600000

15. Thank you