Market Size
Market size indicates the volume of goods or services that a market can absorb over a given period, usually a year, at current prices and levels of demand. This metric helps determine whether it is worth entering a niche and what revenue can be expected. Without it, it is difficult to plan a marketing budget because it is unclear whether increased advertising expenditure will pay off.
Two calculation methods
- Audience-based: number of potential buyers × purchase frequency × average purchase value.
- Sales-based: add up the sales of market participants or estimate demand separately for each segment.
Two types of market size
- Potential market size — the market volume at the maximum possible audience reach.
- Addressable market size — the volume of the segment in which a company can operate, taking into account its capabilities and limitations.
How it differs from market share
Market size indicates the total volume of the market, while market share shows what portion of that volume a company occupies. First, market size is estimated, then the company’s sales are compared against it to calculate its market share.