how to estimate market size

How to Estimate Market Potential of Your Product

As a business person, you have spent years and different resources on building your business (the product). The next step you want is to see your product penetrate the market with ease, reach the targeted audience, meet your revenue objectives and be on top of the competitive market.

Now, what if everything doesn’t move as anticipated? What if you don’t meet the anticipated number of customers? What if you keep running the business at a loss? Well, business people don’t look forward to such incidences, but when it happens, it is high time you look back and check the areas you went wrong to rectify and bring your product back to life.

Talking of bringing the product back to life, that is where market sizing comes in. As you plan to launch your new business venture, you need to tackle market sizing to position your product appropriately.

We will feature a detailed guide in this article on market sizing, the measure you should take, how to collect the data, and how to use the data to make useful decisions when launching a new business or product.

Understanding Market Sizing: Why is it significant?

The term market size involves two elements:

  • The total revenue from the sales
  • Potential buyers of the product

Before setting up your business, you must define the two elements because of the following reasons:

  • To help business enterprises approximate the profit, they ought to get from the business or product. This is a critical stage as it will help the business person weigh if the business opportunity is viable or not.
  • Should you decide to invest in the business, the data will assist in creating a workable marketing strategy that helps you determine the basic requirements of your product in the market.
  • With market sizing, you get to determine the employee you will need ahead of your new business launch. This is especially important since it will give you a chance to recruit top talents who fit perfectly in specific areas to ensure productivity.

Methods of Market Sizing

As you plan to estimate the market size, you can use any of the two approaches described below:

  • Bottom-Up

The bottom-up approach is the most complex one. It will require you to use lots of resources, including time to gather the required data for your new product. Here, you don’t depend on the trends and general estimations from other sources. While this is the most tiresome and time-consuming market sizing method, you are guaranteed accurate and reliable results.

  • Top Down-Market Sizing

In contrast with the bottom-up market sizing method, the top-down-market sizing is the simplest and most preferred, however unreliable. It involves a simple overview of what your product or service is capable of delivering, then calculating the possible earnings from it.

Estimating the Market size of a new product: Steps to take

Finally, you have made the decision to conduct a market size of your product. What next? Be sure to follow the steps for the bottom-up approach outlined below:

estimating market size for a product

  • Know your target market

When launching a brand new product, you must have your potential customers in mind. For instance, learning materials means your target market is schools. Knowing your target clients or niche will help you know the gap and the needs of the market niche and determine ways to fulfill such needs. Once you have recognized your potential customers, you need to establish ways to reach out to them, bearing in mind the costs you are supposed to incur.

So, make sure you narrow down the large market into a specific group using market segmentation. This will help you define the needs of each smaller group to establish ways to meet such needs. Besides, market segmentation will help you focus on the sections that interest you the most, ensuring you deliver well.

Now, when determining the size of the market for the segments you have chosen, ensure you get in touch with the relevant people, including regulatory agencies, city & state development offices, civic organizations, data providers, and business organizations.

  • Conduct market research to evaluate interest in the product

While you have established your target market, not everyone will consume your products, and that is why you need to establish a real interest.

Here, you can rely on the competitors offering the same products and estimate their market share. Analyze their annual sales for the same products. This move will give you an appropriate estimate of the potential market size.

Another approach that will help you estimate the interest is by asking questions and conducting surveys directed at your potential customers.

Make sure you ask questions related to the products and services you are offering and ways they areas they think you should improve in your service delivery.

  • Determine your penetration rate

Next, you need to re-evaluate your market size through the penetration rate of your product category. The penetration rate is simply how functional your product is to the specific market.

When the penetration rate of your product is higher, it means you have achieved your product’s objective in terms of quality delivery. However, a low product penetration rate means you need to re-evaluate your planning to ensure the product fits perfectly in the market.

  • Estimate the potential market size (the volume and value)

Getting the potential market size means getting the total number of potential customers, then multiplying by the penetration rate.

For instance, should your target number of customers be 1300 with a penetration rate of 70%, and the market size potential will be 1300 x 70%?

Now, the market value means multiplying the market volume, the answer you get above by the average value, which is price expectations.

  • Apply the market-size data

Now, after following the steps, you can effectively and accurately estimate your market size. Now, you need to maximize the effectiveness of the process by doing the following:

  • Whenever you make an estimate, do an analysis of every assumption, as it can change at any time. So, make sure you have the value for the best-case scenario and worst-case as part of your expectations. This will have you ready for any possible outcome from your expectations.
  • Keep checking the accuracy of your original expectations and modify them whenever there is a need to.


Every business enterprise, both upcoming and already established, comes with an effort. It is not once or twice we have witnessed a new product entering the market only to disappear. Sometimes, it is not always about the effectiveness of the product but failed to estimate the market size. So, if you are almost launching your new product in the market, be sure to follow the steps above to determine the market size. This will help you make well-informed decisions to ensure productivity.

To know more about estimating the market size for a new product, connect with us!

Also check: Product Discovery Process

Written by:

Muzammil K

Muzammil K is the Marketing Manager at Aalpha Information Systems, where he leads marketing efforts to drive business growth. With a passion for marketing strategy and a commitment to results, he's dedicated to helping the company succeed in the ever-changing digital landscape.

Muzammil K is the Marketing Manager at Aalpha Information Systems, where he leads marketing efforts to drive business growth. With a passion for marketing strategy and a commitment to results, he's dedicated to helping the company succeed in the ever-changing digital landscape.