Once you have determined the market size and market volume, you need to calculate market dynamics to give an assessment of the market development. Are you entering a growth market with your project or is you more likely to stagnate? Questions that are especially important for your sales planning and for investors.
You can make statements about market dynamics based on past market growth and other factors that you need to analyze.
Market growth: How has the market developed?
With the Market size and market volume, you have determined the current size of your target market. However, in order to be able to make statements about future market growth, you must calculate market dynamics, and it is worth looking back into the past.
For example, you can use the following factors to calculate market dynamics to tell us about future developments:
- Market growth over the past 3-5 years
It is definitely easier to estimate future market dynamics if you can show the market growth of the last few years. It is best to look at whether you can find market growth figures for your market.
- Market growth due to volume growth?
The key question is how market growth has been assembled. Is market growth due to volume growth, i.e. an increase in sales volume?
- Market growth through price increases?
Market growth does not necessarily have to be driven by an ever-increasing volume of sales, but can be due solely to price increases.
Price developments can be found either at the Price monitor or the Federal Statistical Office.
In most cases, past market growth is a mix of volume growth and price increases or reductions. Try to show the past growth rates in your business plan. Ideally, you’ll show a graph that divides average market growth per year into price increases and volume growth. If this is not possible, it is sufficient for the business plan to simply indicate the market growth per year.
Market growth can be achieved both by a higher volume (more is sold) and by a price increase (offers become more expensive). Try to find out what were the main growth or contraction factors.
Calculate market dynamics : How will the market develop?
Now that you know the market growth of the past few years, you can now make assumptions about the future market development, the market dynamics. The aim is to determine the market dynamics for the next 3-5 years.
Showing market dynamics is important because it tends to be easier to succeed in a growing market. In a growing market, they not only have to compete for existing customers, but also be able to acquire new customers that have not yet been recruited by competitors.
When you to calculate market dynamics you will find they also have a significant impact on your goals and thus your company’s strategy. The following points should include your business plan on market dynamics:
- Market dynamics of the next 3-5 years
Provide an outlook on what you expect for growth rates over the next 3-5 years and what could be important trends that could have a positive or negative impact on market dynamics.
- Market dynamics: growth in sales volume?
Ideally, you can explain how to get to the growth figures described earlier. Do you expect a high market dynamic due to an increasing target group (there are more people who can and want to afford your offer) and/or is the purchasing frequency of the target group increasing?
- Market dynamics: Growth through price increases?
How do you see the price trend over the next 3-5 years? How do the changes affect market dynamics? Why do you expect an increase/price collapse?
It is important that you can explain plausibly in your business plan why you expect what future growth figures. After you to calculate market dynamics: Based on past growth figures, it should be easier for you to estimate future development.
The goal is …
… that you create a graph showing both past market growth and market dynamics for the next 3-5 years. The business plan must also clearly and plausibly explain how to get to future growth figures.
Ideally, you also describe in the business plan whether the market has grown in volume and/or through price increases and what you expect from the future. Once you have managed to do this, we will continue with the Market potential.