How to calculate market size and volume

Market analysis

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At the beginning of the market analysis, you need to calculate market size and volume. The market size and in particular the market volume are important for the subsequent sales and thus sales estimate. Both values must be in a realistic relationship with market size and market volume.

First, describe your target market. You can then calculate market size and volume.

Identify market size and volume

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

Market size and market volume are also of great importance for potential investors, as this makes it easier to assess the attractiveness of the market. Proceed step-by-step in determining market size and market volume:

1. Market description

Similar to the Target group analysis start defining your target market, even when it’s market size. You can describe the target market on the basis of the following factors and thus clearly limit it.

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

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

Example of the description of a target market: You want to sell a mixed beer drink (what), in Bavaria (Where). The product is aimed at all middle-income men and women who are between 18-35 years old and do not want to miss out on a trendy, fruity-fresh beer mix drink (target group) when partying.

2. Quantifying market size

When you have described the target market, it is a matter of determining the market size. The market size describes the turnover (in euros) that is generated in a certain time in your target market. Determining the market size is usually not easy, so we advise you to proceed as follows:

  1. Leverage existing industry data
    Of course, the easiest way is if the market size data is already available. under Industry tips we have summarized various sources of information for you, where you can search for the market size.
  2. Estimate market size based on existing data
    Use existing data for guidance. For example, you may not have sales figures for a particular state, but often there are data on the market size of Germany. You can then use the existing data to estimate or calculate the market size.
    Example: You know the turnover generated by your state in the area of consumer milk. However, you have not found any sales figures for NRW (your target market). Nevertheless, you can calculate the market size for NRW by the size of the population in NRW.
  3. Value market size for a new market
    If you can’t find relevant market size data, you need to estimate the market size. You can do this by the following formula:
    Number of buyers x Frequency of purchase x Price = market size
    Tip: Compare the result of your market size calculation with other comparable industries to verify your market size result.

Once you have determined the size of the market, it may also be easier for you to determine the market volume.

3. Determining market volume

The market volume is particularly relevant for your sales planning. The market volume does not describe the turnover of the industry (e.g. in euros), but the quantity sold. You can then use the quantity sold – the market volume – to calculate consumption per capita, which helps you, among other things, to create the financial plan.
Often, figures on the volume of the market are already available. 

Proceed systematically if you do not find the appropriate market volume data directly. For example, the graph below shows how you can divide the total beer beverage market into individual segments and determine their market volume. In this way, you can systematically limit your market and determine the value for the relevant market volume.

The goal is …

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