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How to Calculate Market Size for Business?

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How to Calculate Market Size for Business, Especially in Consulting Firms or Large Companies

When deciding whether to start or invest in a business, one crucial component is calculating the Market Size, which includes understanding market trends to determine if the market value is likely to increase or decrease in the future.

For example, the market for infant formula is shrinking due to a declining birth rate. If we are a company producing milk, we might consider expanding to other markets, such as fortified milk for the elderly.

To gather Market Size data, there are two methods:

1. Obtaining Market Size Data from Various Collectors:

  • This includes analysis reports from banks or research institutes. One commonly used source is Passport GMID from Euromonitor, which is accessible through libraries and educational institutions (for instance, TCDC).
  • This allows us to see the market value of a product in millions of units for each country and observe growth trends to determine if the market is expanding or contracting.

2. Calculating Market Size by Estimation:

  • When direct data is hard to find, we can estimate Market Size through calculations. This involves multiplying the number of customers by the annual sales per customer (including both our market and competitors).
  • Breaking it down further, the number of customers comes from the population multiplied by the access rate, and sales come from frequency multiplied by the product price.
  • For example, to calculate the baby diaper market, we look at the number of newborns, the percentage of diaper usage, the frequency of daily changes, annual usage, and the price of diapers. If some data is missing, market surveys or assumptions can be used to estimate market value roughly.

References

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