Estimating a Market Area
If you’re doing sales forecasts you can estimate the sales for several market areas (market segmentation). You’ll need to assess:
- the type of people that are potential customers (age, gender, income, etc..)
- the number of potential customers in that area
- how much do these potential customers spend on your type of products?
- what is your market share?
First estimate the number of potential customers for the area, which means you have to define the potential customer (collect the demographics) and estimate the total number of people that fit the customer profile for each area. You can obtain several demographic reports of surveys for most areas. You can use these surveys to find out how much money the customer group you target is actually spending on goods and services.
A household (befitting your customer profile) spends $250 on your type of products/services annually. There are 15,000 such households in the targeted market area, resulting in a sales potential of 15,000 x $250 = $ 3,750,000. You may not actually sell this (you probably have competitors) but you can compare your actual sales results with this figure, to see how you are doing in this market area. You can calculate your market share, and for example plan to expand this market area, and try to increase your market share.
If you intend to enter a new market area, or to introduce a new product in the market area, you should research the market in the same way, but now you want to know which competitive products are being purchased by the customer group and why. From the competitor research and available market data, you try to define how much market share you intend to conquer in a certain number of years, and how (the strategies) you plan to achieve this.