Every business should understand all aspects of their industry and the estimated market share to determine if the business might be successful. Market share is very important when trying to start a business, develop growth strategies and is required for the business plan.
For example, let’s say you are going to open a new business in the downtown district of your community. Estimated monthly expenses (rent, utilities, insurance, salaries, etc.) are $5,000 per month/$60,000 annual. The business is going to specialize in “new left-handed sporting goods.”
Your Planning Assumptions:
- Approximately 10 percent of the world’s population is left handed.
- The population of your city is approximately 200,000.
- 15 percent of the population is young children and they do not play sports.
- 20 percent of the population is senior citizens and most do not play sports.
- 40 percent are gamers not interested in sports.
- That only leaves 25 percent as potential customers.
- 5 percent of the potential customers can only afford used equipment, leaving 20 percent of the population as potential customers.
Your Best Guess Estimates:
- Population of 200,000 multiplied by 10 percent (left handed) = 20,000.
- 20,000 potential customers multiplied by 20 percent = 4,000.
Can you afford to open and pay monthly expenses with only a potential of 4,000 or less customers?
With such a small market opportunity it does not look like you can afford the store.
You might want to look at it as an e-commerce business and apply the same assumptions as the physical store. The business might be a winner in that case because of the size of the market and lower operating costs.
Alternatives to Opening a Physical Store:
- USA population = 323 million
- World population = 7.3 billion
- Population of 323 million multiplied by 10 percent (left handed) = 32.3 million
- 3 million potential customer multiplied by 20 percent = 6.5 million
What about the world population? Utilize the same information and the numbers grow even larger.
What does this simple/quick example prove?
Through this quick and easy example, you now have identified the best estimate of the size of the overall market for new left-handed sporting goods. It provides a simple breakdown of the demographics of your potential buyers and shows you can easily use market data to look at operational costs of the business, for both a brick and mortar location and an e-commerce business.
You are able to arrive at these conclusions using a variety of no-cost market research that is available to you at any library, or through the Florida SBDC Network.
This is strong enough information regarding potential market share, to determine whether or not to make a go of your business idea.