When conducting market research, there some elements you need to understand, including market size. Understanding market size helps you to identify the category of markets you that become the subject of your research.
What is Market Size?
Market size refers to the number of potential customers to sell your products or services. For instance, you want to open a coffee shop in a particular location in the downtown, so your potential customers could be those who visit downtown around the area.
There are two different market categories: the addressable market and the available market. The addressable market is the overall revenue opportunity for your brand while the available market is some part of the addressable market that you can achieve. By understanding the difference between the two categories, you can identify what type of product or service to meet customers’ needs.
How to Calculate the Market Size
The first thing that should be remembered when calculating market size is that it has to be objective. As it is always changing and developing, you need to keep updated to market trends like new technologies or consumer buying habits. Though market size relies on assumptions, it helps you to understand the market trends and how they impact your business.
These three steps to calculate the market size, including:

1. Defining the target market
   First of all, you need to know your target market in order to estimate the market sizing approach. Market size can be determined by Total Available Market (TAM), Served Available Market (SAM), and Share of Market (SOM).
   After determining your market size, then you must form a reasonable estimate of your portion of the market to be your available market. The key to the accurate market size is through thorough research on the market, your industry, as well as your competitors.
2. Determining your estimate of sales growth potential
   To determine the market size, you need to develop a reasonable estimate of your sales growth potential. Therefore, you need to determine sources which can be based on:
   • Sales channels you want to use including retail, online, wholesale, and other channels
   • Locations you will sell your products or services, such as retail stores, online channels, etc.
   • Revenue and growth statistics from competitors
   Calculate all the three variables, and when you have identified the number, compare it to the addressable market size determined in the first step to make sure it is realistic.
3. Analyzing your competitors
   The final step to calculate the market size is analyzing your competitors. It is very crucial when it comes to identifying your market size. Your market potential will depend on the competition in the industry. Analyze what you can offer that your competitors cannot, in terms of their customer service, their quality of products, etc.
   Why Market Sizing is Important?
   It is important to understand the accurate market size as it provides you with several advantages that further helps you to sustain your business growth. Moreover, it also prevents you be innovative with your product or service to generate greater success.
   Market sizing brings positive impacts in any business, including profitability, better business strategy, and understanding consumer behavior trends—in which will positively affect your business. In other words, it’s part of your business’ step to success.