Determining the Size of Your Market

Why You Want to Know the Size of Your Business Segmentmarket planning 400

When you are building a new business, or expanding an existing one, it is important to have a comprehensive understanding of the size of your potential market, for a number of reasons, including:

  • Having a concrete grasp of your market enables you to explain and sell it to your banker should you need start-up or expansion capital
  • Knowing the market will allow you to make determinations as to whether or not you can justify opening additional offices or locations
  • When you know the size of the market, often you are able to ‘work backwards’ and determine how much of the market your competitors are taking, which in turn gives you goals to shoot for in your growth.

There are a number of ways to determine the size of your market, and you should familiarize yourself with each of them, and select the data you feel is most appropriate for your business.

Resources to Call On

1) Your local chamber of commerce will have a good idea of how many competitors you have in your segment, and their relative size

2) Since you know a good profile of your typical customer, looking at US Census bureau tables will give you good information about the number of potential customers you have in your geographical area;  understanding the average annual expenditures per customer will give you a basis for projecting the size of the market

3) The Small Business Administration has a sub organization called “SCORE,”  Score is an acronym for the Service Corps of Retired Executives.  Volunteers with this agency are matched with businesses that request help, and you may well find a retired senior executive from your segment of business who is likely to be extremely familiar with the size of market in your city or region.

4) Dun & Bradstreet reports have ranges of revenue for businesses.  Although the information is voluntarily submitted by businesses, the raw data at least provides you with a range of the potential size of your market.

Ballparking

For a crude estimate, if you are an existing business, take your gross annual revenue and divide by the number of transactions during the course of a year.  Multiply this by the number you received from the census date. This gives you a rough estimate of the size of your market.

Virtual and actual reality are additional ways to start to get a feel for your market potential.  In the virtual world, follow businesses on Twitter and Facebook;  the comments from customers will give you some ideas of how much customers or clients spend.

If you are competing in retail, get interns from a local college business class to conduct marketing surveys in shopping malls, or on a most elementary basis, simply count the customers that go into one of your competitor’s locations on a daily/weekly basis.  If nothing else, understanding how many customers your largest competitors are garnering will give you a goal to reach for at your location.

What need does your business fulfill?

Market analysis is not about calculating how much money a business needs to survive. Understanding the market is about understanding what does and doesn’t currently exist. Knowing the gaps, and how to benefit a customer, is the key to understanding the market. To this end, demographics are helpful.we understand your needs 300 x 250

Understanding an ideal customer can help determine the perfect selling situation. The perfect selling scenario then allows variable tweaking to find potential weak spots. Perhaps these variables start with mild rejections and questions. Basic hurdles can be added, such as “can you bring down the cost any” and “how is this different from the competition”. Start turning up the heat to make the rejections more and more intense. The hope is that this practice can help a business start moving away from the typical scenario with an ideal customer. The real world is rarely ideal and many customers start as cold leads. Cold leads are those customers who know nothing about the company’s product or service. Nurturing cold leads requires attending to the potential questions they may ask.

Selling isn’t the only focus a company needs to have. Knowing the market also means focusing on customer acquisition. To survive, a business needs to know where the market is thriving. Marketing is a way of probing different areas of the market to see how active they are. Each marketing effort should be focused on the demographics of the ideal customer. Ignore the temptation to expand demographics to survive, instead focus on micro-testing easy wins. After identifying easy wins, then expand demographics. The hope is to ensure marketing efforts are bringing the required return plus more. Many marketing efforts are too broad, making them wasted and weak sources of market information.

Listening to the market is more than just understanding where to find customers. A business needs to build and foster a relationship with loyal customers. Many customers are the first source of ideas and innovation for business. Customers help a business focus on bringing more value for a smaller cost. This extra value increases the leverage a business has in solving a need, hence increasing market share.  Loyal customers not only want a business to survive, but also thrive. Many loyal customers will act as advocates of the product, telling their friends and family. Fostering a relationship with these people should be the primary goal with any business.

In summation:

  • A business serves customer needs, not vise versa
  • Identifying an ideal customer provides a sharper focus
  • Quick micro-testing allows an organization to understand where to spend advertising dollars
  • Customer retention is often more important than customer acquisition

What Makes Your Business Unique?

It’s a fair question.

Every business either stands out from the crowd or gets lost in the multitude of other businesses that are in the same industry or niche.

They are doing the exact same thing.

They’re selling the same product.  They’re offering the same service.

They have the same type of business card with the smiling face of a representative and contact information.

The problem is that most people, representatives and business owners do not put enough time and energy into actually figuring what it is about their service or product that makes them unique.  Even if they do know or discover what it is that makes them stand out from the crowd they usually put very little effort into actually highlighting those differences and using it to their advantage.

The Secret to Business Success

Once you discover and begin to expound upon on what makes your business unique then you have already taken care of a lot of brand identity and marketing issues.

Why is that?

It’s simple, really.  Brand identity and marketing is all about getting the attention of potential customers and then offering them a quality product or service in hopes of keeping their business in the future and then having them recommend you to other people.

Easier said than done.

What Makes Your Business So Special?

Unique Position of Passion and Drive

What makes your business great? Where's the drive come from? Where does the passion and that drive for excellence come from? Not HOW but WHY did it all start? This is your business. Look inwardly at your passions and strengths before drafting any technically written mission statement.

People will be drawn to passion and reputation NOT an “About Us” page. Maybe it's a personal story from a need that you identified that was the catalyst for the product and service.  It’s possible that you’re just the best at what it is that you do and you see it as an obligation to offer it to the world.

Whatever it is, somewhere there’s reason. Everyone has their own story. Tell yours!

Product & Services

Are you offering a product or service that is so different from the competition that it could change the way people look at it? Or, at least make them go “hmm”? Does your product or service extend or build upon an already existing one to the point where it becomes more necessary to have?

If so…tell it!  Announce it.  Offer it.  Give it a way for a bit.  Make.  People.  Understand.

Guarantee

Can you, with a doubt offer, your product or service and know that it will provide the answers or solve the problem that your customer base is looking for?  Are you confident enough to guarantee that?

Ask Your Customers

Your customers know what drew them to you in the first place.  Take a look at which common elements your current clients possess in order to determine what message they and ideals brought them to do business with you.

In the end, the one thing that is going to make or break your business is the quality and usefulness of the product or service you are providing.   Just make sure that you’re doing everything you can to ensure enough people are sampling that great service by keying in and spreading the word about what makes your business unique.

Marketing Metrics that matter

Map and Compass

The beauty of online marketing is that you can track everything.  The problem with the ability to track everything is knowing what to track.

  CFO’s value certain metrics, while marketing executives value a different set of metrics.  There are substantive metrics and then there are those “sexy” measurements that are flashy and look good on paper, but don’t really tell a story.

To satisfy the demands of several departments, the right measurements need to account for all of the costs associated with a campaign.  CFO’s will want to track as much of the costs associated with a campaign as possible.  Things like overhead, salaries and campaign specific expenses help CFO’s determine a projects viability.  For the marketing department, analytics like cost-per-click, cost-per-customer and cost-per-follower provide insight into a campaigns performance.

Choosing between all of the available marketing metrics can be a daunting task, but armed with a better understanding of some of the common measurements will allow you to tell a better story.  Recognizing that different people need different information, here is an in-depth look at a measurement that is easy to understand yet tells a powerful story.

Customer Acquisition Cost

The Customer Acquisition Costs (CAC) is a number that satisfies the CFO’s needs while providing an effective measurement for the sales and marketing department.  In its simplest form you take all the costs associated with acquiring customers during a certain time period, then divide that by the number of new customers acquired during that period.  For example if you spent $1,000 on your sales and marketing department (including promotions, programs and salaries) during the month of June and you acquired ten new customers, the CAC cost would be $100.   You can include as many costs in this measurement as you want, but the main thing is to be consistent and track it over time.

If this cost goes up, you know right where to look to see what is driving it.  If the costs associated with your sales and marketing department are constant, then look at the campaigns you are running to determine the effectiveness of each.  On a smaller scale, you can apply the formula to each of the campaigns that you run—using pro-rated shares of expenses and specific campaign expenses—to determine which campaigns provide the biggest bang for the buck. 

Campaign Analysis

Some useful campaign analysis measurements to help you understand what is happening are:

  1. Cost-Per-Click. According to Google, Cost-Per-Click (CPC) is the amount you earn each time a user clicks on your ad. The CPC for any ad is determined by the advertiser; some advertisers may be willing to pay more per click than others, depending on what they're advertising.  Each click is considered an interaction with a customer—like a customer walking in the front door—and is the beginning of the lead nurturing phase of the customer cycle. Your cost per click is determined a series of variables—competitiveness, quality score and ad rank—and averaged over the life of a campaign.
  2. Cost-Per-Mille.  Cost-Per-Mille (CPM) is also referred to as the Cost-Per-Impression (CPI).  This metric measures the cost associated with a thousand advertising impressions.  This is useful because it allows you to compare costs across mediums.  For example a direct mail piece may cost $500 for 2,000 pieces, resulting in a CPM of $250, whereas a banner ad on a webpage may cost $500 for 200,000 impressions, resulting in a CPM of $2.50 (500/200,000)*1,000.
  3. Cost-Per-Action.  Cost-Per-Action or Cost-Per-Acquisition (CPA) is how much you pay to convert a lead into a sale.  Similar to CPC, CPA requires the lead to take a specific action—fill out a form, buy a product—before a cost is incurred.  Like the CPM metric, you calculate the CPA by dividing the total cost of the campaign and divide it by the number of acquisitions.  For example a campaign that costs $200 and generated 50 acquisitions, results in a CPA of $4.

Marketing metrics are useful tools that allow you to understand what is going on in your marketing department.  Gone are the days when companies blindly spend dollars on expensive television ads and not expect to track and measure the results.  The internet has given us the ability to measure almost every aspect of our marketing efforts, the trick is to be consistent and respond to what the metrics are telling you.  Using the marketing metrics mentioned above will give you the insights you need to make the most of every marketing dollar.

It’s Your Business – Business Terms That You Need to Understand

When you work for yourself, you’ll find that the business world is filled with terms and jargon that you may not fully appreciate. Knowing these terms is essential to understanding business metrics so you can constantly improve upon what you offer, retain your customers and bring in new business.

Must-Know Business Terms for Your Professional VocabularyBusiness man looking at charts 300 wide

  • Business metrics: Business metrics are quantifiable measurements that you compare to established goals or benchmarks and use to track and analyze the performance of an organization or a specific process. Unlike key performance indicators, or KPIs, business metrics track all the areas of an organization instead of critical target areas. An example of business metric includes comparing the number of sales to past performance.

  • Key performance indicators (KPI): KPIs are quantifiable measurements that show the effectiveness of a process as you try to achieve a business goal. Common KPIs include analyzing the growth of the business’ sales revenue or determining the effectiveness of a marketing campaign.
     
  • Cost to acquire customers (CAC): Also called a customer acquisition cost, CAC determines the cost of gaining a new customer. To determine your CAC, add the cost of marketing, sales and related salary and overhead expenses, and divide the total by the number of new customers in a specific period. In addition to learning how much it costs to gain a new customer, you’ll have a better understanding of how CAC fits into your operating budget and how much you can afford to spend.
     
  • Long-term customer value (LTV): Also called the lifetime value of a customer, the LTV is the amount of repeat business you can expect from a customer. Business owners use this metric to determine how much to spend to on CAC. To gain a better understanding of LTV, you must determine how often the customer shops and how much she spends. When you know this, you can decide how to formulate customer retention programs and services.  
     
  • Allowable acquisition cost: Relating to CAC and based on LTV, this is the amount of money you’re willing to spend on every new prospect per campaign. Business owners generally approve allowable acquisition costs as a short-term strategy or if there are cash flow concerns.
     
  • Investment acquisition cost: Relating to CAC and based on LTV, this is the amount of money that you’re willing to spend per prospect even though it will lead to an initial loss. Business owners generally approve investment acquisition costs when they’re part of a long-term strategy and when other resources will absorb the losses.
     
  • Churn rate: The rate in which a business loses customers. A higher church rate signals higher customer losses and lower retention rates, as well as a rising CAC and decline in LTV.
     
  • Unique selling proposition (USP): The USP is what makes your product or service better and different from what the competition offers. You communicate the USP to prospects to encourage them to buy. For example, if you offer HVAC services, you may sell comfort, not necessarily air conditioners. Base your USP on customer behaviors, motivations and buying decisions.
     
  • Buyer persona: A representation of your target consumer or the type of consumer you believe is most interested in your products or services. Create a buyer persona based on factors like the target's gender, age and socioeconomic status.
     
  • Branding: The act of creating a symbol, name, design or slogan that identifies and differentiates your business and products from other businesses their products.
     
  • Brand recognition: The extent to which your target market or the public identifies your brand by its attributes. Brand recognition is successful when target consumers identify a brand with visual cues like slogans, logos or colors.
     
  • Competitive analysis: The process of identifying the competition and evaluating their strategies to learn their strengths and weaknesses as they relate to your own service or product. This analysis is vital to a successful marketing plan and USP. As you evaluate your competitors, learn about their past and current strategies, the platforms they use to market their goods or services, the potential threats they pose to your business and the opportunities they may create.
     
  • Sustainable competitive advantage: A competitive advantage that’s long-term and difficult for competitors to surpass or duplicate.
     
  • Platform: The manner in which your business delivers media content. Examples of platforms include radio and television advertisements, social media posts, websites, blog posts and press releases.
     
  • Revenue percentages: Most businesses have different sources of revenue, unless they only sell one product. Revenue percentages refer to the revenue that each product or service generates for the business. Keeping track of this metric can help you see changes in consumer spending habits and/or market or industry trends.
     
  • Stakeholders: Any group inside or outside of the business that has a stake in its performance. Such groups include employees, customers or clients, the surrounding community and shareholders.