Estimating Market Share and Sales

After estimating the number of potential target market or segment, the next thing that the entrepreneur should assess is the potential market share he or she can attract. Conservatively, the entrepreneur can go for a small market share unless the entrepreneur has a very superior product or service that can immediately command a large market share.

In a pre-feasibility study, the most important task is to quantify the market potential in a systematic way. The first thing that the entrepreneur must do is to define the market coverage or reach he or she wants to serve. The area could be as big as a country (or even a continent) and as small as a neighborhood. The area would define the total population being targeted. Second, the entrepreneur must determine the broad market segments within this area or total targeted population. In a first level attempt at quantifying the market, the entrepreneur could select such broad categories like gender, age, and income class.

In the assessment of market potential, the entrepreneur should evaluate the relative strength of the various suppliers or competitors in the marketplace by asking the following questions:

  • Who has dominance?
  • Who has greater bargaining power?
  • Which segments of the total market are saturated and over served and which ones are relatively underserved?
  • Are there market segments which are more attractive than others for the entrepreneur, either because of past expertise in the segment or weaker competition in the segment?

The final task of the entrepreneur in this portion of the pre-feasibility study is to determine what slice or share of the targeted market segment he or she wants to carve out. Without a very definite product formulation or service proposition, this requires some “educated guessing” or intuitive insightfulness. Alternatively, the entrepreneur could work out the other portions of the pre-feasibility study first (such as the investment requirements and costs of production) and then ask himself or herself what market would be necessary to earn a decent return on the product or service. Given this market share threshold, the entrepreneur could assess whether this would be achievable based on the study of the market potential. 

Having determined the forecast or derived market share, the entrepreneur should then estimate potential sales. The sales forecast can be computed using the following formula: (Estimated Sales Volume x Estimated Price).