Addressable Market
1: Definition
The size of that portion of the market that is likely to have an interest in what your business has to offer. The larger your potential market, the better the opportunity. The larger the market, the easier it will be for you to enter the market and carve out a sufficient amount of business in order to have a viable enterprise.
2: Example
To determine the addressable market size for a lawn mowing business that serves homeowners in your home town, start with the number of single family homes in your hometown (the best source is probably the number of dwellings from the local tax rolls) and multiply that times the percentage of homeowners that are likely to hire someone to mow their lawn (if you don't know simply perform a quick survey of 25 random homeowners) and multiply that times the average price per mowing (if you don't know the price, call up two or three other lawn mowing services and ask them their price for an average size yard) and multiply that times the average number of mowings per year. To complete the example, lets drop in some numbers:
- Number of single family homes = 10,000
- Percent that are likely to hiring out mowing = 25%
- Average price per mowing = $30
- Average # of mowings per year = 40
- Addressable market size = 10,000 X 0.25 X $30 X 40 = $3.0 million
3: Measures
For purposes of this analysis, the addressable market size is stated in dollars per year and is measured on a scale from "very small" to "very large".
4: Tips
When considering the addressable market size for your potential venture, consider the following items:
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The overall market size based upon industry reports from industry trade organizations, government industry data or public company annual reports
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Industry trade organizations:
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Government industry data
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Public company annual reports
- The size of the market segment for that portion of customers that are most likely to buy your product or service
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- Demographic data
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- Income & consumer spending data
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- The size of the market geography you are ready, willing and able to serve
- The average price for your product or service
- For new product or service ideas, survey potential customers for additional data not readily available
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