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How Big is Your Marketing Area?


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When I do marketing work for clients, they are normally businesses that got up and running before the foundation was laid.  Meaning they started dotting the neighborhood with signs, grinding out door hangers, or setting up a Facebook page.   All of which is understandable, they are trying to drum up business.  But, what happens is this and this is why they contact me.  They aren’t getting the results they want.

Marketing is one of the trickiest areas of your business.  You can run Craigslist ads and get work.  You can pass out flyers and get work.  There are a number of ways to get business.  But, if you want to grow, really be one of the top 3 or even number 1 in your marketing area.  You need to do it the right way.

Here is why most don’t reach the goals they want.  They don’t have, or follow a process.

They started advertising before they measured the potential market.  This is an important step and to really grow, you need to understand what is out there for you to get.

So before you start or continue with what you are doing, read below.  It may save you time, money and your business.

Need Some help figuring out your marketing area? Fill out the form and help is on the way.

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Know the problem you are solving

The starting point for estimating the market size is to understand the problem you solve for customers and the potential value your product generates for them.

Exercise: Estimating market size

This exercise consists of five steps to help you estimate the total market potential for your service.

Step 1. Define your target customer

All businesses must define their target customer.

Your target customer equals the person or company for whom your service solves a specific problem. To define your target customers, you must:

  1. Determine who your target customer is.
  2. Create a profile of your typical/expected target customer.

Given the importance of defining your target customer, it is crucial to set aside enough time to do a proper analysis of this first step.

This process evolves as you are running your business.  It is something that should be monitored often.

Step 2. Estimate the number of target customers

Estimate the total number of target customers in the market—companies who have a profile similar to that of your target customer.

You can use industry databases such as those offered by Statistics US Local, U.S. Bureau of Economic Analysis, ETC. to help you quantify your market.


Step 3. Determine your penetration rate

Refine your market size by assuming a penetration rate for your category of service. The penetration rate is a function of the nature of your service. Assume a high penetration rate if your category of service is mission-critical or mandated through regulation; (A H.O.A. request for property cleaning as an example) assume a low penetration rate for a service with a specialized purpose (A monthly pool cleaning service for an example).

“Not everyone is your customer.”  

This is where you say to yourself, how many homes in this development would use my service.


Step 4. Calculate the potential market size: Volume and value

Market volume

To find the overall market potential (that is, the potential market volume), multiply your number of target customers by the penetration rate (see steps 2 and 3 above).

Market volume = Number of target customers × Penetration rate


Case study: As an example, where the number of target customers is 1,000 and the penetration rate is assumed to be 10%, the potential market volume would be calculated as follows:

1,000 homes x 10% = 100 homes

Market value

To calculate the monetary value of the market, multiply the market volume by your average value (that is, price expectations).

Market value = Market volume × Average value

Case study: We assume each sale to a homeowner will yield an average value of $2000. To find the market value, we calculate the following:

100 homes x $ 2,000 = $ 200,000


5. Apply the market-size data

Following these steps to estimate your market size (value) is by no means an exact science. Still, there are ways to maximize the effectiveness of this exercise:

  • At the time you make your first estimate, examine each assumption you do and what would cause it to change. To factor in the risks of change, calculate best-case and worst-case scenarios in addition to your expected scenario.
  • Over time, monitor the accuracy of your initial assumptions and whether you need to modify them.

Case study: “Chuck in a Truck” or the “$99 guy”  shows up in your marketing area.  This will affect you in two ways. One, they could steal some customers or drive down your estimated value.

Note: This exercise aims at estimating the total market potential for your service. It is important for businesses to recognize that both early adopters and laggards are included in those numbers. While early adopters will likely be your customers soon after they see your offer, the laggards may not enter the market until much later, sometimes years.


Closing Thoughts:

In reading this, you can see how important it is to know your market size and value.  If a development of 1000 homes has a value of $200,000 in two years,  wouldn’t it be worth it to spend $5,000 over that same time period?

Most businesses shotgun gun market.  Trying to hit everyone in their area.  But, by taking the time to understand your marketing area, measure it and see its true value, you stop wasting time and money which could cost you your business.

This is the heavy lifting that the successful businesses do.  If you don’t, you are relying on luck.

So, how lucky do you feel?


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