Marketing and sales on a napkin. Part 1: Market capacity: how to assess the potential and profitability of a business?

Marketing and sales on a napkin. Part 1: Market capacity: how to assess the potential and profitability of a business?

In very simple terms

What is the difference between marketing and sales? Marketing is like fishing: you prepare the bait, choose a place to fish, cast a line and wait ?. Sales is about hooking a fish: when it bites, you act actively to pull it out. Marketing prepares the soil, and sales harvests the crop.

Marketing covers a broader concept, while sales is an integral part of it.

Market capacity: how to assess the potential and profitability of a business?

Market capacity is the total volume of goods or services that consumers are willing to buy over a certain period of time. It is a key indicator for any business, as it helps to assess growth potential and determine market share.

Why is it important to estimate market size?

• It helps to create realistic business plans and set goals.
• Attracts investors by demonstrating potential profitability.
• It helps to assess competitiveness and develop an effective marketing strategy.
• Identifies opportunities for business expansion into new markets.

How to estimate market size?

Estimating market size can be a challenging task, but it is necessary. There are several methods for this:

1️⃣ “Bottom up”

• Determining the total number of potential customers.
• Estimating the average consumption per customer.
• Calculation of the total sales volume.

2️⃣ “Top to bottom”

• Analyse data on the total market size.
• Determine your market share based on competitive analysis.

3️⃣ Combining method

• Combining methods to get a more accurate estimate.

Estimating market size is not an exact science, but rather an attempt to predict the future. Therefore, you should regularly review your forecasts and adapt your business model to market changes.

Target audience: why do we need a customer profile?

There are two ways to describe future customers: by using criteria or by creating an image of a specific person.

How to calculate the market segment for a home appliance repair service centre?

• Number of service centres (in the city): 20 service centres
• Average cost of one repair: 2500 UAH
• Number of working days per month: 21
• Number of masters, on average: 3
• Number of repairs per day per 1 master, on average: 4

Calculations:

Market capacity per month:

(2500UAH×3craftsmen×4repairs per day)×21days×20centres=(2500×3×4)×21×20=30,000UAH×21×20=630,000UAH×20=12,600,000UAH

Market capacity per year:

UAH 12,600,000×12=UAH 151,200,000

Results:

Market capacity per month: UAH 12,600,000
Market capacity per year: 151,200,000 UAH

These calculations help to estimate the potential income from the home appliance repair market in the city, which is an important part of marketing analysis and strategy planning.

And that’s not all! There are many more interesting calculations waiting for you to help you better understand the market, assess your capabilities, and plan your business effectively. Understanding economic indicators, identifying potential customers, and analysing competitors will enable you to take a favourable position in the market and ensure the sustainable growth of your business.

Calculating market share using the example of a service centre for the repair of small household appliances

Why are we considering this type of business? You might assume that opening a service centre is a simple matter: rent a room, hire a few technicians, and you’re done. But in reality, it is a rather complicated business.

1. The first thing you need to know is the number of competitors. It’s a big mistake to think that there are few of them. For example, we want to open a service centre in a big city. We also need to take into account the neighbouring towns that are easily accessible, as there may be potential competitors there as well. We open a search engine and see that there are about 20 service centres in the desired location.
2. At the next stage, we determine what model the business operates under. We have an agency model, so we expect the service centre to keep the bulk of the revenue. Then we observe: pretending to be a client, we talk to service centre managers and find out how much they earn per repair. In our case, the average cost of a repair is UAH 2,500.
3. Now for the simple arithmetic: there are 20 service centres in the location, each office has an average of 3 technicians, each performs 4 repairs per day, and there are 21 working days in a month.

We get:

(2500 UAH×3 craftsmen×4 repairs per day)×21 days×20 centres=(2500×3×4)×21×20=30,000 UAH×21×20=630,000 UAH×20=12,600,000 UAH per month

Market capacity per year:

UAH 12,600,000 × 12 = UAH 151,200,000

We don’t know if this is too much or too little until we know how our estimated revenue is related to the revenue of the 20 service centres. For example, we want to earn UAH 100,000 with planned expenses of UAH 150,000.

→ Revenue (expenses + profit) = UAH 250,000.

→ Revenue per year (×12) = UAH 3,000,000.

→ Market frequency = (3,000,000 / 151,200,000) × 100 = 1.98%.

? If you get more than 1% during the calculation, keep in mind that it will be difficult to recoup costs and work out the minimum profit. The higher the percentage of market presence, the more aggressively competitors will react.

Target audience: why do we need a customer profile?

There are two ways to describe future customers: by using criteria or by creating an image of a specific person.

Method 1.
Describe the criteria

For example, you are planning to open a service centre office in a new shopping centre in a residential area. Who will be the potential customers?

→ Gender: female and male.

→ Age: 30-55 years old.

→ Social status:

• average income level
• owners of household appliances
• live in an apartment or house

→ Place of residence: within a radius of 1-2 km from the shopping centre.

To attract customers, you can use promoters who distribute leaflets at the entrance to the shopping centre or at the supermarket checkout. This will help to collect contact details of potential customers and form a base for further work.

Method 2.
Describe a real person

To implement this approach, we need social media because it contains a lot of reliable information: people are willing to talk about themselves.

Let’s look at a real-life example: I entered a popular first and last name into the search bar, set the relevant criteria (place of residence and age), and selected one person at random. In the social media profile, you can find the necessary information to describe a specific person who will become a hypothetical client portrait.

We use real data and combine it with our imagination. We use bold to highlight the points of contact: where we can cross paths with a potential client.

For example, we know that Marina takes her children to school, so we can place an advert on the school noticeboard. You can learn more about ways to contact customers in Igor Mann’s book Marketing Without a Budget.

Creating a customer profile helps you better understand your potential customers, their needs and behavioural characteristics. This allows you to develop more effective marketing strategies, choose the right communication channels, and create relevant offers that attract the attention of your target audience.

We’ve looked at how to create a detailed portrait of our ideal customer. But how do we create truly touching and memorable stories? I’ve hidden the answers to these questions in the second part of our article, so stay tuned! ?