If you want to sell well or to pitch for funding, you need to forecast your sales well.
It can be especially challenging for any startup or small business owner. This was especially frustrating for me too, because there was no reference which was readily or easily accessible.
Step 1
To start, I learned that to find out what is the sales potential of any business I had to understand which key factors affected how customers purchase from my business.
Do the customers of my business need to visit my store to purchase from my business or can they purchase through the Internet?
These factors are segmented into 2 categories.
- Sales Limited by Geography = Customers needing to visit my store to purchase from my business.
- Sales Not Limited by Geography = Customers are able to purchase through the Internet.
These 2 categories helped to organise a complex problem to become an easily understood 1st step.
Step 2
Lastly, identify customers which would be a good fit for the business and multiply that number by the average value each customer would contribute to the business.
This helps you to form your total Market Size. This tells you the potential sales your business is able to earn.
How does Step 1 help with Step 2? The 2 categories mentioned earlier in Step 1, helps you to identify customers which would be a good fit for the business.
For example,
- You own a cafe located within the city center.
- You know that your customers need to visit the Cafe to purchase from the business. Therefore, the Cafe's sales is limited by Geography.
- You learned that there are 2 office blocks which are within walking distance to your cafe. Within each of these office blocks there are 20 floors which has 1,000 employees.
- If each customer of the Cafe on average spends RM15 each for lunch, this means the total Market Size for the Cafe is RM600,000 per month (RM15 each for lunch x 1,000 employees x 2 office blocks x 20 business-days).
Conclusion
When estimating your own Market Size, consider reflecting your business against Market Size. This will help you to know how much you are currently contributing to the customers around you.
Following the previous example, if your Cafe makes RM30,000 per month this means your Cafe owns 5% of the market (RM30,000 / RM600,000). This to you means, you can focus your efforts knowing which activities are likely to increase your Market Size.
Additional resources:
How to estimate, number of employees in an office building?
- A great way to make an estimate of how many people are within the surrounding buildings of your business is by searching about a building's capacity and current tenancy from popular websites such as iProperty, Propwall, and Propsocial. For 1 employee on average the space allocated is 250sqft. Here's a great article here about space allocation for employees.
- Be sure to reserve 25% of your total office space as open areas for walking and other furnitures.
For example, if on average an office is 3,000sqft - you can safely estimate 9 employees (3,000 sqft x 75% active area after open areas for walking and other furnitures / 250sqft per employee).
How to estimate, number of people in an apartment or home?
- There may be homes surrounding your business too. If you come across advertisements for homes of 800sqft or 1,000sqft, these usually house a family of 4 people.
Focus your efforts to increase your Market Size. Do this through SMS and Email (learn more here), which are cost effective tools to help you reach more customers in your Market.
Separately, learn how a sandwich store employs a tactic to leverage on SMS as a way to promote their business.
