How does market research help determine what is market size?

Before a business can thrive, it must first know the size of the opportunity. Understanding market size is the foundation for growth, investment, and long-term success.

By accurately measuring market potential, organisations can uncover how many customers they might reach, how much revenue they could unlock, and what realistic share of the total market they can claim.

In this article, we explore how market research allows us to determine market size, why it is such an important metric for companies of every scale, and the proven methods used to achieve accurate market sizing.

What is market size in business?

Market size refers to the total number of people or businesses that could buy a product or service in a specific market. Knowing the market size before launching something new is important for any organization or small business to ensure it can reach the right audience.

Professionals in areas like marketing, sales, and business consulting often use market sizing when planning, and investors usually want to see this analysis before supporting a new venture. Doing this research also shows that your goals and plans are backed by evidence.

Market sizing is essentially an estimate of how many people might use a product or service and how big your brand’s potential reach could be. To work this out, businesses usually look at three key measures:

• Units: The total number of products or customers in the market
• Value: The overall worth of products or customers in the market
• Market share: The portion of sales or customers a particular business captures

At its simplest, market size is the total number of people who could buy your product or service. It’s an important figure that shows the amount of opportunity in a market.

A common mistake is to assume market size is the same as the total population of a country or region. But just because a place has many people doesn’t mean it’s the right market. Going after a big market without the right customers can waste money. Often, a smaller market with genuinely interested buyers is a smarter option.

As Alexa puts it, market size is “the number of individuals in a certain market segment who are potential buyers.” In practice, it usually comes down to two things:

• The number of potential customers or sales in a set time (often a year), or
• The total revenue your business could realistically earn in that period.

How is total market volume defined?

Total market volume is the aggregate demand for a product or service across the entire market. It represents the total customers available, calculated through the number of potential customers multiplied by their average revenue contribution.

For instance, if 1 million potential customers in a city spend S$80 monthly on online groceries, the total revenue generated in that market segment is S$960 million annually. Such market size calculations guide business planning and help leaders identify the most profitable opportunities.

What key indicators are used to define market size?

The main indicators that define market size include:

• Number of potential customers – the estimated total customers in the target audience
• Average revenue per buyer – based on historical sales data or industry benchmarks
• Market value – the total revenue the entire market generates in a year
• Industry trends – emerging demand, technological adoption, or policy shifts
• Potential demand in each particular market segment

By combining these factors, businesses can more accurately determine market size. Singapore’s Enterprise Singapore guides new business owners on identifying market opportunities and measuring potential demand before scaling operations.

Why is market size important for companies?

Market size is an important metric because it allows businesses to evaluate their market potential, assess risks, and allocate resources strategically. Companies risk overestimating potential revenue or underestimating competition without understanding the target market size.

How does market size influence investment decisions?

Market size influences investment decisions because it indicates how much revenue a company can capture. Investors look for evidence of a large potential market size and clear access to a viable Serviceable Obtainable Market (SOM).

For example, a new business pitching to venture capitalists is often asked for its total addressable market and expected market share. These figures reassure investors that the opportunity is scalable and worth the financial backing.

How does market size guide resource allocation?

Market size calculations guide resource allocation by helping companies decide where to deploy capital, staff, and marketing spend. By knowing the target market, firms can:

• Focus sales on the most profitable market segment.
• Scale production in line with potential demand.
• Adjust pricing to reflect average value and market potential.

This ensures resources are invested in areas with the strongest returns instead of indiscriminately spreading them across the entire market.

Looking at sales or service volumes helps businesses plan more wisely. By tracking demand, companies can adjust stock, staffing, and marketing so they don’t overspend or underprepare.

How does market size support strategic planning?

Market research and estimating market size support strategic planning by enabling leaders to forecast growth, refine the value proposition, and design long-term business strategies.

For example, companies exploring a new market can use bottom-up and top-down market sizing to forecast sales scenarios. This ensures that business planning is realistic, evidence-based, and adaptable to industry trends.

How can market size be applied in real-world examples?

Understanding market size becomes more practical when applied to specific industries. Businesses can use market size calculations to determine the number of potential customers, the average revenue they may generate, and the realistic share of the total market they can capture.

What is an example of market size in the restaurant industry?

The restaurant industry defines its market size by calculating the number of diners and their average spending. For example, Singapore’s household expenditure data shows significant monthly spending on food services.

A new café could determine market size by multiplying the number of potential customers (diners in its target market) by the average revenue per visit. If 50,000 people in a neighbourhood spend an average of S$25 per meal, the potential revenue for that particular market segment could be S$1.25 million monthly. This insight allows restaurateurs to assess market potential and forecast growth.

What is an example of market size in online retail?

In online retail, estimating market size involves identifying the total addressable market of digital shoppers and their potential demand for products. Singapore’s Digital Economy Report highlights that e-commerce sales are growing steadily year-on-year.

An online clothing retailer can apply a bottom-up approach by examining historical sales data, customer buying frequency, and customer demographics. For example, if 200,000 target customers purchase clothing online and each spends S$200 annually, the total revenue generated could reach S$40 million.

This method provides a realistic picture of potential market size and helps guide business strategies in digital channels.

What are the methods to estimate market size?

Businesses have multiple market-sizing approach options available. Each method offers different perspectives on how much revenue can be earned from a given market.

What is the top-down approach in market sizing?

The top-down approach begins by examining the entire or total addressable market, then narrowing down to the serviceable available market and finally the Serviceable Obtainable Market (SOM).

For example, a company may start with Singapore’s total revenue generated in the consumer electronics industry and reduce it to the proportion relevant to its target audience.

While this top-down method is quick, it often lacks accurate market sizing because it assumes a business can capture a certain percentage without considering competition or real-world limitations.

What is the bottom-up approach in market sizing?

The bottom-up approach focuses on actual target customers and their purchasing behaviour. Businesses calculate the number of potential customers and multiply it by their average spending value.

For example, if you’re selling a software product, determine how many businesses in your target industry might need it and how much revenue you could earn from each one.

This approach gives you a clear and realistic picture of your market potential based on actual data and real market conditions.

Another example is if you sell B2B software that is best suited to mid-sized companies. You’d determine how many such firms exist in your sector, how many employees they typically have, and how many are likely to use your software.

When should businesses use hybrid or value-theory methods?

Businesses should use hybrid or value-theory methods when entering a new market with limited historical sales data. The hybrid market sizing approach combines top-down and bottom-up techniques, balancing broad estimates and real-world figures.

The value-theory method, meanwhile, focuses on the product or service’s value proposition. For instance, if a new eco-friendly water bottle saves customers S$120 annually, the potential demand can be estimated by multiplying the savings by the number of potential customers.

What is the difference between market size and market share?

The difference between market size and market share lies in scope. Market size measures the total potential customers, total revenue, and market potential in a given market, while market share reflects the portion of that entire market a business captures.

For example, if the total addressable market for online groceries in Singapore is S$1.3 billion and a company’s revenue is S$65 million, its market share is 5%. In short, market size defines the opportunity, and market share shows the achievement within that opportunity.

FAQs

Market sizing often raises common questions, especially for business leaders and entrepreneurs exploring new opportunities. Below, we address some of the most frequently asked questions to help clarify how market research supports accurate and effective market sizing.

1. What is the most accurate way to determine market size?

The most accurate way to determine market size is to combine top-down market sizing with bottom-up market sizing. The top-down approach helps establish the broader total addressable market, while the bottom-up approach uses historical sales data and customer demographics for precise forecasts.

This balanced market sizing approach ensures businesses avoid overestimating potential revenue. Government sources such as Enterprise Singapore recommend combining market research, industry trends, and customer surveys to achieve accurate market sizing for established companies and new business ventures.

2. When should a new business conduct market sizing?

A new business should conduct market size calculations at the start of its business planning process. Identifying the target market size early helps entrepreneurs validate their idea, estimate potential demand, and set realistic revenue expectations.

According to Startup SG, founders are encouraged to gather data on their target customers, analyse Serviceable Obtainable Market (SOM), and use market research to build strong business strategies before pitching to investors. This reduces risk and improves decision-making.

3. Why do investors ask for market size in pitch decks?

Investors ask for market size in pitch decks because it demonstrates the scale of the opportunity and how much revenue could be captured. They want to clearly outline the Total Addressable Market (TAM), Serviceable Addressable Market (SAM), and Serviceable Obtainable Market (SOM).

A large potential market size signals growth potential, while a well-defined market segment reassures investors of practical execution. Without this data, it isn't easy to prove scalability or justify valuations, so market research and size calculations are vital for fundraising.

Conclusion

Understanding market size gives businesses the clarity they need to identify opportunities, manage risks, and plan for sustainable growth. With solid market research, companies can accurately estimate demand, define their target audience, and make confident decisions about where to focus their efforts.

Milieu is one of the leading online survey software providers and market research agencies in Singapore, helping businesses thrive in a data-driven world. By delivering timely, data-backed insights that capture the real voices of today’s consumers, we make it easier for companies to approach market sizing with confidence and precision.

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