When most businesses forecast their revenue goals, they first calculate their total addressable market, which is the total market demand for their industry’s products or services. Put simply, it’s the maximum amount of revenue a business could generate if they captured their entire market.
However, unless you're a monopoly, you most likely can’t capture the total addressable market for your products or services. Even if you only have one competitor, it would still be extremely difficult to convince an entire market to only buy your products or services.
That’s why it’s crucial to calculate the maximum amount of revenue you can possibly generate by selling your products or services to the customers who would realistically benefit from buying your solutions. This amount of potential revenue is called your market size or serviceable addressable market, and you can use it to accurately measure your business’ potential for growth.
Market Size
Your market size, or serviceable addressable market, is the maximum amount of revenue you can possibly generate by selling your products or services to the potential customers who would realistically benefit from buying your solutions. This metric helps you accurately measure your business’ potential for growth.
How to Calculate Market Size
- Count up all the potential customers that would be a good fit for your business.
- Multiply that number by the average annual revenue of these types of customers in your market.
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