Market capacity – how and why it should be calculated
There is no product that every person needs. This means that the number of theoretically sold goods or services of one type is limite. This is how to easily explain the concept of “market capacity” in a nutshell. We will tell you how to evaluate this parameter and what it will give to a business.
What does market capacity mean?
Market capacity is the amount of product that can be sold over a certain period.
For example, a person has an idea how to build phone number list to open a healthy lunch delivery service. He thinks it’s a relevant business: he and a couple of his friends wouldn’t refuse such a service. There’s nothing similar in the city. A businessman can open a company, invest money and effort. Spend six months to a year on it, but still not break even. Because there are potentially 20-30 customers in the entire city, and the rest of the people cook at home or order pizza. They don’t need healthy lunch delivery.
It will be possible to find out in advance whether a specific product will be purchase under the current conditions. This is what market capacity is measure for.
Why do we conduct a market capacity assessment?
The main goal of calculating market capacity is to see the prospects of the business. This way you can understand whether to invest in the business and how much of the product you will be able to sell.
Market volume is often confuse with capacity, although these concepts are different:
Market size is the actual amount of goods or services that are sold in a limite period of time.
That is, capacity reflects potential, and volume or market size reflects reality. In other words. Capacity is demand, and volume is supply. Sometimes the actual capacity of the market is calle volume.
Objectives of market research:
Attract investment – an assessment of market capacity is include in the presentation for investors;
optimize expenses and investments – what is worth spending money on, and what expenses will not fit into the business plan;
plan production volumes so that there are enough goods, but no excess left.
It is definitely worth making a calculation when expanding a company and when launching a new product. Order marketing research.
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How is market capacity measured?
Depending on the purpose of the calculation. Market capacity is measure in one of two indicators:
Units of product – how much can be sold on the existing market in a certain period. Suitable for businesses with production or purchase of goods.
Revenue – how much money can be made from sales in a certain time. This option is use to assess the profitability of the chosen niche.
When calculating, you need to take into account five important factors. They determine how the market capacity will be measure and how truthful the results will be.
What is important to look at when assessing:
Examples of advanced technologies for business prices – retail or wholesale values should be taken into account, what are the average indicators on the market.
territorial boundaries – the country, city, etc. in which the business will operate;
competing products – a car seller should look not only at them, but also at ground public transport, the metro, taxis, etc.
segments – product for a wide audience or for professional use, individuals or organizations and other parameters.
time – usually a year is taken for calculation, but some find it more convenient to count quarterly or for a longer period.
For B2B and B2C business, the parameters will differ. For example, for B2B, the calculation is base on the wholesale price, and for B2C, on the retail price.
Types of market capacity
In general, market capacity is define in different ways. But three types are considerd classic: potential, actual and available.
