What Are The 4 Kinds Of Business Size – Determining your total market size is crucial to fully understanding your business and industry. Although many business owners desire to market to everyone, there is always a select group of individuals who are the core group of customers. Businesses that know their target market and overall market size can segment their audience, make informed investment decisions, and increase their chances of converting customers into true brand ambassadors and unpaid spokespersons for your brand.
The total market potential is the largest area of the four levels. This is where you need to start out with the total population first before you start to slope downward.
What Are The 4 Kinds Of Business Size
Example: You are starting a brand of lipstick for women. You sell your lipstick for $20 a unit. Research and learn that there are 3.8 billion women in the world. The target market potential is 3.8 billion women x $20 = $76 billion.
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The second level is the Total Available Market or TAM. This step focuses on your earning potential based on the number of customers in your predefined target area.
Definition: The total potential revenue for your product or service or the total demand for your product or service. Provides an overview of income opportunities
Pro tip: Use this to prioritize trading opportunities based on market potential. TAM provides a more realistic view of your market than the total market potential
How to Calculate: Total Addressable Market = (Average Number of Opportunities x Average Selling Price for a Product/Service Segment) x Total Number of Customers for the Target Market Segment
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Example: You want to sell your lipstick brand in retail locations in the United States, you calculate that there are 160 million women in the United States and you think you can sell at least one product 100%. You still sell your lipsticks for $20 apiece. Your total available market is (160 million US women x 100%) x $20 per unit = $3.2 billion.
The third level is Service Available Market or SAM. SAM also reduces TAM by segmenting into sub-markets or segments based on availability and propensity to buy.
Definition: The potential sales value of a specific market segment over a specific period of time for a specific product/service. SAM segments TAM into sub-markets, taking into account differences in quality or price, as well as geographical, cultural or regulatory considerations.
How to Calculate: Market Served = (Average Number of Opportunities x Average Selling Price of a Product/Service Segment) x Potential Customers in a Segmented Target Market
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Example: You just segmented your target market, and research has found that 10 million college-aged women, ages 18-24, living in urban areas of the United States would be most valuable to your business. You think you can get 50% of these college-aged women to buy your product. Still selling lipsticks for $20 a piece. The market available to serve you is (10 million women x 50%) x $20 per segment = $100 million.
The fourth and final level is the serviceable market, or SOM. SOM is the amount of market segment you can achieve based on more realistic targeting efforts. There are different account options for SOM. For example, if you had a full year of business sales, you could take your market share from last year and double that year’s Serviceable Market (SAM). However, for new businesses with no historical sales or existing businesses with low market share, market share or penetration expectations must be taken into account. Below we describe a sound methodology for calculating new and existing SOM for all companies.
Definition: The size of the market that your business is realistically targeting. These factors in the competitive environment and the resources available to your business.
Pro tip: If you’re already in business, review historical sales performance records to help set sales forecast goals. If you are just starting out, select sub-markets by geography or market conditions where you think you can generate sales faster.
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Example: You want your new lipstick brand to target college-aged women who live in urban areas of the United States, and you think New York City will be your primary market. Through research, you will find that there are a million women who fit this demographic criteria. In addition, 80% of college-age women wear makeup and lipstick in particular. You can apply this percentage to the segmented market figure (1 million women x 80% = 800,000 women). They think they can catch 20 percent of these women. You’re still selling your lipstick for $20 apiece. Your service market is (1 million women x 80%) x 20% penetration x $20 per episode = $3.2 million.
These four distinct phases are essential for business owners and managers to understand. Total market potential Total market size includes whether or not anyone can obtain your product or service. TAM (Total Available Market) is the first step in including your target market and allows you to narrow down your total market potential. The third level, SAM, is a service market and creates subcategories for TAM to further segment to provide insight into market opportunities. The final step is the SOM, which helps the company compare its standing to its competitors and helps define a strategy to improve your position in your industry. Together, each of these elements can help a company make better business and investment decisions and help you better understand your specific business. What it is: Business volume is the size of a company’s operations. It can be measured by many indicators including assets, revenue, production, market value, number of employees and invested capital.
The amount of work matters. It may affect the competitiveness of the company. For example, large companies have significant resources to support competitiveness. In addition, they benefit from economies of scale not available in smaller companies. As a result, they enjoy lower costs while increasing their productivity.
Number of employees – how many people the company employs. The reason large companies hire more employees than small companies is because they operate on a larger scale.
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Revenue – the amount of money earned by selling goods or providing services. An alternative is to use a sales volume metric.
Yield – the amount of production that is generated. This indicator is not suitable for service companies because their products cannot be considered manufacturers.
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Amount of Capital Invested – The amount of capital held by the company. It is often positively associated with existing resources. For example, equity capital may refer to the sum of equity capital and debt capital. Alternatively, we can refer to physical capital such as property, plant and equipment.
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Market value – what is the total value of the shares issued by the company. This only applies to public companies whose shares are publicly traded and listed on the stock exchange.
The rating may vary between institutions and countries. Each organization has different categories and definitions. Some may use it as a basis for categorizing the number of employees. Others may use turnover or income. For example, in Indonesia, the Central Statistical Agency classifies companies as:
Large companies have a lot of capital and resources to grow. As a result, they have a better economy, which allows them to be more productive. Greater resources support a stronger market position and greater bargaining power with customers and suppliers.
Big business provides much of the production and jobs to the economy. If they move the financial industry, their impact on the economy is greater.
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Take banks, for example. As they grow, they become strategists of the economy. In their role as lenders, they play an important role in moving the economy. For this reason, if a large bank fails, it can destabilize the economy. As a result, governments issue cash only to prevent major bank failures.
In addition, stakeholders often consider business size when making economic decisions about the company. Here are some examples:
Customers often view large companies in a positive light. Big companies look to high quality to protect their reputation and image. On the one hand, companies do not want to tarnish their reputation, so they think about maintaining quality. If they have higher economies of scale, they are more likely to offer lower prices.
When allocating an investment to a company’s equity or company’s debt, investors take into account the size of the business. They can perceive large companies as safer, because they have large resources, which allows them to have competitive strength and the ability to make large sums of money.
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Employees feel more comfortable working for big companies.
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