Calculating market potential: A step-by-step plan for B2B companies
You can only spend each pound in the marketing and sales budget once. That’s why it’s important to get the most out of your budget. You do this by targeting companies that give you the highest chance of success. But without a crystal ball, how do you know which companies will become clients? It’s very simple: by calculating the market potential and then carrying out a market analysis, so you know how large the market is and which customer groups give you the biggest chance of succeeding. By carrying out this analysis before allocating your marketing and sales budget, you can significantly increase the ROI for campaigns. In this blog you’ll find a step-by-step plan for calculating market potential and what to do with this information to acquire insight into client groups and high potential turnover.
Calculating market potential: what is it?
But before we move on to the actual calculation: what does calculating market potential involve exactly? Simply put, when ‘calculating market potential’ you examine exactly which companies in the market are already your clients and which percentage is not. This makes clear which companies could purchase your product or service, but are not yet clients.
However, for many companies, this results in a group of thousands of companies; an outcome which doesn’t offer much insight. As such, it’s important to then carry out a market analysis and identify client groups with the highest potential within your potential market. These can be business sectors in which you have a high market share, but could also be companies of a certain size from which you derive a lot of revenue or companies in a certain region where you’re already well-represented.
You then calculate (see step-by-step plan below) how much turnover you can achieve within the total potential market.
Why is it important to calculate market potential?
As long as you don’t know which sectors offer you the greatest chances of success, the allocation of your marketing and sales budget remains a gamble. By calculating market potential and then setting up a market analysis:
- You get the most from your marketing and sales budget.
- You have a greater chance of conversion and a higher profit margin.
- You make more targeted, better choices which you can furthermore substantiate.
But how does one do this exactly? That brings us to the next paragraph...
Step 1. calculating market potential: analysing your clients
In order to acquire insight into your market potential, you first look at your own customer base. In which segments are you well-represented? For example, if you already have 50% of the healthcare institutions in your portfolio, you’re more likely to attract more healthcare institutions than a segment in which you have no clients. Criteria examined during this analysis are:
1. Revenue: from which client groups do you derive the most revenue?
2. Sectors/industry: in which sectors/industries are my clients active
3. Size: how big are my clients?
4. Legal form: within which legal form am I well-represented?
5. Region: Within which region am I well-represented?
Now that it’s clear within which client segments you’re well-represented, you examine what the median revenue per client group is. The median revenue provides a more realistic outcome than average revenue because the median revenue doesn’t accord as much weight to outliers and as such doesn’t skew the revenue picture.
Step 2. calculating market potential: comparing to the market
You then examine what your market share is within a certain group. You simply add up the number of customers you have in a certain segment, study how many of these companies exist in your market (for example the Netherlands) and calculate the percentage.
It’s important to take this step: sometimes the number of customers alone can paint a skewed picture. It could be the case that you have a lot of construction companies in your portfolio, but only a few energy companies. However, your market share in the energy market could be much higher because there are simply fewer energy companies.
The figures about the size of a market can be found in publicly accessible sources. If you cannot find this information, you can also turn to a corporate information specialist like Graydon.
Step 3. calculating market potential: revenue of focus segments
On the basis of step 1 and 2 you can now look for client segments which offer the great chance of conversion (where you’re already well-represented) and the greatest potential (where there’s still room in the market).
By multiplying the number of companies that are not yet customers in a certain segment by the median revenue within this segment, you can very precisely calculate the market potential on the basis of revenue.
So for example: you’re well-represented among construction companies in the North Holland region, of which there are 100. You have a market share of 40% and a median revenue of 80,000 per year. There are another 60 construction companies in the region which aren’t clients yet. So your potential revenue is 60 * 80,000 = 4,800,000
You repeat this calculation for different segments. You then compare these results so you can determine which segments have the most potential and priority.
Step 4. calculating market potential: collecting valuable leads
Now that it’s clear which segments deserve your attention and what kind of revenue you can expect from them, you have to look for these valuable companies in order to set up campaigns. You can often find companies through search engines. But if you only want to target companies which are financially stable and growing significantly, it’s a good idea to find leads using Graydon Market Information. This doesn’t only show you the contact details of companies in a certain segment. It also shows you these companies’ scores:
- Their financial health
- Whether they pay their bills on time
- The chance that they will grow
Would you like more information about market potential analysis?
Would you like to gain insight into your position in the market and the trends within this market? What does your customer base look like and what are your growth opportunities? We can help you with this. Graydon Market Analysis is carried out on the basis of customer data and the Graydon database, which results in a unique analysis. Request more information with no obligation now.