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In this series we have covered the solution your business plan puts forward to solve the customers problem. This idea must now be tested to see whether there are any customers for it and to see how large the available market might be. To the investor, the solution in itself has no value unless it can be realized in the market place.
Ultimately, it will be the industry market size that decides the value of your business to an investor and, as a rule of thumb, the bigger the available market, the better. How to Calculate Market Sizes Before calculating market size we need to look at a couple of definitions.
For a business plan, the available market is defined by two terms, total available market TAM and served available market SAM. This is your target market. Available Market Size Estimation As an example of how to determine market size using made up datasuppose you are in the lawn care business.
You have just started and have one operation but have plans to expand throughout the region into a chain of lawn care centers.
The total available market or TAM is based on the number of properties in the region which use lawn care treatments. The TAM is calculated as follows: TAM defines the maximum size for the market the business operates in.
However, at the moment not all of the TAM are able to use your lawn care service as you only have one lawn care outlet in one town in the region. The market which is able to use your solution is limited to the town, so the serviceable available market or SAM is based on the number of properties with gardens within the town.
Again, Government statistics might show that there are one million properties with gardens in the region, so the SAM is given as follows: The SAM represents Market Size and Growth The investor will also want to know whether this is a growing or declining market.
The market size section of the business plan should also give an indication of the potential for growth over the next five years.
We might be able to find additional market size data which shows that the number of properties with gardens will grow to Market Size Market sizing is an important part of the business plan process.
Busines Plan Template | timberdesignmag.com 2 The target market Who are your competitors? What will be your competitive advantage. The market analysis section of your business plan comes after the products and services section and should provide a detailed overview of the industry you intend to sell your product or service in, including statistics to support your claims. Your growth strategy entails more than just demonstrating how your revenue will grow. The growth strategy section of your business plan is about proving to others that you have a plan for bringing your product to new customers and new markets, and perhaps even introducing new products.
But this is planning not accounting. The market size section is an educated guess at how big the available market for the product is and aims to show that a successful launch and continued growth for the product is possible.
It is based on available statistics and trade association data. A few key points should be remembered when trying to determine market size Start from verifiable and accurate base data.
In the above example, the starting point was a government statistic based on the number of properties with gardens. Double check any information with an alternative source if possible. Check the results make sense.
Check the results using a bottom up calculation.
Keep the industry definition narrow, in this case lawn care treatments. The analysis will differ depending on whether you are dealing with an existing market or a completely new market. For an existing product there will be market and industry data available, for a new product you may need to carry out market size research with potential customers and work upwards from there.
This is part of the financial projections and Contents of a Business Plan Guidea series of posts on what each section of a simple business plan should include.
The next post in this series is about the analysis of the target market for the business plan product.The target market is defined by the customer needs that create the market, the structural forces that govern operation within the market, and the attractiveness of the market based on strategic value, market size, market growth, and potential for profit.
Chapters: Content: App. length pp. Executive Summary: The executive summary is the single, most important part of the business plan. Describe the market → opportunity, your product to harvest the market opportunity, your strategy for addressing and selling to that market, financial results in the first years of operation, long term objectives, and the key personnel.
The business plan market size section can be presented in a number of formats, but a simple column format setting out the TAM and SAM now and in five years time, will allow the investor to quickly ascertain how big the market for the product could be and it prospects for growth over the duration of the business plan.
The market analysis section of your business plan comes after the products and services section and should provide a detailed overview of the industry you intend to sell your product or service in, including statistics to support your claims. Create an investment-worthy business plan with our template builder.
Download into Word or PDF for free. We ask the questions, you fill in the answers. The market analysis section of your business plan comes after the products and services section and should provide a detailed overview of the industry you intend to sell your product or service in, including statistics to support your claims.