Market Potential

Posted in Marketing and Strategy Terms, Total Reads: 10836

Definition: Market Potential

Market potential is the valuation of the sales revenue from all the supplying channels in a market. Market potential is the population that is interested in the product/ service that is being made or offered by an organization. In other words, market potential is the potential money making capability of a firm if it capitalizes all advantages and everything goes its way.


Importance of Market Potential

It is very important for a new business to know and determine the market potential of the product of service being offered. If the market potential is very low then there is no point spending a lot of money on the product. One of the most important aspects of market potential is the amount of business a product can generate in future as compared to today. Companies can also evaluate the market share of companies in the market. The most relevant question is the target market growing for the offering. Market potential helps business plan better and launch their products and services with better preparation. Depending upon the overall market potential, companies can identify the sales potential, or the amount of sales they would be doing in that identified market.


Determination of Market Potential

It is a subset of the total population, where market potential is the population, all of whom can be potential consumers of the product or service. Market potential is the maximum population which would be interested in the product / service, and gives a good insight on the growth possibility as well.

Total market potential can be calculated in terms of units or money.


Factors for calculating Market Potential

There are various factors which are important for knowing the actual market potential:

1. Total Size of the Market : This means the total value of customers or clients for the particular offering. higher the number better it is.

2. Return on Investment : This would mean is the market profitable to invest in? A market which would give a good return on the costs incurred would only lead to good business today as well as in future.

3. Growth Rate of the Market : A target market may be good today in terms of size and ROI but is it going to be rising in future as well? Hence the growth rate and trends are very important for determining the market potential

Market Potential

4. Category Competition : How many and how big are the competitors for our product/service?

5. Entry Barriers : Are there any real barriers to entry into the existing market? e.g. Very high licence cost can be an issue

6. Political Environment : In international markets, the political environment forms a very important factor in determining the market potential.

7. Internal Environment : Overall the market potential may be very good but the question arises that are we strong enough to compete in the market with suitable offering, cost, competition.

Hence, this concludes the definition of Market Potential along with its overview.

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