Quantitative Analysis

Besides doing qualitative assessment of prospective markets using PEST and SWOT analysis, it is also important to take a look at quantitative analysis.
 

1) Market size

• Number of potential customers
• Percentage of potential customers with
• purchasing power

2) Market share projection

• Estimated share of the market
• Competitors’ share of the market
• Number of customers you can potentially convert

3) Channel Mix

• Number of direct customers i.e. those serviced by your own sales force
• Number of indirect customers i.e. those serviced by your agents or dealers

4) Revenue projection

• Direct revenue: Sales generated by your own sales force
• Indirect revenue: Sales generated by your agents or dealers

5) Gross profit and gross profit margin projection

• Direct gross profit derived from sales generated by your own sales force
• Indirect gross profit derived from sales generated by your agents/dealers
• See the next section for a guide on working out some of the above figures.

After you have completed both the qualitative (PEST, SWOT Analysis) and quantitative aspects of the market assessment, you will then need to make a decision as to whether the potential of the prospective market appears attractive enough for you to commit resources and venture further.

Download a market assessment template here

Read through the following before using the template. It will help you understand the information required so that you can input the figures to the best of your knowledge. This will in turn help you generate a more accurate analysis of your business venture.

Market share
Make an objective estimate of the number of potential customers in the market and the proportion with sufficient funds to purchase your products.

You may consider utilizing secondary sources in a quantitative process to establish this estimate. Some possible secondary sources include market reports and census data. The total aggregate sales of your competitors may also provide you with a fairly accurate estimate of the total potential market.

Market share projections

Arriving at an estimate of your expected market share as well as your competitors’ market shares can be highly subjective. You need to consider how your distribution, pricing and promotional strategies will fare relative to your competitors. Then factor in the likely conversion of your competitors’ customers into your own.

Channel mix

This refers to the intended proportion of direct customers to indirect customers.

Revenue projection

Work out your projected revenue based on the estimated number of direct and indirect customers and your intended pricing. How you price your product is important because it will have a direct effect on the success of your business. As a basic rule of thumb, you need to make sure that you take in all considerations such as costs, demand, market demands and competitor’s pricing. You should always monitor product utility, longevity, maintenance and demand to adjust prices accordingly.

Gross profit and profit margin

Work out the gross margins both in percentage and absolute dollars generated by your direct and indirect customers.

Tip

Managing your risks
Remember that there will always be risks. Risk free investments are hard to come by. You will need to learn to work within your constraints and limitations. Uncertainties and lack of information will always be a challenge that needs to be managed.

Wherever possible seek advice and guidance from those who have experience operating in the prospective market. First mover and learning curve experience from such firms is always valuable. You will have to learn to take calculated risks. Such experiences will help to build business acumen. Do not be afraid to make mistake but make sure you only make new mistakes each time.

Which pricing strategy fits you best?

Cost-plus pricing is used mainly by manufacturers. This method ensures that all costs are covered and desired profit percentage is attained.

Demand pricing is used by companies that sell their product through various sources. You can price your products differently according to demand.

Competitive pricing is used by companies offering products with little differentiation entering a market with established prices.

Markup pricing is used mainly by retailers. This method determines pricing by adding your desired profit to the cost of the product.