Market Value

Market Value

Understanding Market Value

Getting an accurate estimate of your product’s market value is very hard to do, but you should be able to make conservative assumptions about your opportunity. You can use this exercise to assess if your product opportunity is even remotely realistic.

# of Potential Customers

Start by estimating how many potential customers are out there.  You can use industry reports, try to look at competitor sales, and conduct your own suveys to get a better idea. Let’s look at an example for a pet product: There are 48 million dog owners in the US.

Penetration Rate

Then you need to estimate a “penetration rate”. How many of these potential customers actually match up with your user personas and you are able to market to? If every dog owner was the right fit for my product and I could market to them, I’d say the penetration rate is 100%. However because we know that there are different market segments within dog owners, this rate will be much less. Let’s assume a penetration rate of 1%.

Note that penetration rate is extremely hard to assess and you should be conservative in your estimates. Potential investors will want to see a marketing plan for how you will obtain such a penetration rate.

Market Volume

Next you need to determine your market volume. This is a pretty simple calculation, just multiply the number of potential customers by the penetration rate. In our example, 48,000,000 times 1% equals 480,000 dog owners.

Market Value

Last, you can estimate your market value. Start by assigning a monetary value to your product such as a unit price or lifetime subscription amount. Then multiply the market volume by the assigned value to get your market value. In our example, we would multiple 480,000 by $20 to equal a market value of $9,600,000.

Make sure to consider how time will factor into achieving this market value. You won’t achieve this over night, you will likely have to scale your marketing, manufacturing, infrastructure, and customer service efforts which will take time and money.