When most companies predict their revenue goals, they first calculate their total target market, which is the total market demand for products or services in their industry. In short, this is the maximum revenue a company can generate if it occupies the entire market.

However, unless you are a monopoly, you may not be able to occupy the entire addressable market for your products or services. Even if you have only one competitor, it is still extremely difficult to convince the entire market to buy only your products or services.

This is why it is important to calculate the maximum amount of revenue that can be generated by selling your product or service to customers who will actually benefit from buying your solution.

This potential revenue is called your market size or addressable market that can be served, and you can use it to accurately measure your business growth potential.

## Example of market size

Let us use an example to explore how to determine the market size.

### A start-up wine company

Suppose you want to start your wine company.Here is how you calculate the market size: First, you want to determine how many liquor stores there are in the United States-this will help you calculate the total market you are in Can In theory, sell your products.

After your research, you have determined that there are 50,000 liquor stores in the United States. In this general list, you only want to sell to New England—including Massachusetts, Maine, and Rhode Island.

You determine that your target market includes 1,000 liquor stores in the New England area. From here, you conduct research and talk to wine distributors to determine that the success rate of wine distribution is about 40%.

Using this as an example, we will use the following formula to calculate the market size:

1,000 liquor stores x 40% = 400 liquor stores

Then, if you assume that each liquor store will generate \$20,000, you can use the following formula to calculate potential revenue:

400 liquor stores x \$20,000 = \$8,000,000

This means that if you penetrate 40% of the total market in the New England area, you can earn \$8 million-however, this does not take into account the wines of your competitors, or all other liquors offered by any liquor store. For this reason, you need to be conservative when guessing how much market size you will win.