How Local Service Companies Determine the Size of their Local Market

Maverick Steffen - 12/14/2023

If you don't have the need for a versatile online customer mapping tool like Maptive, you will have to use your calculator and Google to determine the size and scope of your local target market.

Market sizing for your local business isn't just an advantage, it's a necessity.

Here's a practical guide to understand your target market's size, focusing on elements like median household income, pricing, and location.

Let's create an example: Meet 'Green Thumb Landscaping,' a hypothetical local lawn care service in Springfield. We'll use their journey to illustrate the steps of effective market sizing.

Step 1: Defining the Service Area Green Thumb operates within a 10-mile radius of Springfield. Using GIS tools, they determine this covers an area of 314 square miles.

Step 2: Analyzing the Population Springfield has a population of 150,000. The population density is thus calculated as 150,000 people / 314 square miles = approximately 478 people per square mile.

Step 3: Identifying the Target Demographic Green Thumb targets homeowners, a segment comprising 60% of Springfield’s population. Therefore, their primary market is 150,000 × 60% = 90,000 potential customers.

Step 4: Income-Based Market Calculation They focus on households earning over $50,000 annually, which makes up 50% of their target demographic. This reduces their addressable market to 90,000 × 50% = 45,000 households.

Step 5: Pricing Considerations Green Thumb's services are priced at a premium, aligning with the spending habits of their target income bracket. Market research supports this pricing strategy.

Step 6: Estimating Market Penetration Rate Considering competition and market demand, Green Thumb estimates a 10% market penetration. Their estimated customer base is thus 45,000 × 10% = 4,500 customers.

Step 7: Total Addressable Market Revenue Calculation With an average transaction value of $100, Green Thumb's TAM Revenue is 4,500 customers × $100 = $450,000.

Step 8: Adjusting for Competitive Factors A SWOT analysis reveals two major competitors, prompting Green Thumb to enhance their unique services and customer experience.

Conclusion: This real-world example demonstrates how a local service company can effectively size its market. By regularly revisiting these steps, Green Thumb, or any service company, can remain agile and responsive to market changes, ensuring sustained growth and market capture.

To your success!

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