Predicting revenue growth in a new export market
An important aspect when planning a new market entry is to estimate the revenue that you can expect in the first years when entering a new country.
I would only recommend starting with exports if you already have proven your offering in your home market, where it is the easiest to sell. That also means that you already should have some data about your sales process, which you can use in predicting take-up in a new market.
Methods on market sizing
There are various methods for examining the relevant market size for your product or service in a country. Such an estimate can be based on market size data, buyer interviews and competitor analysis.
Top-down
A ‘Top-down’ marketing exercise starts from statistics, reports, and other recent studies. From here, your company can plan strategies to penetrate the market. The question is whether detailed data for your specific sector are available.
Bottom-up
The ‘Bottom-up’ approach begins from the direct feedback of the buyers and distributors, interviews from other thriving businesses and personal interaction with suppliers. However, some companies may not appear on directories and there is always the issue of individual cultural bias among customers.
Open sources
Another technique for market sizing involves adding the sales of other companies that thrive within the market. Building a big picture allows you to see the flow of competition, at the same time improve your marketing strategy. Please note that not all companies publicly post these data.
The market size formula
The methodology below helps you to estimate your margin potential in a new market. Answer each question as good as you can, using the previous results
| Question | Answer | Reference |
|---|---|---|
| What is a reference group that you know the size of (e.g. population, number of businesses etc)? | A | |
| What percentage of this group could be a user of your services? | B | |
| How often would they buy your product per year (if less than once a year, the figure will be a fraction) | C | |
| Total available market | D=AxBxC | |
| What percentage of the available market uses an alternative? | E | |
| What percentage of the market can’t afford the product? | F | |
| Total served market | G=Dx(1-E-F) | |
| What is the market share of the biggest player in the market? | H | |
| What is your current market share in your home market? | I | |
| Expected market share in the new market in the next few years | J < H and I | |
| Expected volume in the new market | K=GxJ | |
| What is the average spending per customer/purchase? | L | |
| Expected turnover in the new market | M=KxL | |
| What percentage of gross margin do you make on your products? | N | |
| What percentage do you expect to spend on sales, commissions or distribution costs | O | |
| Expected yearly additional margin in the new market | P=Mx(N-O) |
Compare with your current market
One of the best ways is compare relevant market size of the country where you want to go with the current country or countries you are active in.
- Look at your market share in your home country
- Look at comparable competitors in the target country: what market share do they have
- Estimate the time to build a similar distribution structure or to achieve such a structure through collaboration. Take into account whether your product is really different or better.
- Calculate your growth path for the first few years. Do this in a spreadsheet so you can easily change things.
- Decide what other factors will influence your share: will thing go quicker if you have the right distributor. Or will that distributor also sell competing products?
Use our expertise in estimating your new market
No one better than international marketing and partnership specialist Alfred Griffioen can advise you on a strategy to enter the market and estimate a realistic growth path.
In case you are active in multiple markets
In case you already have a sales force or distributors in multiple countries for a longer time, you can plot their year-on-year growth in a graph.
Of course you have to correct the turnover for the size of the market they are serving and the competition intensity of the market. Once you do that, you can calculate an average growth path.
Once you have a new country and a distribution channel in mind, you can make predictions how quickly turnover in that country may pick up. It also gives you the opportunity to compare your existing distributors against that curve, to see whether they are doing a good job.
In a consultation I can check with your what data is available or how you can obtain it, so that you can build a predictive model.
Key elements for estimating market size
If you make plans for a new market, think about all the effort that you had to put in to grow sales in your home country. You are now more experienced and your product and delivery process may be better, but there are also disadvantages:
- you may not know the new market as well as your home market;
- there may be cultural and language barriers to overcome;
- in every new market, you have to build brand knowledge from scratch.
