How do you tell if your “million dollar idea” isn’t just a $10 idea?
You assess the market potential of your idea. This is probably the most important step any entrepreneur can take to validate their idea because your potential market is basically how much money your product can make.
What does market potential really mean?
Phrases like “product validation” and “potential market” may sound like marketing mumbo jumbo, but they’re really critical for all entrepreneurs.
You don’t want to waste your time researching some pet idea if it’s not going to sell, right? So you need to learn how to look at the people who are buying similar products (your market) and find out how much of their money they would spend on your idea (your potential share of that market). That’s all there is to it.
Sounds easy, right? Of course not! But don’t freak out just yet!
Gauging your Market Potential
Calculating your market potential seems like something a professional would have to do, but you can figure it out by asking the right questions. Let’s break down the various factors that combine to create potential in your market.
Who’s buying my product?
This is the first and most important question, as it shows you the size of your market. While understanding your market is a whole research project in itself, you should be able to pinpoint the general demographics of your intended customers.
Why are they buying it?
This question will tell you the need for your product, or the market need. A market need is pretty much self-explanatory; what need does your product fill? What problem does it solve for consumers?
How often are they buying your product?
What we’re looking for here is whether or not your product will be purchased once or over and over again. This will let you know whether you can expect your product to make money over time or if it will make more at the point of initial sale.
Who else is selling similar products?
This is clearly your competition, which is a pretty obvious thing to understand before you launch your product. You need to know where you’ll fit in with the existing market, and that market is made up of everybody else selling your type of product.
How much are they selling their products for?
Learning your competition’s prices shows you how much consumers in your market are willing to pay. This information can help you set prices later on, but first, it shows you the potential profitability of your product.
How much growth could I expect in this market?
Along with how large your market is, how fast the market is growing will tell you whether it’s better to invest in your idea or move onto the next. It might end up being more profitable to join a growing market than trying to get a piece of a stagnant but larger market.
I’ve answered all these questions, now what?
Even with all the research in the world, there comes a time when you have to just take a leap.
The best way to know if you can sell an item is to actually sell it. If you’ve gone through these questions and decided that you have a good idea, then go for it! Make a few products and shop them around. Go to local events, trade shows, wherever your potential customers will be.
The best way to understand your potential market is to find and talk to your customers!