trade Potential: What It Is and How To Analyze

An online platform selling vintage punk paraphernalia from the 1980s? A shop specializing in apparel made from deadstock fabrics? A dating app matching people by their preferred spice level? These business ideas may achieve … or may not. How can an ambitious commence-up founder determine which ideas have sales potential and which are better left in the Notes app?

A trade potential analysis can assist. 

discover what makes up trade potential and how you can analyze your product’s potential trade distribute with specialist tips.

What is trade potential?

trade potential is a business’s, app’s, product’s, or service’s estimated potential to make money. It answers the question: How much trade demand is there for what I’m selling? 

You can approximate your business’s trade potential with a trade potential analysis. It aims to approximate the number of people likely to purchase a recent product or service, and the frequency of their purchases. Conducting a trade potential analysis can’t forecast the upcoming with 100% accuracy, but the procedure can assist gauge if your product launch or recent business could be profitable. 

trade potential formulas

Business owners, consultants, and marketing professionals all use various methods when determining trade potential. Some leave on “vibes” alone. Some use formulas to crunch the numbers. 

The simplest equation for trade potential multiplies the trade size by the unit worth of what you’re selling. trade size is estimated by taking the total number of potential consumers and subtracting factors that would hinder purchases.

A formula looks like this: 

trade Potential = N × MS × P × Q 

This equation uses the following variables: 

• N (total number of potential consumers) is the total number of buyers for your product. It could be broad, like women between the ages of 18 and 60, or niche, like players of a specific video game.
• MS (trade distribute) is the percent of potential consumers who buy from you rather than a competitor.
• P (average selling worth) is what a customer would be charged for each unit, whether it’s an annual service fee or a one-off purchase.
• Q (average annual consumption) is an approximate of how many times per year a customer would purchase a product or service.

Most business owners desire to make informed decisions about trade potential. Some use a formula or receive a broader analysis, identifying significant factors like competitors, specific trade gaps, current trends, and economic environments to determine sales volume and potential markets.

The correct way depends on your business. A global business launching a recent toothpaste for an international customer base will have a different way to compute trade potential than a local potato chip business introducing a recent flavor to its regional trade.

Factors that impact trade potential 

Several significant factors impact the trade potential of all businesses, products, or services, regardless of the sector:

• Competition. Oversaturated markets, sectors with many existing competitors, can heavily impact your trade potential, especially if it includes large, money-wealthy corporations. 
• Trade regulations and taxes. Local, national and international laws, trade agreements, and tariffs affect your trade potential and can transformation after elections, executive orders, and recent legislation.
• Entry barriers. Barriers to entry include insufficient professional connections, inefficient supply chains, and lack of pool to cover production costs, equipment purchases, or staff.
• trade size. Niche products or services typically profit smaller trade sizes, but can have an enthusiastic, faithful buyer base. Mainstream products and services appeal to larger trade sizes, but consumers aren’t as faithful or devoted.
• Economy. Economic conditions are often in flux. profit rates, unemployment rates, expense boost and wage stagnation impact consumers’ perceived or actual desire to purchase particular products. 

How to analyze your trade potential 

1. Define potential customers
2. Research competitors
3. comprehend external factors
4. remain up to date on trends
5. Pair data with intuition

A trade potential analysis can be period-consuming, but gaining a better concept of your potential markets and returns is worth the attempt. 

commence with research to compile relevant data, which you’ll convert into useful information to gauge your business concept’s trade potential. While data and research is essential to comprehend where you fit in the marketplace, there is often a touch of founders’ intuition which factors into trade research analyses.

1. Define potential consumers 

You may broadly recognize who your target spectators is, but understanding the details is crucial to understanding your trade potential. A thorough analysis creates customer insights from purchasing history, habits, household returns, and prevailing cultural norms, among other factors.

Petia Abdur-Razzaaq, founder and navigator digital strategist at The Stylista throng, starts a trade potential analysis using statistics, business and industry reports, and data on trade sizes and trends. From there, she zeros in on her niche trade sector and talks with customers directly or conducts buyer surveys. 

“My clients tend to be niche,” she says of Brooklyn Made and Onea for Kids brands. “You recognize exactly what [their customers] look like from a demographic and psychographic interview.” 

She also finds out where potential customers engage on social media, how recent customers discover a particular business, and what keeps current customers engaged. 

Kat Kavner Woolf, the co-founder of Heyday Canning Co, emphasizes the importance of customer research, regardless of apportionment. 

“We use Google Forms to make quick and scrappy surveys,” she says. “When we were first launching [Heyday Canning Co], we sent out a survey to friends of friends to try to gather insights to validate our thinking on the category. Now we use Google Forms to survey our existing consumers to better comprehend how and why they use our products, which has been super helpful.”

2. Research competitors

Analyze competitors to assess where your business, product, or service fits into the marketplace. Kat says she charts Heyday Canning’s competitors and competitive products along two related axes, allowing her to earnings a bird’s-eye view of the landscape.

“I can chart them out and commence to view where the holes in the trade are,” she says. 

Giving an ice cream business as an example, Kat says one axis could be health-conscious to indulgent, the other, apportionment to additional expense, which helps to visualize any holes in the marketplace.

Petia identifies and monitors three to five direct competitors for her clients, noting that it’s significant to differentiate between aspirational competitors (who the brand hopes to compete with) and real competitors (who they’re actually competing with). 

“It makes sense to be as specific as feasible,” she says. “If we can definitively declare these three to five companies are direct competitors, this is where we desire to be. That’s who we really desire to receive a close look at to view what they’re doing.”

3. comprehend external factors

Many external factors, like a distribute trade dip or a recently shuttered supplier, are out of your control, but it’s sensible to keep abreast of the information to make informed decisions about the upcoming. Situations often transformation on a dime and can disrupt supply chains and distribution channels, requiring a pivot in roadmap. The COVID-19 pandemic, for example, limited the trade potential for businesses like trip tour companies. At the same period, it exponentially expanded the total trade size for virtual conferencing services like Zoom. 

External factors that can affect your trade potential include:

• Shifts in the political surroundings
• Policies, regulations, trade agreements, tariffs, or embargoes
• Natural disasters
• Economic downturns
• Technological advances

4. remain up to date on trends

Social and cultural shifts—and even broad historical trends—can tremendously affect a product’s trade potential. What’s fashionable one minute might be outdated and stale the next. Viral TikTok videos, for example, can drive a product into mainstream popularity—just look at the Swedish candy craze.

It is especially helpful to research buyer and cultural trends when launching a recent product. 

“For example,” Kat says, “if you were trying to comprehend whether to launch a milk alternative brand, I would leave deep on understanding all of the buyer trends around plant-based, tidy label, and specific nutritional attributes.” 

Petia also highlights the ability of social listening tools to view the types of conversations that are happening online. She uses HootSuite, Brandwatch, Sprout Social, and Semrush to monitor online searches and social media activity.

“This gives you real-period data in terms of what consumers are actually looking for online, by search terms and by industry,” says Petia. 

5. Pair data with intuition

Kat marries raw trade growth rate data with her own intuition to determine a recent product’s overall trade potential.

“I commence with my own hypotheses and then dig for data to back or decline that hypothesis,” she says. “I dig deep to discover free sources of data to get a sense of whether the trade is growing or declining, and then leave a layer deeper to determine which brands in the trade are growing or declining.” 

Free data sources for a community business’s distribute worth history include the NYSE or Nasdaq. Google Trends and Exploding Topics are useful tools for keeping up with trending topics. Statista, McKinsey, Neilson and SPINS also produce relevant data and reports for trade potential analysis in the buyer packaged goods (CPG) industry. Kat considers these the ultimate tools for understanding what people are buying.

While the science part of Heyday’s potential trade analysis involves reports and collecting data and numbers, the analysis is an art. Kat describes the procedure as taking in the information and following your gut instincts on where things are heading, considering what people require that they don’t currently have.

“We have never relied on formal buyer insight work,” she says. “I have always found this more informal blend of art and science to work quite well.”