One of the challenges growth companies face—whether they look to raise a round of investment capital or still need to assess the viability of the market space—proves to be determining the percentage of market share the business could reasonably obtain based on their marketing spend and the competitiveness of their vertical.
The solution? Market penetration models can help determine what kind of sales an entrepreneur can expect by looking at how much they have to spend on marketing.
No matter if your company finds itself at the concept stage, has just entered the market, or recently has encountered a wave of growth, it becomes crucial to identify the ideal amount to spend for a company of your size and for your phase of development.
The idea of a market penetration analysis centers on creating an S-curve that demonstrates—depending on the size of your marketing spend—the amount of sales you can anticipate. With the tool’s built-in assumptions, you can calculate this by month, by retailer or by other factors key to your business. Here are four key insights entrepreneurs can glean from a market penetration analysis that can illuminate the path to sales success:
1. Understanding How the Competitive Landscape Offers Insights to Market Share & Growth
When conducting a market penetration analysis, you can begin by diving into the competition and determining the various pathways to market. In this early phase, you also can establish the size and parameters of the marketplace, and look for successful competitors.Then, see what competitors’ sales have looked like, as well as their financing structure.
- How have they marketed themselves?
- What do they look like online and on social channels?
- How have they positioned themselves to their consumer base?
Finally, by looking at competitors, you can begin to have a sense of what other businesses have done—not just the successful ones, but also really understanding the businesses in your market space that haven’t succeeded. Who previously tried this approach and what went wrong?
Related Article: How to Stay on Top of a New Competitor
2. Building a Marketing Plan Mapped to Your Capitalization
As you begin to build a marketing plan from the ground up—whether you have $20,000 or $500,000 available—you’ll need to determine your best strategic spend.
What will emerge as the tactic that will reach your prime demographic and have the highest chance of conversion to retail sales?
Whenever we talk to entrepreneurs, they always want to know how to jumpstart sales, as well as how to achieve market growth by increasing sales at particular retail locations. They ask, “How do I get people to come to my stores? How do I grow my business?”
Related Article: Fill It to the Top: Tips to Ensure a Strong Sales Funnel
3. Getting Picked Up by Big Box Retailers for CPG
This becomes a significant issue for entrepreneurs as whether or not Big Box retailers pick up brands after an on-shelf trial can really impact sales growth based on CPG access and availability at retail.
As a result, business owners want to tap into the specific tactics retailers use to drive consumers in store—and need to understand how to leverage social media, as well as how to generate first-person customer reviews on everything from review sites to major platforms of discovery.
In addition, entrepreneurs will need to explore how to lead and grow the SEO impact of blogger content, which offers up a longer shelf life than social media and allows people to discover your business and talk about it in-depth with their communities through personal storytelling.
Related Article: Show Me the Money: How to Turn Site Visitors into Paying Customers
4. Tying Marketing Budgets to Projected Sales
Once you look at all these factors and build a marketing budget (for example, your budget could run from $10,000 to $1,000,000), you can begin to look at potential sales against that spend. You might say, in Year 1 we might only achieve 0.5 percent of this market space but then the marketing S-curve can really predict how many units you will sell at $10,000 and how many you will sell at $1,000,000. We’ve seen that it becomes a powerful predictor, as sales accelerate as the total marketing spend goes up.
Entrepreneurs can use this market penetration analysis both to substantiate their company’s potential and market growth with investors—from seed investors to fairly sophisticated early-stage venture capitalist partners.
Moreover, predicting what to do with growth—both in terms of in-house and externally contracted support. And ultimately result in a very cohesive package that really enables you to understand the growth cycle in Year 1, in Years 1-3, or Years 1-5, so that you can really put some predictability around your growth, around your potential idea and understand how it can likely monetize.
Entrepreneurs experience many unknowns as they launch and ramp up their businesses—but by utilizing a market penetration analysis, they can begin to move toward a more predictable path of sales and growth over time.