How to determine the size of your target market for your business plan-Part II

How to determine the size of your target market for your business plan-Part II

How do you determine the size of your target market if such information is not directly available? Many aspiring business start-ups face this question as they develop their business plans. This article will show you how to determine size of your target market in the absence of direct market information using deductive reasoning and/or calculations.

In my previous post, I discussed the importance of establishing the size of your target for your business plan. Knowing the size of the target market helps you to:

1) Determine your potential revenues from that specific market;

2) Formulate your marketing strategy for that segment; and

3) Enable the potential investor(s) to gauge the size and scalability of the proposed venture.

In that post, I discussed a simple case where information needed to calculate the size of the market is directly provided. With the number of customers given and the amount they spend to purchase a given product/service is known then it is a straightforward matter to calculate the size of your target market as shown below:

Formula_Size of Target Market

Unfortunately, in many practical cases the numbers of customers and/or the amount they spent on your product/service may not be directly available.

Question – How then will you calculate the size of your target market through market research?

Answer – by deductive reasoning and/or deductive calculations.

This is best explained by using an example. Consider the following case study:

Jane lives in a country in East Africa and has a talent for making handcrafted items (especially hand-knit items such as woolen sweaters and blankets). Jane discovers that there are online market places where she can sell her items and she settles on Etsy. Jane wants to prepare a business plan to raise some money to develop her business. Among other specifics she must employ market research to determine the size of her target market. Some specific details concerning her chosen venture include:

Jane’s Business Model: The business will involve creating high quality hand-knit woolen items for children less than 5 years old and selling them through an online shop at Etsy. These will be shipped through a reliable post office service to the customer after an order is made.

Jane’s Target customer: female, aged 25-44 yrs, lives in North America, married or single, has at least 1 child who is not more than 5yrs old; has easy access to internet; earns at least $25,000/year


But during her market research, Jane quickly realizes that Etsy does not provide specific data on how many women buy hand-knit items or how much they spend on the same.

So the question is: How will Jane determine the size of her target market from market research with such little information?

Now to calculate the size of the target market, two things must be established:

1) The number of women who visit Etsy to buy hand-knit items for their children; and

2) How much they spend to buy these particular items


1. Calculation of the number of customers

Jane does some detailed arket research from various sources and summarizes her findings in Table 1:

Criteria of calculations

From this, the number of people who fit the target criteria is established as follows:

No of customers in target market

Thus, there are 63,360 women who fit the desired target customer profile who visit Etsy each month and make actual purchases. But this is just the general number of women who visit the site to make purchases. Jane must somehow find a way of getting the proportion of these women that specifically purchase hand-knit items.

So Jane does some research in the US Census Bureau and finds that households in the United States spend about 10% of their income on clothing. On this basis, Jane makes an assumption that out of the total number of women who visit Etsy to purchase an item, 10% of these will buy clothing items. She further assumes that out of these 10%, 10% will buy hand-knit items (i.e. 10% of 10%). So the actual number of women who can be expected to buy hand-knit items will be:

Total actual no. of target customers

2. Calculation of the total amount spent by customers in the target market

After further research at Etsy (using relevant search criteria), Jane finds that the average unit price of hand-knit items (relevant to her chosen category) is $50.


Final size of target market

3. Establishing the desired market share

With the above figure, Jane can now go ahead and make a statement like “I intend to capture 20% of this market by the 5th year of operations”.

Additionally, she can prepare a graph using excel to show how she intends to build her market share over a 5 year period as follows: (Remember the saying: A picture speaks a thousand words)

Jane_Market Share

Some important notes on calculating the size of the target market

1) Formulate justifiable assumptions. While it is not easy to predict what will happen in future this is definitely not an excuse to make wild guesses or assumptions in your business plan. It is a big mistake to assume that the investor/s will accept with blind faith whatever figures or assumptions that you throw at them. The investor expects that:

-you have done some rigorous market research to establish the size of your target market for your business plan; and that

-any assumptions made are rational and supported by plausible arguments.

It goes without saying that references to your sources of your information should handy just in case you are asked for verification. For instance, the figures obtained in Table 1 are denoted by numbers in superscript (2 to 7). These refer to sources of information that have been used to obtain each figure and can be listed below the Table or somewhere in your Appendix.

2) Demonstrate that you have thought through the process. Your assumptions may not be 100% accurate and your calculation framework may have some minor flaws. But this is not the point – the point here is that the potential investor wants to see that you have thought through the process (as we have done) and taken time to think and work out the numbers – this is what is important. As long as this is evident, then you still stand a good chance of securing funds for your venture.


How to determine the size of your target market for your business plan-Part 1

How to determine the size of your target market for your business plan-Part 1

Establishing the size of your target market in your business plan is vital. Learn how to determine the size of your target market and present this information to investors. Further, the size of the target market is a precursor to establishing your anticipated revenues and/or market share. In this discussion, I assume that you have already identified why your particular target market is attractive to your venture, who your competitors are, and that you have carefully segmented this market (geographically, demographically, etc). If you are unsure about how to segment your market, read this insightful post on market segmentation. This is the first part of a two-part series of blog posts.

Where can you get information pertaining to your target market?


What information is important concerning your target market?

Ultimately, the investor primarily wants to determine the attractiveness of your target market. This includes, but is not limited to:

  1. The size of your target market.
  2. The rate of growth of the target market
  3. The market share that you seek to attain within your target market over time

An example of how to present information pertaining to your target market

The following is an example of how information listed above can be presented. This is taken from a business plan that I wrote some time back (no copyright issues infringed)


As you can see from the snippet above, you will see notice the following:

Simplicity – information is presented in a simple, straightforward manner.

Source of Statistics/Data   – the source of data is mentioned.

Use of the Appendix section  – the description pertaining to the size of your target market should be very short. Extra information is given in the appendix. The appendix section is where you should place information that would otherwise clutter the business plan or obscure the main focus of a point. In fact, the above example only covers about half a page.

Use of diagrams  – ‘pictures speak a thousand words’. The figure shown (Figure 1) clearly shows the reader how ABC Inc projects its market share growth.

Conclusion: Tips and Pointers

  1.  Avoid lengthy prose – Remember that the investor ultimately wants to determine the attractiveness of your proposed target market. Do not make the mistake that many make – writing pages of prose which only serve to obscure the facts. While it is good to provide details, reserve most of the details for the appendix as the example has shown – present only the key facts in the main business plan.
  2. Is the market size readily available or is there a need to calculate? – The particular example given above is a case where, luckily, the size of the target market is given directly from a reliable source. However, in many cases, the size of the target market may not be directly available but must be calculated by deductive reasoning using available information from one or even several sources. I will provide an example of such a case later under this series.

Next from here?? ====> Look out for Part 2 of this series which explains exactly how to calculate the size of your target market together. I will also provide an example.


How to write a good executive summary for your business plan

Your Executive Summary will determine whether investors or financiers will take time to read the rest of your business plan or not. Many times clients ask ‘which is the most important part of a business plan’? I do not hesitate to answer that It is the business plan executive summary. In this post, I will argue why I think the executive summary is the most important chapter of any business plan and then provide a few pointers on how to write a good executive summary for your business plan.

Note: By investors/financiers, I am referring to venture capitalists, angel investors, bank managers, etc.


Create excitement and build interest

Your executive summary must create excitement and build interest – if it fails to do so, investors will stop reading your business plan and will not invest in your business. Take my word for it – a poorly written executive summary may easily cause your business plan to be ‘trashed’ – this may seem cruel considering the fact that you have probably taken considerable time, effort (and even money) to write your plan. Furthermore, your business plan may actually represent a viable business opportunity. There are two probable reasons why this may be so:

  1. Investors are busy people. Venture capitalists for instance, have to read tens of business plans every week. Thus, anything that does not present relevant information quickly and in a clear manner stands to be rejected.
  2. A good manager cannot write in a poor manner. A poorly written business plan including the executive summary is an indication that you are a poor manager – no one wants to invest in a poor manager.


Proposed structure of the business plan executive summary

Thus, it is extremely important to know how to write a good executive summary for your business plan. While there is no standard format for writing the business plan executive summary, there are several pieces of information that must be conveyed to the potential investor/financier.

In describing this information, I will provide a structure that I usually follow:


1st Paragraph ===> Company name, industry, and purpose of business plan

Industry of operation – This will quickly tell the reader what industry you are in. Investors usually prefer to invest in an industry in which they are familiar with or have expertise in. Stating your industry of operation will immediately inform the investor whether this is a venture that they should pursue or not relative to their interests.

Purpose of your business plan – this is a part many forget to mention. Are you seeking equity funding, debt financing? Is it seed capital (a new startup) or for expansion, etc?

2nd Paragraph ===> Establish the compelling benefits of your new product or service

Remember that the investor is a businessperson seeking an appropriate return on their investment. Why is your product superior than those in the market?

3rd Paragraph ===> Establish the size of the target market & strategy of entry

What is the size of the target market? This shows the investor that you have taken time to research your market. What is the strategy that you will employ to enter this market (business model)?

4th Paragraph ===> Details of the management team

Here, specify the talents of the people who will manage the exploitation of the opportunity. What are their qualifications and experience? Remember that the investor is keen to know the people with whom he/she is entrusting their money with.

5th Paragraph ===> Summary of financial forecasts/projections

This should be in summary form. Briefly mention expected sales revenue, cash flow, and profit and loss projections.

6th Paragraph ===> The ‘Ask and the offer’   

This is where you state what you require from the investor and what share of the business you are offering him/her.


Further tips and notes

  1. Continuous revising – considerable effort and time must be spent on the business plan executive summary. The summary is not a ‘static’ document and should be continually ‘tweaked’ in order to make it compelling, concise, and interesting or to present new ideas as they emerge.
  2. Not a ‘cut and paste’ job – the executive summary must not be ‘copy-pasted’ from sections of your business plan otherwise the feeling of déjà vu created when reading the document may lead to a negative assessment of the plan by the reader. Keep the executive summary fresh – avoid repetitive phrases or strings of words that are rather annoying and stale.
  3. Length – from a personal perspective, a 1 page business plan executive summary is ideal. But if it this is not possible, then it should not exceed 2 pages. Many business plan writers will agree with me that achieving a 1 page executive summary is not easy – but is not impossible. It means exercising parsimony and brevity must be. Parsimony in this sense refers to the willingness to avoid using unnecessary words that do not add value to the content of the summary. Brevity, in this context, refers to conciseness – sticking to the use of exact, relevant words only. In other words, your executive summary, just like the rest of your business plan, must be subjected to the painful scalpel of parsimony in order to keep it short and to the point.
How to make sales forecast for your business plan

How to make sales forecast for your business plan

It is good to know how to make sales forecasts for your business plan.  At some point, you will present your business plan to a potential investor/financier. Remember that the investor/financier (venture capitalist, angel investor, bank manager, etc) is probably an experienced investor and will quickly notice any inconsistencies pertaining to how you have come up with sales forecasts for your business plan.

In this post we look at 3 methods of making sales forecasts for your business plan and the merits and demerits of each method. The 3 methods of doing this are: 1) Manual sales forecasts; 2) Automated sales forecasts; and 3) Diffusion curve or sales growth curve.

Please note that these are names that I have chosen to use – these methods may be referred to by other names elsewhere. In this post, I will variously refer to a fictitious company name, ABC Inc.

1. Manual sales projection method

Here, you simply input the number of units that you anticipate to make manually, probably in a spreadsheet such as Microsoft Excel. See the example below:


Table 1_Manual Method of Sales Forecast


Table 1 shows that the units sold are added manually in the respective cells. Note: The cost per unit is assumed to be $200.

Advantages – it is possible to make sales forecasts that match the actual expected situation (the reality on the ground). For instance, ABC Inc feels that due to the nature of their business or due to seasonality, the number of units sold will reduce towards December.  ABC anticipates that sales will start off slow at the start of the year and increase progressively as the year proceeds – this pattern is repeated over the years. Thus, the advantage of manual input of sales forecast is that it allows one to capture seasonality or anticipated changes within the year.

Disadvantages – this method can be tedious. If in future you have to make some changes to your sales forecasts, you have to go back and change figures manually. While this can be done, you will soon realize that making a few changes in one part of the spreadsheet may cause you to make changes to other sales projection figures. In fact, it is not unlikely that you may have to change all your figures across the period of projection. Indeed, this can be quite cumbersome.

2. Automated sales forecasts method

Here, you can use some simple formulas in Excel to make sales forecasts. Table 2 shows how this can be done.


Table 2 – Automated Sales Forecast Method

As Table 2 shows, growth rate can be set in percentage terms from year to year using Excel formula. For this case, I have set it at 100% so that you can see how the sales figures have changed over time.

Please note that this may not represent the actual situation. The reality is that more realistic year-on-year change look like Table 3. Between the 1st and 2nd year, growth may be pronounced as the business grows. The same case may apply between the 2nd and 3rd years. But while overall sales may rise, percentage sales increases may start to decrease between the 3rd and 4th years and 4th and 5th years as competitors increase or as the market saturates.


Table 3-More realistic growth sales growth rates

Advantages – this method allows for fast and easy change to figures. Also, it allows for changes to be made in line with other metrics in the spreadsheet. For instance, you can play around with the year to year percentage increase while looking at how other metrics are changing for instance, the balance sheet, breakeven, etc.

Disadvantages – this method does not capture seasonality within the year (it only captures growth across the years). It assumes that growth is constant, which is not always the case for seasonal businesses.

Diffusion curve or sales growth curve method

Assume ABC Inc wants to enter a market that is growing at 3% per year and the market is worth $6 million. Assume also that ABC intends to capture 20% of this market by the 5th year. In this case ABC has set initial sale amount for the first month to be $20,000. Excel can be used to establish the sales curve – data used to do this is summarized in Table 4. The technicalities of doing this are beyond the scope of this post.


Table 4-Figures used to make the Sales Curve

The result of this is Figure 1, which is the resultant sales curve.


Figure 1-Figures used to make the Sales Curve

Advantages – In my personal opinion, I believe that this is the best method of making sales forecasts. As Figure 1 shows, the sales curve starts from a very low figure, which is very realistic because new businesses usually have low initial sales. I believe that the S-curve nature of the graph is actually what happens. Low sales initially slowly but progressively increase, at some point, sales increase can be quite high (shown by the steep nature of the curve). Unlike what some people may project, any business, no matter how good, cannot continue with steep sales growth indefinitely. At some point, due to market saturation due to competitor activities, amongst other reasons shows that sales will start to plateau off at some point.

Disadvantages – the sales curve method does not still cater for inter year seasonality but this is countered by the realistic nature of the s-curve discussed above.



In this post, we have discussed how to make sales forecasts for your business plan. Trying to suggest that sales will continue to rise in a straight line indefinitely will simply show an investor that you are over zealous. The sales growth curve is discussed above is closer to reality and adopting this method of making sales forecasts shows the investor that you know what you are doing. Making realistic, prudent, and well thought out sales forecasts will take you one step closer to realizing your dream of securing funds for your venture.

I welcome further discussions, insights, and comments regarding the content discussed in this post.


TOWS Matrix – How to write a TOWS Matrix

• Every organisation, like a living organism, is surrounded by its environment through which it survives. The environment is the source of opportunities for any business. For instance, business enterprises rely on satisfied customers to survive through the provision of goods and/or services. However, the same environment is a source of threats for any organisation, for instance, through the entry of new competitors, adverse economic changes, changes in regulations, etc.
• As discussed in one of my previous posts, an organisation’s environment is made up of three layers, a) the macro-environment; b) industry; and c) competitors. Among other tools, the macro-environment can be analysed through the use of PESTEL analysis, which I have discussed in greater detail here.
• However, businesses are not distinguished by their environment, which presents both threats and opportunities, but more by their strategic capabilities. One of the most useful tools for analysing an organisation’s strategic capabilities is the SWOT analysis, which I have also discussed here. SWOT facilitates the development of strategic options which drives an organisation’s strategic path.

Application of The TOWS matrix – TOWS matrix of Domino’s Pizza
• TOWS matrix represents one of the tools that can be used in business strategy to analyse the suitability of strategic options. It is based on a SWOT analysis. If you are an entrepreneur, knowing how to make the TOWS matrix can enable you to develop a set of strategic options which will ensure that your business concentrates on those strategies that shall steer your business to success.
• For instance, looking at figure 1, the top-left quadrant of the TOWS matrix prompts one to think of options that use the strengths of the business to capitalise on the opportunities in the business environment while the bottom- right quadrant prompts the consideration of options that minimise wastes and avoids threats. Figure 1 shows the essential structure of the TOWS matrix.

TOWS matrix

Figure 1 : TOWS Matrix

• In order to understand how to make the TOWS matrix and apply it, I shall use a SWOT analysis of Domino’s Pizza from a 2011 case study in order to learn how to make the TOWS matrix.

Brief overview of Domino’s Pizza
Domino’s Pizza is an international company that specialises in the making and delivery of Pizza in the United States and in more than 65 other countries. A public company headquartered in Michigan, U.S.A, the company is the second largest pizza chain after Pizza Hut in the United States. As at January 2011, Domino’s had 4, 475 domestic franchise stores, 454 company-owned stores in the United States and 4,422 stores worldwide resulting in a total store count of 9, 351 and operates in more than 65 countries in the world.

An example of how to use the TOWS matrix
Step 1 – Prepare a SWOT analysis
Table 1 is a SWOT analysis of Domino’s Pizza following information gathered from the company’s annual report, website and other sources.

SWOT analysis of Domino's Pizza

Step 2 – Use the SWOT analysis to prepare the TOWS matrix
TOWS Matrix of Domino’s Pizza
From the SWOT analysis (Table 1), the TOWS matrix of Domino’s Pizza can now be written. The strategic options are the bulleted points in the pink-shaded quadrants (see Table 2).

TOWS Matrix for Domino's Pizza.JPG

TOW Matrix Template
A template of the TOWS matrix (like the one shown above) is available for download as a Word Document (.doc) here.

For an in-depth discussion of the TOWS matrix see the following:

Weihrich, H, 1982, ‘The TOWS matrix – a tool for situational analysis’, Long Range Planning, pp. 54–66.

Helms, M & Nixon, J 2010, ‘Exploring SWOT analysis – where are we now? A review
of academic research from the last decade’, Journal of Strategy and Management, vol. 3, no.3, pp. 215-251.


Income tax calculator – How to calculate domestic income tax using Microsoft Excel

Microsoft Excel can be used to calculate income tax according to the income tax rates for your respective country. Figure 1 shows the most recent tax rates (2009) as issued by the Kenya Revenue Authority (KRA) domestic tax department.

Figure 1 : Income tax rates – KRA (2009)

KRA tax ratesSource: KRA website

For the purposes of income tax calculations using Microsoft Excel, the information provided in table 1 can be re-framed as follows:

Table 1 : Income tax rates_KRA 2009Income tax table

There are many variations of the formula that can be used to calculate income tax. In order to learn how to calculate income tax using Microsoft Excel, I have prepared a simple formula that can compute tax rates for any amount according to the above given tax rates. From here, kindly click on the link below in order to access the Excel worksheet which I have used to calculate income tax according to the KRA guidelines Income Tax Calculator

I have made additional comments within the worksheet where necessary.

Do you require some assistance in doing some calculations for the financial section of your business plan using Excel? Kindly contact me at
Want general assistance with your business plan? See an example of a business plan I have written according to the Small Business Association (SBA) framework here: Business Plan_iCraftKenya_Written by Alfred Njau_2014_Ver. 1


SWOT Analysis – How to write a SWOT analysis

Background on SWOT analysis
• Knowing how to write a SWOT analysis is an important activity in strategic analysis. An acronym referring to strengths, weaknesses, opportunities, and threats, SWOT is a summary of key issues that emanate from an organisation’s environment and its strategic capabilities which have the highest impact on the development of strategy. SWOT is also a useful guide for generating strategic options and in the assessment of an organisation’s future course of action.
• SWOT analysis is one of the tools employed to analyse an organisation’s strategic capabilities.
• Strategic capability refers to the resources and competencies that an organisation requires in order to continue surviving at the marketplace and to prosper.
• Other tools used to analyse an organisation’s strategic capabilities include value chain and value network analysis, activity mapping, and benchmarking. This article concentrates on SWOT analysis.
Figure 1: Tools for analysing an organisation’s strategic capabilities

Tools for analysing strategic capability

• An organisation’s environment produces both threats and opportunities. However, different companies operating under the same environment have different capabilities. For example, Apple and Techno produce smartphones in the same market but Apple is a superior performer than Techno.
Why this difference? There are three concepts that bring about this kind of differentiation:

  • Organisations are not identical but possess different strategic capabilities.
  • One firm cannot copy another firm’s capabilities, for instance Techno cannot acquire Apple’s management or experience.
  • An organisation might possess a competitive advantage relative to competitors by possessing rare, hard-to-copy capabilities.

• Essentially, SWOT aims at investigating the degree to which strengths and weaknesses are capable of dealing with changes occurring in the business environment.

SWOT usage
In writing a SWOT analysis during strategic analysis, managers usually consider internal strengths and weaknesses at the top row of a 2 x 2 matrix. External threats and opportunities occupy the bottom row of the matrix. Figure 1 shows the 2 x 2 matrix and the general factors that are considered.

Johnson, G, Scholes, K & Whittington, R 2008, Exploring Corporate Strategy: Text and Cases, 8th edn, Pearson Education, Essex.

Helms, M & Nixon, J 2010, ‘Exploring SWOT analysis – where are we now? : A review of academic research from the last decade’, Journal of Strategy and Management, vol. 3, no. 3, pp. 215 – 251.

Table 1: SWOT analysis matrix and sample factors

Sample SWOT


Specific tips on how to write a SWOT analysis during strategic analysis

1. Using an organisation’s latest annual report
From the annual report, the CEO’s opening remarks can give a hint of SWOT factors relevant to the organisation. Taking specific examples;

a) Strengths
• Research initiatives can be judged from the financial section. From here, it is possible to see how much the company has invested in R&D. To be useful, this has to be compared to the industry or to the company’s competitors.
• Organisation resources can also be obtained from the company’s balance sheet (for financial stability) or to ascertain whether the company has allocated enough financial resources for the acquisition of new resources.
• Brand identity can be established from online magazines or newspapers. A company’s brand value can be obtained from rankings of the world’s most valuable brands. For instance, (see discussion on online sources of SWOT factors).
b) Weaknesses
Weaknesses are the converse of strengths. For example;
• Lack of good brand image and/or identity, poor R&D initiatives, lack of skilled workers etc as identified in the strengths.
Note: These are useful if they can be compared to the industry standard or to competitors

c) Opportunities
• Cheap and readily available materials might give a firm a cost advantage. For instance, a steel company such as AcelorMittal might stumble upon several mines rich
in iron ore. This can enable the company to produce large quantities of steel at low energy cost, thus giving the company a cost leadership advantage.
• Demand for goods and/or services represent an opportunity. For instance, there is great demand for Samsung’s new Smartphones, the Samsung Galaxy S4 and now the Samsung Galaxy S5.

d) Threats
Threats can be deduced from the company’s annual report. A company’s Form 10-K usually lists some threats (in the form of risks) which the company faces. This includes:
• Reduced demand for goods due perhaps to changing consumer preferences, technology etc. For example consumer preference of digital cameras is a threat to traditional film-processed camera manufacturers.
• Unfavourable Governmental regulations, legislations, regulators can affect business.
For instance, the market for Personal Navigation Devices (PNDs) manufactured by companies such as TomTom may be adversely affected if governments of countries such as Australia and Canada ban such devices due to the accidents which they are thought to cause. Such issues may be mentioned in a company’s annual report.
2. Use of other sources

Some of the sources mentioned here are also mentioned in this post that I have written discussing on how to write PESTEL analysis.
• To write a SWOT analysis, industry publications and surveys are useful for obtaining additional information. For example, for the airline industry, we have publications such as CAPA, ATW, IATA annual review etc which can be found online. There also exist publications made by national authorities for instance, Indian Aviation Authority (IAA), British Aviation Authority etc. These authorities usually release comprehensive annual surveys or reports.

3. Use of online sources

This post that I have written discusses some aspects mentioned here. Points to note are:
• In writing SWOT analysis, only reputable news sources should be used for example TheGuardian, BusinessReview, and CNN etc.
• When searching, typing a phrase like “Toyota, BusinessReview, research and development” may yield news articles related to the company’s research and development. More articles may obtained by searching within the newspaper/magazine’s search box.
Examples of SWOT analysis – SWOT analysis for EasyJet

Figure 2 shows EasyJet’s SWOT analysis covering the period of 2012:
Figure 2: EasyJet’s SWOT analysis