Marketing Plan Writing

What is a market forecast?

written by Tim Berry of Palo Alto Software


A market forecast is a core component of a market analysis. It projects the future numbers, characteristics, and trends in your target market. A standard analysis shows the projected number of potential customers divided into segments.

This example of a simple market forecast defines two target market segments and projects the potential customers in each of those segments by years, for five years.

Market size forecast

In the market forecast, the example numbers indicate that there are 25,000 home offices included in the market, and that number is growing at an estimated five percent per year. There are also 10,000 small businesses in the area, and that number is growing at five percent per year.

These numbers are estimates. Nobody really knows, but we all make educated guesses. The developers of the plan researched the market as well as they could and then estimated populations of target users in their area and the annual growth rates for each.

You can use your market forecast numbers to draw a chart of projected market growth, like the one shown here below. It offers a visual view of the market forecast.

Market value
Normally you would also look at market value, not just market size. For example, although the high-end home segment is 2.5 times larger than the small business segment as measured by number of customers, the small business customer spends almost four times as much as the home office customer. Therefore, the small business market is a more important market in terms of dollar value.

The important numbers in this table are the average purchase per customer and the market value.

  • Average purchase per customer is an educated guess based on experience. Sales managers got together to make the estimate. Although they would have liked some external source of information to use for this, there was none available. Notice that the home office customer tends to purchase much less overall than the small business customer.
  • The market value is simple mathematics. Multiply the number of potential customers in the market by the average purchase per customer. In this case they took the average number of customers in each segment over the five-year forecast period, and multiplied that by the average purchase per customer, to calculate the market value.

The other items in this table are subjective qualities that help with marketing. The planners assign these points to people charged with preparing marketing materials.

Reality checks
A market forecast should always be subject to a reality check. When you think you have a forecast, you need to find a way to check it for reality. In this case if the total market is worth some estimate, you could estimate sales of all the competitors and see if the two numbers relate to each other. In an international market, you might check production and import and export figures to see whether your estimates for annual shipments appear to be in the same general range as published figures. You might check with vendors who sold products to this market in some given year to see whether their results check with your forecast. You might look for macro-economic data to confirm the relative size of this market compared to other markets with similar characteristics.

Review target focus
The market analysis should lead to developing strategic market focus. That means selecting the key target markets. This is the critical foundation of strategy. We talk about it as segmentation and positioning.

Under normal circumstances, no company will attempt to address all the segments in a market. As you select target segments, think about the inherent market differences, keys to success, competitive advantage, and strengths and weaknesses of your company. You want to focus on the best market, but the best one is not necessarily the largest one or the one with the highest growth. It will be the one that matches your own company profile.

Tim Berry

about the author

Tim Berry

Founder and President of Palo Alto Software and a renowned planning expert. He is listed in the index of "Fire in the Valley", by Swaine and Freiberger, the history of the personal computer industry. Tim contributes regularly to the bplans blog, the as well as his own blog, Planning, Startups, Stories. His full biography is available at Follow Tim onGoogle +


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sandile August 20, 2009 at 9:17 am

Thanks for your powerful tool! God Bless

One Love March 25, 2010 at 10:59 am

thanks for this, really changed my view on things in a whole

Rabbi January 5, 2011 at 1:16 pm

Marketing is in FACT fan, prediction, and it's all about the way you look at things. How deep you analyse them

jackline moraa okari March 17, 2011 at 4:56 am

A businness is all about "MARKET " without which there is no business hence needs proper control and management ability.

Andiswa May 7, 2011 at 1:50 pm

Thank you,you make marketng easy for us keep on@doing good work

kajila sakuhuka May 9, 2011 at 4:37 am

hi there!firstly would like to thank you for the good guidelines on how one can create a market plan.i was confused but after reading your pages i have a million of ways how to get started and put one in one.keep up the good work.God bless

Muhammad Haris April 29, 2012 at 5:29 am

Thanks for the good suggestions. please send if there is a perfumes business, how it would be effective? Best Regards'

raj September 14, 2012 at 5:32 am

hi Thank you thi is vary useful and powreful

Jose udeme March 9, 2013 at 12:56 am

Whao! Nice one to start with.

Mario Lopez March 11, 2013 at 10:14 am

Thank you, Good article, easy to understand, but difficult to execute, with so many unknowns. Mario

hawkins kalambo June 5, 2013 at 12:59 am

thank for your research forcast

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