The logic you use to assess your market opportunity can have a considerable impact on your estimate of market size. For instance, imagine a company, SafeSeat, that is bringing an infant car seat to market. SafeSeat will be introducing some important new safety and comfort features that they believe will provide a significant competitive advantage. How should SafeSeat go about estimating the size of their market opportunity?

One approach might be for SafeSeat to assume that a certain percentage of all U.S. households with children would purchase their car seat each year. Using recent U.S. Census Bureau statistics they might determine:

• The U.S. population is approximately 294 million.

• Those 294 million people live in 106 million households.

• Of those 106 million households, 75 million have family members living together.

• Of those 75 million family households, 33 million have children under the age of 18.

In their market opportunity assessment, SafeSeat could assume that those 33 million households with children represent their pool of potential customers each year.

But is it realistic to assume that every household with children under 18 might purchase a new car seat every year? SafeSeat might more accurately base their assessment on the annual U.S. birth rate. Approximately 17 million children are born in the U.S. each year. While some families might use the same car seat for subsequent children, safety standards change frequently and many families probably purchase a new car seat with the birth of a new child.

SafeSeat should give similar scrutiny to estimates of annual growth. They might be tempted to use average annual U.S. population growth (about 1%) when determining a rate of growth for their target market. But how much of that annual population growth is a result of immigration? How much can be attributed to a change in birth rate vs. a change in death rate? SafeSeat might be better off looking at the annual rate of change in the U.S. birth rate.

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