Dollinger index

Marketing the New Venture 241

association data, census statistics, and chamber of commerce reports are all good sources

of this information.

Next the entrepreneur defines the target or market segment to narrow the total

potential. Defining the trade area and venture reach will focus more tightly. In the case

of an emergency medical center, for example, how far will people drive to the EMC?

Where is the next closest competitor located? Finally, the forecaster estimates market

potential in terms of the number of customers, purchase frequency, and expenditure per

transaction. A little arithmetic—customers x frequency x expenditure per transaction—

will reveal the estimated market potential.

Determine market

potential

Derive sales

requirements

Estimate marketpotential—

1) number of customers

2) purchase frequency

3) total expenditures

Estimate operating

expenses—fixed and

variable costs

Compare market potential

to sales requirements,

factoring in competitive

reactions, market growth,

competitive advantages

Define target market

or segment

Estimate fixed

asset costs

Estimate one-time

start-up

Define trade area

and venture reach

Revise?

Ye s

Sales required:

Investment?

Operating plan?

NO

Prepare forecast

1) optimistic

2) pessimistic

3) most likely

Ye s

Market potential:

Target market?

Trade area?

FIGURE 6.4 Market-Potential/Sales-Requirement Approach

SOURCE: Adapted from K. Marino, Forecasting Sales and Planning Profits (Chicago: Probus, 1984).