How to calculate the market potential?
With relation to markets, they have become progressively important as a location condition. For example, according to ‘The Dynamics of Industrial Location’ throughout 1950-1960, maps of market (economic) potential for the US, Europe, and the UK regularly overlapped with maps mapping centers of industrial concentration. ‘Market potential shows the relative demand in places within a given market area, e.g., the US, based on the distribution of people (or regional income in the case of economic potential, or industry sales in the case of industry potential).’
The formula to calculate market potential is:
M Pi= (∑Mj)/(∑Tij)
Where M Pi is market potential at I, Mj is the population or income of j, T is the distance or transportation cost between i and j, where i and j are the places in the system.
If this formula is used on different places around the world, it can be mapped to show where exactly the highest levels of market potential are, and so provide an economic indicator as to where would be a good place to locate. Higher market potential means a greater chance for growth and expansion which relates closely to business success.