Here are some ideas on how you might define your markets:

• By geography. If you are planning to sell only in one or more geographic regions (they could be cities, states or countries), and then later expand to other regions, you might find it helpful to define your markets to be names of those regions.
• By distribution or sales channel. If you are planning to sell some products using in-house sales, some products using a reseller or distributor or wholesaler, you might find it helpful to define your markets to be names of those channels.
• By marketing technique. If you are planning to make customers aware of products using a variety of techniques such as website, direct mail, telesales, pay-per-click web advertising, and so on, you might find it helpful to define your markets to be names of those techniques.
• By demographic. For your business, you might find it helpful to define your markets as children, double income no kids (aka DINKs), single income no kids (SINKs), zero income no kids (OINKs), retired, and so on.
• By size of purchase. For your business, you might find it helpful to define your markets as small purchasers, medium purchasers, and large purchasers.
• By class of user. In some businesses, a product may produce multiple income streams from multiple classes of users. For example, a company with a product that helps high school athletes find the perfect college to attend might find it useful to define its markets as students, parents, and coaches.

As a guideline for the sake of planning, define something as a unique market only if (a) its pricing will be different than for other markets, (b) you will be selling different products to this market than to other markets, (c) you will be using a different commission structure for this market than for other markets, (d) you will be entering this market in a different timeframe than other markets, or (e) you want to track the financial performance of this market independently from other markets.

Once you make the above decision, you still have a big choice about how large an umbrella you want to place over each of your markets. For example, let's say you have an innovative, but exclusive, approach to wedding photography. You could define your market to be the number of marriages in the United States: 2,000,000+. That's okay, but then you should expect very small market penetration numbers. Another possibility is to define your market as the number of actual wedding ceremonies in the United States that spend over $50,000 for the event. Now, your market penetration numbers are going to be a lot higher. Yet another possibility is to plan to grow your business regionally. Let's say you are physically located in Denver. Then you can define your first market to be the number of actual wedding ceremonies in the greater Denver metropolitan area that spend over $50,000. Now your penetration numbers could be quite high. Then you define your second market to be, say, Colorado; and then your third to be the Rocky Mountain region, always targeting the high-end only.

Bottom line is there is nothing magical about defining your markets. You can define them any way you want. The narrower you define them, the more focused your marketing can be (and thus the higher your close rate), and the higher you should expect your market penetration numbers to be.

Also, as a general rule of thumb, a company should focus on just one market at a time.

Related Questions:

How do I change the markets I'm selling to?

Which do I define first? Products? Markets? Prices? Or my sales technique?