This examined the effect of innovation on the market potential of microentrepreneurs of Carmelado in Masbate by the calendar year 2025. The study utilized a quantitative-descriptive correlational design to gathered data through a validated, researcher-made questionnaire from 46 microentrepreneurs. The innovation measurement included product development, packaging and labelling, marketing and promotion, and distribution channels. At the same time, the market potential indicators were sales growth, profit margin, return on investment (ROI), and market share expansion. Descriptive statistics and Pearson correlation were the tools used to analyze the data. The findings indicate that the level of innovation adoption by Carmelado microentrepreneurs varies from moderate to high. In particular, packaging and labelling (M = 3.58) and marketing and promotion (M = 3.54) are the areas where the most innovation has been implemented. Market potential, on the other hand, was mostly rated as high, especially in market share expansion (M = 3.69) and sales growth (M = 3.48). The correlation analysis showed that the relationships between the innovation dimensions and the market potential indicators were all positive and significant. It was the relationship between marketing and promotion and sales growth that was the strongest (r = .655, p < .01). ROI showed the least significant impact as a result of the limited financial monitoring and investment evaluation practices. Consequently, based on these findings, a Strategic Innovation Plan was developed to strengthen innovation capabilities, improve product quality and branding, enhance distribution systems, expand digital and tourism-based markets, and improve financial management. These results confirm that innovation serves as a critical driver of competitiveness, sustainability, and market expansion among rural, culturally rooted microenterprises like Carmelado producers in Masbate.