In the realm of business, understanding the market landscape is akin to charting a course through uncharted waters. The Market Sizing Framework Guide serves as your compass, offering invaluable insights and strategies to navigate the intricacies of market analysis. With its guidance, you’ll unveil hidden opportunities and make informed decisions that propel your business to success. So, let’s embark on this journey together and unlock the full potential of your venture!
Note: 🍋 Throughout this guide we will use the example of a food supplement company to better illustrate each task and information.
What is Market Sizing?
Market sizing is a method used by businesses to estimate the total potential revenue or market share for a product or service in a given market.
Three concepts that are typically used to estimate the market size are the TAM, SAM and SOM:
- TAM stands for Total Addressable Market, which is the total revenue opportunity available in a market.
- SAM stands for Serviceable Addressable Market, which is the portion of the market that a company can realistically target with its products or services.
- SOM stands for Serviceable Obtainable Market, which is the portion of the SAM that a company can realistically capture with its products or services.
There are a few different ways to approach market sizing top down and estimate the potential revenue for a new product, depending on the information that is available.
The industry size as a starting point:
One way is to look at the revenue generated by other businesses in your sector or industry and use that as a starting point for your estimates. 🍋For example, if you are trying to estimate the potential revenue for a new food supplement, you can take the total revenues of food supplements in a country market as a basis and start from there.
The potential customer base as a starting point:
Another way to estimate the potential revenue is by using data on the size of the potential customer base, to determine the total number of people who might be interested in buying the product, and use this as a basis for your estimation. 🍋For example, if we are trying to estimate the potential revenues for a food supplement brand, we would take the total number of people who fall into our main target segment (e.g. men and women between 35 and 65) in a country market and start from there.
Whatever method you choose really depends on what type of information you have at hand and is easier for you to acquire. Since you probably already collected some data on your potential customer base during the customer deep dive yesterday, you might go with the second option.
However, below we will take a look at how to estimate your market size step by step.
What are the Benefits of Market Sizing?
Market sizing is a vital exercise as it provides a clear understanding of the revenue potential and market share for your offerings and serves as a make-or-break factor in making informed “go or no-go” decisions for your business model. By accurately estimating the market size, you can make informed decisions, set realistic goals, and tailor your strategies to achieve a sustainable and profitable venture. Properly estimating your market size will help you to gain:
- Decision Clarity: Quantifying market potential empowers you to make informed “go or no-go” decisions, ensuring alignment with a viable and lucrative market for long-term success.
- Investor Appeal: Market sizing enhances investment attractiveness, enabling you to present well-informed cases to potential investors, boosting the startup’s appeal significantly.
- Operational Alignment: Assessing operational viability becomes seamless with market sizing, aligning proposed operations with the size and characteristics of the target market for sustainable product/service delivery.
- Resource Optimization: Knowing the market size aids efficient resource allocation, preventing wastage by directing efforts toward areas promising the highest return on investment.
- Risk Mitigation: Market sizing helps identify and mitigate potential business risks, allowing proactive implementation of strategies against competitive threats, changing market trends, or unforeseen challenges.
- Market SizingInsights from market sizing inform strategic pivots, guiding adjustments in target audience, product features, or exploration of alternative market segments for increased chances of long-term success.
A profound market sizing analysis is crucial for all types of businesses:
- For Entrepreneurs: Market sizing provides the foundation for validating business ideas, guiding investment decisions, and charting a course for sustainable growth in competitive markets.
- For Start-Ups: Accurate market sizing is essential for attracting investors, demonstrating market potential, and aligning business strategies with growth opportunities.
- For Corporates: Market sizing informs strategic planning, product development, and expansion strategies, ensuring alignment with market demand and maximizing revenue potential.
- For Investors: Thorough market sizing enhances investment decision-making, enabling informed assessments of market opportunities, competitive positioning, and potential returns on investment.