Our market size? Hmmm. Well, it’s pretty big, but exactly how big I’m not sure.
Whether a £1m turnover business is based on one customer spending £1m a year or 1m customers spending £1 a year, estimating market size is a no-brainer for developing any startup business.
Market size is also vital for pitch decks, most likely referred to as TAM (Total Addressable Market).
We can think broadly about i) how many customers buy are ‘in’ market and ii) how much they collectively spend, and how often.
My advice would be to start with finding data that already exists and is freely available online. Depending on what business you’re in, there may be a lot of free, up-to-date data or there may be very little but it’s a good place to start.
Try: Google search – Statista – Census data – Industry reports – Market research.
Showing your working is a good idea for extra marks 😉 If it’s a brand new market then drawing comparisons to existing markets might be useful.
The internet advises calculating market size with things like ‘top down’ or ‘bottom up’ approaches. I think this over complicates what should be a fairly simple calculation. Simple so that it can be understood by others (team, stakeholders, investors) with well thought-through assumptions and no wild guesstimates. You might need to be creative in the way you put your TAM together but be realistic in your thinking.
If you’ve exhausted what data and information already exists but you’re no closer to a rigorous estimation of market size then you might consider collecting fresh data.
Well-worded survey questions to understand the number of people who have ever bought, how often they buy and how much they spend might work well. Placing these questions on an omnibus survey (where you can buy single questions) is likely to be most cost effective (each question for around £250-£300). I would very happily give you some advice about using an omnibus survey, just drop me a line and we can have a chat.
If it’s a B2B market. running a survey with a big enough sample is going to be more expensive because B2B participants are harder to get hold of. B2B omnibus surveys do exist, but questions can be more like £1,000-£1,500 each.
Once you have Total addressable market (TAM) you may wish to complete the trilogy with SAM (Serviceable Addressable Market) and SOM (Serviceable Obtainable Market) which are both more about the % of TAM that you can realistically service and obtain, bearing in mind factors like geography, resources, competitor market share and marketing spend. These calculations are less about finding or buying market data, more about your internal limiting factors so something to figure out with your team.
Want to chat more about market-sizing? Get in touch, I’d love to help.