Does Market Size Really Matter ?
A lot of people wonder why market sizing is important. Just in case, you don’t, market size means the estimation of the potential of a product or service in a market. It helps to estimate the total market, your potential market share, and the revenue that can be generated from the sales of the products or services.
Knowing your market size is an important component of any strategic marketing plan. Determining the size of your target market allows you to review opportunities, plan marketing budgets correctly, and understand the level of growth you’ll need to achieve your business goals.
Similar to market sizing is market projection. While market sizing is about product knowledge and market penetration, market projection, also called market predictions, is about predicting sales or using business numbers to derive insights on market value, market analysis, future predictions and growth.
Every business owner engages in market sizing, whether they like it or not, this is why in this article, I have examined the ‘how-tos’ of market sizing. Before we get into all the details let’s start with three basic market definition questions:
1. Who’s the buyer?
2. Who’s the user? (yes, it can be different from the buyer)
3. What is the scope of my market (geographically and/or demographically)?
The top-down method
This method is a simple method, but the accuracy is not as reliable because it is based on assumptions. With top-down market sizing, you obtain an overall size of a market that includes your market (but probably more), then you apply filters to more closely estimate your specific market.
One way to begin is to do a Google search on the market. You may want to begin by searching for the total addressable market (also called total available market), or TAM.
From there, you can make some assumptions and carve out the serviceable available market (SAM) and serviceable obtainable market (SOM).
The bottom-up method
This method is not as simple as the first. This method is time-consuming because you will have to review your searches carefully. The results you get from this method are more realistic than the top-bottom…