How to Determine Your Market Size

Here's how to use the top-down or bottom up approach to determine your market size.

July 25, 2017 Marketing Tips

How to Determine Your Market Size

If you’re writing your marketing plan, one of the elements that a standard marketing plan asks for is your market size.

Understanding the size of your market gives you important information that can help you:

  • Gauge your existing market share by comparing total spending or total units sold to your metrics
  • Understand how effectively you can compete in the market
  • Quantify future growth opportunity
  • Determine if you should enter the market (if it’s new)

It’s also important if you’re a startup seeking funding or launching a new product or service. If this is the case, start by creating a detailed target customer profile. To whom are you selling? What does a typical customer look like?

You may also want to define your market segments to see if you should determine your market size for your submarkets. Think about what your target customers have in common. If you’re B2B, think in terms of company size, annual revenue, number of employees, etc. If you’re B2C, evaluate the demographics. This will help you to group your market into segments or personas.

Market Size Option 1: Purchase It

While some industries publish detailed market size data, most don’t (or it’s very expensive). If you have the budget, then this is the fastest way to complete this task. Search for industry-specific firms, or review available reports at a site like MarketResearch.com.

Market Size Option 2: Outsource It

If you can’t find it directly for sale, you can hire a market research firm to determine your market size for you.

Here are some examples of market research firms listed in the GreenBook Research Industry Trends report:

Market Size Option 3: Estimate It

If you don’t have the ability to hire a market research firm to analyze a new market or your existing market, you’ll need to complete the work with your internal resources and reports.

Gather as much market numerical data as you can find — industry reports, external market data and your own experience with the market. Most companies have a few people on staff who have a good understanding of the total market size, so make sure to get their opinion while conducting your research.

Start by estimating the total number of potential customers in your market. This number may be difficult to estimate if you’re in an early-stage growth market. If you’re in a mature market without room for growth, it will simply be the total number of unit sales in the existing market.

Since it’s unlikely you’ll find a single source that provides the exact unit sales and total revenue for your market in your geography, you might have to piece together different sources of information from different time periods and locations.

If you’re pressed for time, you can always estimate and iterate as you gather more data. For example, if you sell 10,000 units per year in your market, and you estimate that you own 5% of that market, a solid starting estimate is that your market has 200,000 potential customers (10,000 / .05). This is a top-down approach.

Or, if you’re able to find the unit sales for your product or service in another geography, say Canada for example (and your market is the United States), you can also extrapolate:

  • 1,000,000 sales in Canada
  • 321 million people in United States / 35 million people in Canada = 9.17
  • 1,000,000 * 9.17 = 9,170,000

Then estimate the total annual sales (revenue) for the product or service in your market. For example, if you sell a red widget, what is the total spending on red widgets in your market each year? A B2B example would be that there was $4.5 billion of sales of CRM software in the U.S., in 2016. A B2C example would be that there was $750 million of sales of hiking boots in the U.K. in 2015.

You can also use the bottom-up approach, which is calculated by taking the number of potential customers in the market and multiplying it by the average selling price of the product or service sold to these customers. For example, if a market has 50,000 potential customers for a $1,000 per unit you can estimate that the total market is $50,000,000.

After you have your market size estimates, you may wish to complete your demographic or qualitative market research and perform a competitive analysis. These step-by-step plans can help:

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