What is Market Sizing, and how to do it?

This article is called what is market sizing, and how to do it? We discuss what it is, why you need it and how to attempt it.

What Is Market Sizing?

Market sizing is the estimated number of potential buyers within a given market. And the entire sales they may generate.

Where to start

Whenever you look to enter a new market. Or launch a new product or understand your market better. Go for funding one of the critical areas you will need to understand is how big your market is. And how you compare. Very important when putting their plans together. Marketing Directors need to know where they are going to market their product. And then determine how they are going to get there. The market size is an essential aspect of any strategic planning. Understanding your potential and current market size will assist answering questions like:

• Is the market big enough for us to bother?
• Is the market going in the right direction?
• Should we invest time and resources into this product/market?
• What level of investment should go into this market?
• How fast is the market growing?
• Is there sufficient profit in the market?

It would help if you looked at the competition you would face. Their profit margins and how much return you can get from the effort. Knowing the size of the market will not help you take advantage of it, but at least you will see if it’s worth the effort.

Why would they buy from you?

To get there, it’s wise for a marketing director to understand why people would buy your products. And why they wouldn’t, how the supply chain will work and whom to target once you launch.

Importantly, you need to determine how quickly you need the information. Which means how much detail you need to decide. Because it’s a subjective exercise, it’s challenging to get an accurate market assessment. So expect a well-analysed figure to have an accuracy to between 15 to 20%.

Speed

It could be the case that you need a finger in the air estimate of the market size. You know (or think you know) the market size can’t be any lower than £70m, but it’s no way over £150m. So the answer would be between £70m and £150m. This broad exercise may not be efficient unless you are just doing a preliminary market scan. You will need further examination.

Accuracy

You will need a better handle of the potential market if you are looking for a large investment. And if you want to make a big splash in the market. You may need to prove an upward trend or want to look at specific sectors within the market as a whole.

It is not a weakness to try and find the answer without having to do much work. So the first places to look is at industry Trade Associations. Then government figures, recent surveys and then speak to industry experts. Unless the person you ask’s job title is “Head of Market Sizing”, one industry person will not give you the answer.

Here is an approach which may help you determine market size.

1. Top-down

Look deeper into trade Associations and national government statistics. There seems to an Association for everything you can imagine. So finding relevant association research the Directory of British Associations on line. These Associations could well have relevant sales or production statistics. Or will know where to find them.

The UK has excellent data that can be very useful. Take a trip to London and visit the British Library or the City Business Library. Local universities also have business libraries. These libraries have access to various business databases. If you have a spare arm and leg, then you could buy access to these databases. It’s wise to determine which of them are any good. I have been looking at them for nearly 20 years, and I still don’t know. Each one is good for something.

More than one source

Whenever you think you have a market size figure to verify it from 2 or 3 other sources. Cross-reference what you have found. And without letting your confirmation bias get in the way of your thinking. Does the published research on your target market reveal anything about production rates? Sales or revenues etc?

Also, when researching Top-down, you need to think laterally. As it is unlikely you will come across a perfect set of statistics. So you may be looking at market size of a probe head within electronics production. Calculating these machines’ annual sales with one or two of these probes inside will give you a number.

Suppose you know the number of lorries leaving manufacturing plant. Every 24 hours. And how many production days they have a year. All you have to do is work out how many bits of kit are in each lorry to calculate a pretty accurate figure that site.

Even if you now have a market size picture, it is wise to carry onto the next step. Build up a view of the supply side of the market, by adding together the sales of the companies who sell within it.

Look at the big companies’ sales within the market and work out their market share. Trade press, their websites, Linkedin, their sales literature may give you this information. If not, ask them. They may not tell you, but if you asked enough people you will get the figure. Look at Sales Director’s CVs of these big companies. What do they reveal?

How about asking sector trade suppliers, distributors, journalists and companies for their thoughts?

2. Bottom-up

Assessing the customer demand for a product could need interviews or surveys exercises. Within B2B, getting in touch with potential customers is an excellent way of building a picture up. As you start to build a picture, you need to ensure that the data remains reliable.

You can’t just isolate the number of products sold to one company. Then multiply this figure by the number of companies in the market. For a start, it’s hard to determine how many companies are in the market. The companies’ size will vary, and the number of products sold to them could also be inconsistent.

Employee formula

How about taking the number of employees within the industry sector? To calculate the market size using the number of employees follow this formula:

Market size formula = Total purchases by sample firms X Total people employed in the sector

There are many ways to develop a formula depending on the market sector you are looking at. But it’s crucial when you are asked how you came up with the figure you can show your workings. And have a robust case for the validity of your calculations.

Finally

As you can see, market sizing is very objective. You will have to rely on many sources to determine an accurate enough figure. There will be no right answer. This article was called What is market sizing, and how to do it? We discussed what it is, why you need it and how to attempt it.

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