What is Market Sizing, and how to do it?

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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?

Where to start

  • 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?

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

Accuracy

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

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

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

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

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

About Octopus Intelligence

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