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Market Sizing 101-The Ultimate Guide

Market sizing is all about understanding the potential of the market. It is essential for every company.

Suppose you have your own company. Your company is running very well.

There is no hindrance to business. You have captured a vast market and are earning a lot of profit.

Now you want to expand your business, and you want to enter the new market. So before beginning, you have to study the market, whether it will be beneficial to your business.

Now the question arises, how?

So this is what you will find in this blog. You will get the answer to your question related to market sizing.

What is in it for me?

  1. What is Market Sizing?
  2. Market Sizing Approaches
  3. Market Sizing Estimation
  4. Analysis of Market Sizing
  5. Conclusion
  6. Frequently Asked Questions

What is Market Sizing?

Market sizing is the process of studying the potential of the market. It is essential for any company.

Why is it important?

It is because before entering a market, you have to study the market. It is so that you know whether you will succeed in capturing it or not.

There are various things to search for in this study of market sizing. They are as follows:

  • Size of the market
  • Potential customers
  • Existing competitors
  • Growth and sustainability of the market
  • Products available
  • Trends in the market

What will be the outcome? What benefit will your company get?

  • An estimate of profit your company will earn
  • Decide whether to invest or not
  • Develop new marketing strategies
  • Number of people you need to hire for the work

Hence, market sizing analysis is fundamental.

Again the question arises……

How to analyze the market size?

That is what we will take up as the next topic.

Market Sizing Approaches

There are four stages of market sizing analysis. Let me explain to you with an example.

Suppose you are doing a business of exporting Indian handicraft items. Now you want to enter into a new market or expand your market.

So, let us help you analyze the market size.

PMO (Potential Market Opportunity)

Potential Market Opportunity means to find out which market you are going to target. Suppose you find America as a potential market for your product.

So, let us work in America and see whether your product can be sold or not. Also, let us find out how much demand is there for Indian handicrafts.

TAM (Total Addressable/Available Market)

Next step comes Total Addressable/Available Market. Now you have found out that your product’s demand is there in America.

Not all countries in America may be interested in your product. There are only particular countries that want to buy or have a demand for Indian handicraft items.

Hence, here is the time to narrow down your target market area. Focus on those countries only where you can sell your product.

SAM (Serviceable Available Market)

The next stage is the Serviceable Available Market. Now again, not all the areas of the selected countries might be ready to buy your product.

The demand may fluctuate for different areas. Now, what we need to do is, again, narrow down the target market.

Start focusing on those states within the selected countries that have high demand.

SOM (Serviceable and Obtainable Market)

The final stage is Serviceable and Obtainable Market or Share of Market. In this stage, you have to check the total demand for the product.

Research on how many Indian handicrafts are sold. Study about the population and also do their demographic study. There are many more areas where you need to do market research.

If you do not have a huge team, you can even hire market research companies. Also, do not forget to make the market research reports.

Through this, you will get an idea of how much you can export your product to the targeted area. Also, you will get an estimation of how much your revenue will be.

See, you finally got your new market to enter into and expand your business operation.

What after getting the market?

How to know how much you are going to earn from the target market or SOM?

So the next step is to estimate the market size. Let us see what it is?

Market Sizing Estimation

There are different steps to estimate market size. Let us explore them and apply them to your business.

Define the Market

This is where we ended. We have defined the market where you are going to sell your Indian handicraft items.

We can also say that we did the market sizing analysis, which is the first step.

Determining the Approach

After market analysis, you have to select an approach through which you can estimate your sales volume and revenue generation.

There are two types of market sizing approaches. Those are:

  • Top-Down Approach
  • Bottom-Up Approach

The bottom-Up approach is considered as the best approach.

Why?

We will study them in detail in the section ‘Market Sizing Approaches’.

But for the time being, let us take the best one for your business. That is the ‘Bottom-Up approach.’

Selecting Sources

The next step is to choose sources of collecting data.

There are two ways of collecting data for consumer research.

Primary source – In this, you will do the research yourself. You will understand the target market, conduct market survey, etc.

So, have your research team ready and do the primary research to collect the original data.

Though this process is considered good at the same time, it is very time-consuming. Also, it includes vast cost and more labor force to do the marketing research process.

So you might fail to launch the product in the time you have decided to enter the market.

Secondary source – Here, you do not need to do any research. You can collect the data from the internet.

There are many research gateways and other official websites from where you can get the data.

The main advantage of this source is that it time-saving process and price ranges from low to no cost. Manual labour-power is also very less.

It will be advisable for you to take the help of both primary and secondary sources to collect data. It will give you more data, and you can work on your research.

Data Structuring

Now after collecting the data, you have to do data structuring.

Data structuring in simple words means to process the collected data further and find the relationship between them. It will help you to reach an outcome.

This process helps you divide the data into subcategories, which makes your study easy and systematic.

Data Analysis

The final stage is the analysis of data. After structuring the massive amount of data collected, you have to analyze the data.

It will help you come out with an idea of which market will be best to enter. You will also get the purpose of the size of the market and the estimation of your revenue.

Hence, the analysis of data helps in reaching an outcome where we wanted to be.

So, these are the steps to estimate your market size for your product.

Next in our path is the market sizing approach, which I talked about earlier.

Now, what does this mean, and how will this be helpful to you?

Analysis of Market Sizing

There are two types of market sizing approaches or market sizing techniques. Let us study them in detail and see which method will be the best to go with and why.

We will understand the approaches with the example of your virtual business.

Top-Down Approach

In this approach, you first take the macro market segment or demographical data. You do not segment the market but estimate the market size generally.

Like in your example, you calculate your market size and revenue generation by looking at the market from above.

Suppose you found out that in America, ten countries have the demand for your product. Now you immediately take out the data of the population size of each country. Also, the annual unit sales of the product and multiply them to reach a figure.

It will give you a figure, but it is not the actual estimation. As I said earlier, there might be some states in a particular country that do not demand your product.

So this is considered wrong estimation or overestimation of the figure. Hence, this is the reason why it is said that this is not the best approach.

Bottom-Up Approach

In this approach, you start your estimation my considering the niche market or the micro-market. It is a small target but the accurate one.

Suppose you found out that all over in 10 countries, only 20 states in them demand your product. So from here, you start estimating your market size.

You collect the data based upon it, and finally, you get the estimated figure. It might not be the exact figure, but it is the realistic one. You do not get the overestimated value.

So, this approach is considered as the best approach. It is because it gives you the actual market size. Also, it helps you in estimating the actual sales and revenue generation.

Conclusion

So by now must be clear about what is market sizing. It is vital to analyze the market and its size first. Then only you can estimate your future sales and revenue generation.

We have also talked about how to analyze, estimate, and approach the market sizing. I hope it proved beneficial for you.

Frequently Asked Questions

Why is market sizing important?

Market Sizing is essential because it helps you to analyze and estimate your product’s demand in the market. Thus, with this, you can calculate your revenue generation. Read the market sizing definition in the above section.

How market sizing is done?

It is a process that you need to follow.

  • Decide the approach
  • Estimate the market size
  • Analyze the size

I have explained each step in detail above.

Please do read. It will be beneficial to you.

What is market sizing analysis?

It means you find your exact target market according to your product. To do that, you need to segment the market based on PMO, TAM, SAM, and SOM.

I have explained all the four stages in detail in the section ‘Market Sizing Analysis.’

What is bottom-up market sizing?

It is an approach in which you start estimating your market size from the base. You focus on those who actually will buy your product.

So you target the niche market or micro-market. It is known as the best approach. Hence, make a strong strategic marketing plan based on this approach.