Have you ever wished you could estimate the size of a market before investing? Perhaps you have a new product idea and you’re not sure if the market for your product is big enough to merit significant financial investment? Or maybe you’re already in the market and you’re thinking about expanding your product line into other price points but you’re not sure what the opportunity is?
These are all important questions. Even more, these are all questions that should not be answered by “gut decisions.” Today’s marketplace has a plethora of secondary data available that can help you determine the size of the opportunity and make informed business decisions.
The process incorporates multiple research disciplines and data sources to provide an estimated dollar amount for the market. Each market sizing exercise is unique. The process varies based on the industry, geographic parameters, the scope of the market and more.
It’s best to take a holistic approach to market sizing. Determining the size of a market is most useful when viewed in the context of other factors, such as market growth or decline, barriers to entry, complexity of distribution, competition and more.
While the process of market sizing is an exacting process, it’s important to understand that size estimations are directionally correct rather than precisely correct. The process analyzes and integrates multiple (and sometimes conflicting) data sources to define the size of a market, making precise estimations unfeasible. However, directional estimates provide most marketers with the valuable information and rationale they need to build a case for investing in or opting out of a market.
Sound market sizing analysis is a multi-stage process. Each stage builds on the earlier stage to define the opportunity.
Let’s take a look at the steps Optimization Group (OG) has found to be important in the Market Sizing process and why they are critical to achieving the most accurate estimate of market opportunity.
1. Market Definition
This is the first and most important step in the process of market sizing. Optimization Group works with each client to clearly define the parameters of the targeted market. The parameters identify what segments are to be included and, more importantly, what segments are not included. The market can be defined by product category, geographic area, customer segment or a combination of these and other factors. By outlining a clear definition, research is more targeted, providing more relevant data.
2. Market Scan
Upon clearly defining the market, Optimization Group begins research to build a base of understanding. Sources for this research can include:
- Government publications including census and economic data
- Industry publications
- Industry associations
- Research aggregators such as IBIS World, LexisNexis, Hoovers and others
- Business information sources such as
- Competitor websites
- Annual Reports
The research targets areas such as size of the market, key competitors, product/service offerings, market trends, distribution (when applicable) and more.
3. Interim Topline Report
Upon completion of the market scan, Optimization Group provides a 3-5 page Interim Topline Report that outlines the findings of the Market Scan Research. The Topline Report presents the client with key data points in an outline format. For some clients, this report provides the necessary information needed to make market decisions. For others, more in-depth or additional information is needed.
4. Review and Refine
From past experience in market sizing research, OG has found that conducting market sizing research is more efficient and productive with an interim client review. A review of the Interim Topline Report allows the client to assess what the research has revealed and determine if additional direction and refinement is desired. The client can then direct Optimization Group to conduct additional research and analysis.
5. Market Analysis
In this phase, Optimization Group conducts an exhaustive analysis of market data to provide additional detail and corroboration of the market sizing estimate. Typically, this involves multi-step calculations based on collected research data. There are two approaches to this process; a “top down” and a “bottom up” approach.
- A “top down” approach begins with a broad view of the entire potential market and works inward towards a specific target. For example, suppose a pet food company wanted to expand into other pets supplies, but didn’t have any idea of the size of the opportunity. Starting with size of the pet supplies industry, market segments can be defined (treats, toys, collars, etc.) by calculating what percentage of the total market is made up by each segment. Based on those calculations, the segments with the greatest level of opportunity can be identified.
- A “bottom up” approach begins with identifying the defined segments of a desired market or markets. Using the pet food company example again, since the company’s product is already sold in pet stores, they know the volume, distribution and pricing structure for pet products. If a specific segment is identified (say, chew toys) along with a retail price (uncovered by simply visiting a pet store), a market estimate can be calculated. Using that same process for other items, the pet food company can identify the total market opportunity.
6. Final Report
Upon completion of the Market Analysis, a detailed and comprehensive PowerPoint report is developed and presented. In addition, all spreadsheets and source material are provided to the client. The report outlines all the steps in the market size calculation, as well as forecasts for future market growth and potential obstacles to entering the market.
More information on Market Sizing
If you would like more information on Market Sizing, please contact us.
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