Market sizing in the simplest terms is to understand the market available for your product.
It can be market volume or market value.
Volume refer to total number of units per year while value refers to the total $
Imagine what happens when there are hundreds of competitors that are already selling the same kind of product
There is no one who is making it?
The first case is self-explanatory but the second case is dicey!. There can be two conditions, either there is no demand or you are genius 🙂
There are two approaches to do market sizing
- Top-Down approach
- Bottom-Up approach
In the Top-Down approach, you find out the total market available for the product and then you assume your share in the total market. E.g. Let’s say the total market share for premium headphones are 1Bn and your company can have a 10% market share then your market size is 100Mn.
In the Bottom-Up approach, we start with the product’s average unit price and multiply with different levels of usage to arrive at a market share
Let’s say, the price of headphone = $100.
Number of headphone per house = 4
Premium headphones users = 2
Number of households in the India = 300Mn (1.2Bn / 4 persons).
Urban house holds (60%) = 180Mn (ignoring 40% rural hh)
High Income Group (20%) = 36Mn Eligible
Market size = 36Mn x 2 x $100 = 7.2Bn
By the way, there is no perfect answer in market sizing. It is just an estimate or guesstimate! So never worry about getting the exact answer.
What you should know for Market sizing?
You need to understand that you are doing the market sizing and there are some factors that will impact this. Some of them are listed below. There will be more depending on the product
- Understand the demographics of that market
- Income groups
- Age group distribution
- Gender distribution
- Type of customer distribution – B2B/B2C?
- Does the product has a replacement market?
- Rural-Urban Split ( Use 40:60 for India)
- Round off the numbers to make the mental calculation easy.
- Brush up your percentage calculation skills
- Remember the demographics information
- Write your assumptions
- Practice Market sizing for random products
Here are few questions that you can brainstorm to practice.
- Number of Android tv users in the US
- Market size for Smart devices in India
- Number of iPhones sold in India per year
- Should we open Online grocery stores in Germany?
- Total paid app users in India
The way to improve your market sizing skills is only by practicing and reading multiple case study over the internet.
For getting deeper knowledge on Market sizing, follow the link.
Do, let me know in the comments if you want me to write on any new topic. My old & new blogs are available here – My Little Blog!