Market Sizing 101

The term “market sizing” is as exact and as simple as it sounds: what is the size of the market you want to compete in? Believe it or not, you should know how big or small the market is that you are targeting to conquer and drive the success of your business. You may be asking yourself, “How am I supposed to do that?”

Time Lapse Photography of People Walking on Pedestrian Lane

There are a few different approaches. But, first, let’s be clear on what we are discussing here. The size of the market is the number of customers (or likely customers) who share a common need or desire to solve a common problem or enhance life in some way. It’s quantitative, usually explained in terms of revenue (or potential revenue) or products shipped.

For example, let’s say you have a company that is going to offer a “smart app” to post offices around the US to speed up customer service. Your market would be the number of post offices in the US; the total amount of revenue that these post offices make; and the total amount of money post offices have spent on apps in your product category. For the sake of this example, let’s say fictitiously that there are 10,000 post offices in the US, spending $1.2 billion on new apps to help improve customer service, based on a total income of $650 billion in annual revenue. This would be the market size for your app.

You could sell to 10,000 post offices and tap into the $1.2 billion that they are already spending on mobile apps. You wouldn’t get all of it or even a major chunk of it out of the gate, but if you can find out (usually from an analyst firm) that post offices spent $10 million in the pre-existing product category that you want to reinvent, then you will have what is called your addressable market. Your goal may be to capture $150,000 of this market in your first year as a startup.

You have now “sized” the market. Now it’s your turn: try to size the market for your specific idea!