Market sizing is about the possibility. Each organization wishes to improve this metric. But, before you embark on your journey for market dominance, you must first determine the size of the market. Only after that, you can devise a strategic approach to assist you acquire a larger portion of the pie.
A business has little chance of survival without a market. Recognizing the possible size and structure of the market is a vital step in the initial phases of building a business because it will serve to influence everything from your short and medium-term goals, product development, and pitching to investors.
Before you even consider utilizing a syndicated research study or data from last year, let me demonstrate how you can accomplish market sizing with new data that represents any market as it currently stands - not last quarter or last year.
What is Market Sizing?
Market sizing utilizes reasonable assumptions to calculate the prospective market volume and sales revenue. Knowing how to determine a total addressable market is vital for both start-ups and companies intending to enter a new market.
Why Conduct Market Sizing?
There are various reasons why calculating market size is important. This is why.
- Aids investors in deciding whether or not they should invest in a business.
- Provides a clearer understanding of recruiting needs prior to launch, assisting in the development of an efficient recruitment process.
- Before the launch, gives you a better understanding of recruiting demands, enabling in the construction of an effective recruitment process.
- Helps in the creation of an efficient marketing plan that emphasizes the key market's requirements and possibilities.
- Periodic market sizing will also help you explain the TAM, SAM, and SOM.
Calculate Market Size
A market sizing study includes several metrics: if you're aware about market size formulas, you've definitely heard of TAM, SAM, and SOM. These calculations are utilized to determine the size of a company in comparison to its market and competitors.
Here we will break down the factors that influence your prospective market size.
TAM (Total Addressable Market)
The total addressable market, often known as TAM, is the complete market demand for a product or service. It is the highest amount of revenue that a company can produce by selling their product or service in a particular market.
Total addressable market is beneficial for organizations to accurately analyze the possibility of expansion of a certain market.
TAM is calculated by totaling every product sales across the market. There are two approaches to this:
- Add up the sales by stores and retailer.
- Calculate how the average person purchases, multiply by the number of persons in the country, and finally by the average cost of the product.
SAM (Serviceable Addressable Market)
You will most probably be unable to service your complete addressable market due to the limits of the business strategy (like specialty or regional limitations).
The serviceable addressable market is most important for organizations in determining their targets by objectively estimating the portion of the market they can capture.
- Add up all of the related product sales throughout the market to estimate SAM.
SOM (Serviceable Obtainable Market)
Unless you have a monopoly, it is unlikely that you can acquire 100% of the serviceable addressable market. Even if there is just one competition, convincing an overall market to purchase your goods or service will be incredibly challenging. This is why it is critical to assess the serviceable available market to discover how several clients will profit realistically from purchasing your product or service.
Serviceable Obtainable market is most valuable for firms in determining short-term growth goals.
- Divide last year's revenue by last year's SAM to get SOM. This represents your market share. Now double your market share by current year's dollar-value SAM.
Calculating TAM, SAM, and SOM
There are two methods for calculating the TAM, SAM, and SOM:
Top-Down
A top-down narrows down and assesses what proportion a firm can grab by looking at wider, macroeconomic patterns within a market. Founders develop their estimates based on outside market assessments from industry experts.
Areas like customer patterns, demographic statistics, the development of GDP, trade balance, raw material prices, surveys, industrial activity, energy consumption, and many more will need analysis. A typical top-down evaluation might include the following:
- Analyze national economies
- Analyze every possible competition in the sub-sectors
- Estimate the whole international market
- Analyze every sub-sector of the national market
Utilizing this information, an estimate is generated of how much an organization can cut out of the TAM, SAM, and SOM pie.
Bottom-up
As the name implies, this estimating approach is the opposite of what we just looked at.
Bottom-up analysis begins with the fundamental business facts (amount of customers, quantity of products sold, average price point) and uses this information to draw conclusions about the bigger market.
Tools for calculating market size:
Along with the market size calculations stated above, there are other techniques to measure your TAM and SAM. Here are a few examples:
Primary and secondary research: Begin by reading online and locating external resources that provide market information. These can include articles, case studies, whitepapers, product launch announcements, and other similar materials.
Financial reports: Financial reports for publicly traded corporations must be made available to the public. Use this information to learn about the market and individual competitors' business intentions.
Market research tools: Market research comes in a variety of shapes and sizes. You can invest in a firm to produce a one-time report, or you can use tools to get on-demand exposure to dynamic market data.
Conclusion
The idea of the total addressable market is critical for both startups and established companies. It helps them emphasize on certain products, consumer segments, and business prospects by giving them an estimate of the effort and resources necessary to make the initiative work.
TAM can be used by corporate management to give a credible value proposition to interested investors and buyers of the brand.
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Author's Detail:
Aparna Dutta / LinkedIn
Experience in Blog creation, Article Submission and Blog posting. I specialize in writing engaging blog posts for Market research and business insights. A person who believes in the principle of time and works towards perfection.
Author's Detail:
Aparna Dutta /
LinkedIn
Hello, I am a content writer with 3.5 years of experience. I have experience in various fields of content writing. For example, I have worked in a market research organization where I had to write content related to the reports that the company used to generate to improve their Google ranking. Other than that, I have also worked in website content as well as technical content for print and digital media magazines. Apart from this I am very flexible as a person and can adjust easily.
