Between consulting and growth equity, I’ve ended up sizing a lot of markets (30+ so far!). Recently, they’ve been niche B2B markets that are poorly covered by reports, but surprisingly easy to estimate. Here’s the cheat sheet I wish I had when I started.
1. Start with customers
The simplest market size calculation is to multiply the total number of customers by annual spend per customer. A bottom-up method works well in industries where there are relatively few customers, or where there’s good data on the number of customers. For instance, if the product is sold to large hospitals, all you need is the number of hospitals in your market. Sometimes that number is easy to find in public data; if not, you might still be able to use private reports. Try reports covering your target’s customer’s industry–they tend to include the number of businesses in the field.
2. Start with competitors
A top-down method works well if there are relatively few competitors in the space, and if they’re well known. Effectively, you’re just trying to find or guess, then sum the revenues of the competitors in the space. If competitors offer multiple products, try to consider only the revenue from the products you compete with. Be careful, this method may under-estimate your market size, because it fails to capture unvended customers, those who are using homemade solutions and not buying from anyone.
3. Start with users
For B2B markets, especially for SaaS companies, it can be helpful to distinguish between customers (typically companies) and users (customers’ employees). Users are a good place to start if they all tend to have the same job title. For instance, if your product is used by compliance officers, you can use the Bureau of Labor statistics data to find the total number of compliance officers in the US. Combine that publicly available data with the average number of users per customer, and revenue per customer per year.
4. Start with a correlated market
Correlated markets are a good place to start if your market isn’t covered by analyst reports or easily size-able, but something else the same customer buys is. For instance, if your customers all use a certain type of CRM, you can use the market size for that CRM type and the ratio of its cost to the cost of your product to estimate the size of your market.
Use all the data
The more calculations, the better — if you have the data, use multiple methods to triangulate a more accurate market size. Send me a note if you use a method I’m missing!