Market-Sizing Questions: Frameworks for Estimating Market Demand

Asking market-sizing questions, also known as guesstimate questions or estimation questions, is part of the process of planning your product launch. You will need to know the size of the potential opportunity to strategize what market share you can capture at launch and how much of the total market you can reasonably gain with each passing quarter and year. This will enable you to strategize, schedule, and budget accordingly.

Doing your due diligence and researching the hardest market-sizing questions will help you develop a new product launch or market entry strategy that is more precise and less risky.

Why are market-sizing questions important?

Market-sizing questions are crucial in business strategy, particularly in the following scenarios:

• Business Planning:  Market-sizing is essential when planning to launch a new product or service. It helps companies understand the potential demand, target audience, and revenue potential.

• Investment Decision:  Investors and venture capitalists use market-sizing to evaluate investment opportunities. They need to know the size of the market, the growth rate, and the potential return on investment.

• Business Valuation:  Market-sizing is also used in business valuation. Investors and buyers need to know the potential market size, revenue, and growth rate to determine the value of the business.

• Competitive Analysis:  Market-sizing helps companies understand the size and growth rate of the market and their competitors’ market share. It helps them identify growth opportunities and competitive advantages.

Measuring the answers to market-sizing questions

How big is a given market? It seems like a straightforward market-sizing question on the surface. Yet you’ll need to refine that estimation question to get a useful final answer that will help break down the barriers of market entry.

When estimating or making a calculation of the size of a target market, you will need to specify the metrics you choose before you make a reasonable assumption. You can estimate a particular market size based on:

• Revenue and profit: How much money can you earn and what margin can you command?

• Volume:  How many units can you move? How many contracts can you get signed?

• Buyers: How many customers can you win in a particular market share? You can count the number of customers by the number of companies or organizations that buy, and the number of departments, or individuals in that company that buy. You might sell to one company that has three or four departments who are your actual target customers, for example.

Other important market-sizing questions include how often a target customer buys and what percentage of customers return. The time frame of the question matters, too. Are you looking at the particular market size by month, quarter, or year? B2B sample providers for market research can help you with this.

Two market-sizing frameworks for a potential market

In developing a market-sizing framework for answering your questions, you can use two general frameworks. 

Top-down market-sizing approach

In the top-down market-sizing framework, you look at the whole potential market, also called the total addressable market. You then estimate what percentage of the total market you could capture and want to capture. It is possible you will not try to win customers that are too big or too little, or that demand too low a price, or that are geographically too difficult to sell and service. 

While you can start your due diligence by looking at published data, in most cases, you will need to custom recruit experts in your niche to give you the insights you need. 

When a global payment processing company wanted to quantify a potential revenue opportunity for additional services, they reached out to Fortune 1000 chief financial officers knowledgeable about the target market and its challenges. With this knowledge, the company created a go-to-market plan, extrapolating those insights internationally.

Bottom-up market-sizing approach

With a bottom-up market-sizing framework, you start with your product or service and figure out where to start selling, and then assess how you can scale from there. Perhaps you will start by selling to existing customers, then expand regionally or within the market areas of your established distributors. Estimating growth depends on your ability to expand and scale to new customers. 

You will still need to conduct research within your total addressable market. A Fortune 500 healthcare company conducted research for the hyper-specific regional insights in Latin America they needed so that they could redefine their multi-billion dollar healthcare portfolio.

Tips for mastering market-sizing questions

• Clarify the Question: Before you start answering the question, make sure you understand the context, assumptions, and objective. Ask clarifying questions to get more information if needed.

• Use a Structured Approach: Use a structured approach to answer the question. Break down the problem into smaller parts, use logical reasoning, and make assumptions where necessary.

• Use Relevant Data: Use relevant data to support your assumptions and calculations. If you don’t have the data, make educated guesses based on industry benchmarks, surveys, and other sources.

Perform a Market-Sizing Analysis with NewtonX

Getting to the right people is the key to gathering market-sizing data with greater accuracy. NewtonX can help you precisely answer your market-sizing questions and create a market-sizing framework analysis. If you have any questions around go-to-market planning or any B2B market research services, please don’t hesitate to contact us.