- By: Mark Jakobsen
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Market sizing – getting to know how many potential customers you have.
Now that we’re almost halfway through January, I’m betting a lot of you have either set targets or are in the process of setting targets for the year. But when setting your targets, what measurement do you use? Past performance, business development goals, or my favourite, simply picking a number from the cosmos and hoping for the best!? Whichever way you go about it, do you incorporate market sizing into it?
What is market sizing?
Market sizing is the total number of customers who would realistically purchase your product, service, or solution. This plays heavily into how much you can actually grow your company. For example, if you have an established product with 1,000 customers, but there are only another 200 people out there who would be interested, then you’d need to think carefully about your sales goals. Similarly, what would you do if you had a new solution with a market size of 100 people? Is it worth it?
Market sizing is the total number of customers who would realistically purchase your product, service, or solution. This plays heavily into how much you can actually grow your company. For example, if you have an established product with 1,000 customers, but there are only another 200 people out there who would be interested, then you’d need to think carefully about your sales goals. Similarly, what would you do if you had a new solution with a market size of 100 people? Is it worth it?
When setting your goals for the year, or in general, you need to know the size of your market. Through this, you understand the potential of your company and your product, service, or solution. But to understand the size of your market, you need to know who makes up your market. So before you start any work on this you need to ensure you have a clear idea who makes up your customer base.
Marrying your customer personas to market sizing
Understanding your customer base is all about getting your personas sorted. Put succinctly, when you create your customer personas, you’re putting a set of characteristics to each type of customer you have. This allows you to better understand them and better market towards them. We go into more detail on creating and using customer personas here.
Remember you may have more than one ideal customer, and that’s fine. To fully understand the size of your market, you need to understand who all your customers are. Once you have this then you will be able to build a picture of:
- How well you are performing
- What your market share is
- Your potential for growth
Defining your market size
The thing is, knowing the actual size of your market gives you the complete picture. But not necessarily the correct one. You may need to adjust this figure to account for those customers you may not be able to attract. This could be for many reasons, whether they are within your geographical sphere, they are locked into a contract with another supplier for the next year, or something else. You will also need to consider your company’s limitations. Say there are 100,000 potential customers for your product, service, or solution, is your sales team capable of converting them, and would your account team be able to deploy your product, service, or solution if you won them all?
That’s why your market size is broken down into three parts, as follows:
- Total addressable market (TAM) – This is the maximum number of customers who would potentially be interested in your product, service, or solution whom you could target.
- Serviceable addressable market (SAM) – A subset of your TAM. This is the group you can realistically reach, this takes into consideration the demographics of your customer base.
- Serviceable obtainable market (SOM) – A subset of your SAM. This is the realistic group of customers you can capture. The SOM will factor in competitive positioning, company limitations, and market dynamics.
If this is starting to sound complicated, don’t worry, it isn’t. The good news is we have the following three resources for you to utilise and understand further each of these parts.
Understanding the potential for growth
We all want to grow our business, but without an understanding of the market and the potential number of customers out there we would have no idea whether we are underperforming and missing out on growth, or over performing with little room for expansion left.
What’s important to remember in all of this is that market sizing is an estimate, but it’s an estimate that helps you to plan effectively for your business growth and business health. It’s key to providing your sales and marketing teams with structure and targets to ensure you keep moving forward.
If, you’re unsure where to start, or would like a hand with it get in touch and we would be happy to help you out.