The size of your market is the most important part for a business as this is the first thing investor considers before they invest in your business.if the market isn’t big enough, even with a great idea you won’t go too far, unfortunately. Therefore, assessing the size of the opportunity is the pivotal part and demand utmost attention.
Calculating Market Size
Certainly, there are various ways to estimate the market size but one needs to look for the most reasonable methodology based on the industry segment one is trying to get into. working on some kind of logic is also very important here. The three very famous market concepts are total Addressable Market (TAM), Served Available Market (SAM) and Target Market.
Total Addressable Market (TAM)
the overall market for products and services that perform the same job as yours is termed as the TAM. It is considered the worldwide market. TAM doesn’t reveal much about the specific market size though. However, it will give you a clear idea about how big the consumption for that kind of product is. it will reinforce the coherence of all your following numbers also.
[Read more: How to Choose the Right Outsourcing Partner?]
To understand the TAM, let’s take an example of a business idea of selling sustainable energy products. TAM, in this case, will count the total number of people who are purchasing sustainable energy products and the total amount of money spent on these products every year.
Served Available Market (SAM)
When you take into account the restrictions based on the geography you’ve chosen (India, US, Brazil, North America, Europe, etc.) following your customers’ profile (women vs. men, high income vs. low income, etc.), then this is called as Served Available Market or SAM.
So, consider if we decide to focus on the US market in the first years of our startup, the size of the sustainable energy products in low-income market (SAM) is much smaller than the worldwide market (TAM).
Target Market: Marketing Budget and Customer Acquisition Cost (CAC)
CAC is nothing but a portion of SAM you will actually be able to get in coming years, considering your resources and the cost to get new customers. You should consider the financial resources you have for the last number (or will have if you’re counting on funding) to estimate how much of SAM you’ll probably be able to acquire. In target marketing, budget is important as without spending money on your product, you will not get public recognition. In a nutshell, people will not buy your product, until they know about your product existence. Your marketing budget size will influence the size of your target market estimates directly.
What’s Next?
you may conclude your market is not big enough after generating your numbers. The reasons behind this may be:
- Your SAM is too narrow
or
- Your Target Market is too narrow
in understanding the potential of your business and the value you can create, sizing your market is utmost important. to help you understand the key obstacles you need to overcome while growing your business, market sizing is a useful exercise followed by almost all companies.
Market Quotient is a specialist in this arena and extends its full support if you face any difficulties in sizing your market. Just drop us a mail to contact@marketquotient.com and get started.
