August 10, 2017 by Ashwini Murthy

Let’s say you built an amazing product which solves a particular pain point or you have an idea for a solution. You are sure everybody is going to love this idea and it is going to be successful. You put together a team and start building this product and price it at $100/month per subscriber. You set a target for yourself. $1 million in ARR.

Sell the product to 830 people. Sounds easy, right?

6-7 months pass and not many people have bought the product yet. You spend nights trying to figure out why and after a few hours and a little bit of math, you realize that your target market comprises of only 500 potential prospects (or what we call as your ‘total market’). Now, you have to find a new market to sell your product or launch a new product because not all in the market will buy from you and the ‘addressable market’ is even smaller for you

Market size estimation is a must-do for every entrepreneur before making any hasty decisions. It helps overcome overblown misjudgments. Well, let’s take a moment here to add that this blog post is not written keeping the newly minted, first time entrepreneur in mind. In fact, this applies for even growth stage companies going after new markets. It’s just ironic that market estimation skips the attention of fast growing early stage companies as well and by the time they feel the effect they’d have lost a year or more!

There are two kinds of market estimation that need to be done:

  1. Top-down estimation
  2. Bottom-up estimation

Top-down estimation

This is fairly easy. You don’t need your best employees to carve out a chunk of their time. A smart intern can do this job.

Top-down estimation needs a thorough Google research. Find out what are the possible categories (industries) your prospects can fall in. For example, at PipeCandy we provide sales leads and deep insights about e-commerce and retail companies. Our prospects are mostly from the e-commerce fulfilment/tech industries.

There are both proprietary reports, industrial catalog websites/directories etc. that can be leveraged apart from plain old google research.

The idea of the research is to discover as many adjacent segments as possible and a feel for the number of companies in each. This way, you’d not miss out the niches that are worth targeting.

Now that you have a comprehensive list of companies in your target market, apply relevant filters on it to get a more practical list. Is there a particular geography you want to go after? What about revenue slabs?

The main idea behind doing top-down analysis is to understand if the market is big enough for you to go after. The goal isn’t to arrive at the exact number of companies. It is to assess if there is a big enough market that will take us to the next set of customer/revenue milestones.

Top-down estimation doesn’t require your best employees. A fairly smart intern can do this job efficiently.

Bottom-up estimation

Bottom-up estimation is the estimation of addressable marketing within the constraints of capacity. How many companies should you go after each month to comfortably attain your goals?

Let’s take the example at the beginning of this post. In a perfect market, all 10,000 companies can be converted into customers. But in reality, it’s next to impossible.

Bottom-up estimation requires knowledge of the sales team’s functioning. 100 cold calls lead to, say, 20 meetings, which in turn leads to 5 closed deals. With your capacity, if you can make 1000 calls a month, you should be able to convert 50 of them. To convert 800 companies, your market should contain at least 16,000 companies (using the same rationale).

Many companies make extensive plans like product road-mapping, fund-raising calendars, etc. All these plans are done with just a vague idea about the market size. “Oh, the market is probably this big”, “Oh, I did a guesstimate”, “The market has to have at least 10000 companies”. None of this is good enough. Building a company based on an assumption of the market size is declaring that you’re going to build the tallest skyscraper in the world, without wondering if you have the means to get there.

Dangerous. Ain’t’ it?

You don’t have to do the entire estimation by yourself. If you have your basic target industry set, you can use data providers like PipeCandy to do the rest.

Before you choose a data provider for your sales efforts, even if you are talking to PipeCandy, come armed with market sizing estimates. If not, at least in the case of PipeCandy, you can commission a short exercise to arrive at market estimates before you sign a year long contract for data.

Launching a new product or going to a new geography and need to estimate the retail or e-commerce market size in those regions/for those products?


Ashwini Murthy

Content marketer @ PipeCandy

A writer by day. Illustrator by night. Currently trying to conquer the B2B marketing world one baby step at a time. Loves everything outside her comfort zone.