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Market Sizing Guide for Business

Understanding market size in business is crucial. If the market is too small, you won't be able to make money and scale, no matter how innovative, sophisticated, affordable, useful (add your own word) it is. If the market is too broad, you can get lost in it, without proper segmentation, and trying to "serve" everyone - you won't fulfill anyone.

Estimate Market Size 

Market sizing is one of the key steps in a business's creation and growth journey. Once you have come up with a business idea – whether it's a service or a product – you need to determine who your clients are and estimate market size. Many companies skip this important step and struggle with lack of gross sales and inability to scale – all because they haven't sized the market in advance. Unless you understand the potential of the market you are operating in, you are trapped – wasting all resources without a sufficient customer base to ensure the profitability of your business. 

When launching a new service or product, you need to estimate the market size to understand the potential demand for the offerings. This information is fundamental to business planning and investment. A proper assessment of market size will help your company allocate resources optimally. Based on this information, you can make decisions on the amount you should invest in marketing, sales and distribution, ensuring efficient resource utilization.

If you are considering expanding into new geographic regions or entering new market segments, market sizing can help you determine the viability of this idea and the attractiveness of new markets, reducing potential risks.


So how to estimate market size?

For convenience, let's take as an example the market sizing for a business consulting company from Paris.

1. Define market segment: Clearly define the specific market segment you're targeting. Who do you think might be interested in your services or products? Where would your service be relevant? Determine the basic criteria: fields of activity, location, business operations, stage of development of the company, its size, and so on. You should have a good idea of who your services and products are addressed to.

For a business consulting firm from Paris, target market segment: small and medium-sized companies in the Île-de-France region (Paris and its environs).

2. Calculate Total Addressable Market (TAM):
TAM is the very general maximum market opportunity for your service or product. It is the entire market space that your company can potentially serve in the absence of any restrictions and competition. It is a hypothetical number that shows what you could achieve if you win the entire niche. Note, if this number seems small or insignificant to you, your company won't have the potential and space to grow.

The TAM represents the total potential market for business consulting firm in Paris without considering any constraints.

  • Number of Businesses: Find data on the total number of small and medium-sized companies (SMEs) in Paris. You can check government sources, business directories, or industry reports.
  • Average Annual Consulting Spend: Research the average annual spending on consulting services by businesses in Paris. Industry reports, surveys, or market research can provide this data.
  • Calculation: Multiply the number of businesses by the average annual consulting spend per business to estimate the TAM.

TAM = (Number of Businesses in Paris) x (Average Annual Consulting Spend per Business)

3. Calculate Serviceable Addressable Market (SAM):
SAM is the slice of the market that your company can realistically serve or target with your service or product. Factor in market constraints and competition. Evaluate in detail the geographic boundaries, regulatory constraints and customer segments that the company can effectively reach.  Consider the capabilities of your distribution and sales channels. Analyze, are your resources and expertise enough to deal with specific niche clients or large enterprise clients, or with clients whose offices are distant from yours, for instance? 

By adding constraints to your analysis, you will determine the market size within your company's operational reach.SAM provides a more focused and achievable market size estimate than TAM, so it can be used to set long-term company goals and strategy.

  • Expertise: Define the specific industries and sectors your company specializes in.

For instance, most of the specialists in our business consulting company from Paris have extensive experience working with manufacturing companies, helping them to overcome crises. Therefore, it is reasonable to concentrate on manufacturing companies, defining the market and select a few other niches in which the consultants have the strongest skills.

  • Target Clients: Determine the size range and other characteristics of businesses you intend to serve (e.g., small, medium, large enterprises).
  • Geographic Focus: What areas are you realistically ready to cover? Business consulting company from Paris, ready to work not only with companies from Paris, but also include nearby regions.
  • Market Share: Estimate the percentage of the SAM you believe you can capture realistically. This can be based on your capacity, marketing, sales and distribution efforts, and competitive analysis. Consider the presence of competitors and their market share. 
  • Calculation: Multiply the TAM by the percentage of companies that meet the constraints you identified, then multiply this figure by the percentage of market share you aim to capture.

SAM = TAM x (Percentage of Companies Meeting Constraints) x (Percentage of Market Share You Aim to Capture)

4. Calculate Serviceable Obtainable Market (SOM):
SOM is the share of SAM that a company can realistically capture in a given period, usually within a specific timeframe, based on its resources and market strategy. It is dynamic and can change as the company grows, adapts its strategy and enhances its capabilities.

SOM is especially valuable for setting short-term goals, defining sales and marketing strategies, and assessing early market capture potential.

  • Initial Market Penetration: Estimate the percentage of the SAM that you expect to capture within the first year or initial period.
  • Growth Projections: Consider your growth projections for the next few years and estimate your market share accordingly. Review market trends: Are there any factors, such as economic conditions or industry shifts, that might impact the market size?
  • Calculation: Multiply the SAM by the percentage of market share you aim to capture in the short term.
    SOM = SAM x (Percentage of Market Share You Aim to Capture in the Short Term)
  • Document Your Analysis: Ensure that you document your sources, assumptions, and calculations so that your market size estimate is transparent and can be reviewed or updated as needed. 

Keep in mind that these calculations are based on assumptions, and market conditions can change over time. It's essential to continually monitor the market, reassess your strategies, and adjust your estimates accordingly as your consulting business evolves. 


Approaches to market size analysis

Top-down and bottom-up analysis are the two main ways of evaluating a market. Sure you've heard of them, but what's the difference? Top-down market size analysis is a method used to estimate the market for a service or product that starts with a macro-level figure and is then specified using various inputs and data sources. This approach is useful when you need to quickly estimate the potential market size of a business.

A typical top-down analysis can look a bit vague - it is similar to a sales forecast: 5% of a €1 billion market is €50 million.

Bottom-up market size analysis is another approach in which market size is estimated by aggregating data on individual client segments or transactions. Bottom-up analysis takes as a basis the locations where products may be sold, sales of comparable services, or, for example, the share of current sales. Although this requires much more effort, the result is usually more precise.

Top-down and bottom-up market sizing analysis 

The main difference between top-down and bottom-up market volume analysis is the approaches to market volume estimation and the level of detail:


Top-down analysis

Starting point: Top-down analysis starts with broad macro-level indicators such as national economic data or industry statistics.

What it is used for: Existing data sources and industry reports are used to estimate the total addressable market (TAM). The focus is on aggregating data to produce a high-level estimate of market size.

Speed of Estimation: It is used when rapid estimation of market size is required. It is suitable for assessing overall market opportunities without diving into the details.

Assumptions: Top-down analysis often involves making assumptions about the market and may not take into account the nuances of specific customer segments or industries.


Bottom-up analysis:

Starting point: Bottom-up analysis begins by breaking down the market into specific customer segments, transactions, location and transaction context.

Granular data: Requires detailed collection and analysis of data for each customer segment, taking into account factors such as spending, demographics and customer behavior, examining points of sale and situations in which a product or service can be offered.

Accuracy: Bottom-up analysis tends to be more accurate because it relies on specific data rather than broad assumptions. This is especially important when dealing with niche or specialized markets.

Resource-Intensive: It can be more resource-intensive because it requires gathering and analyzing data for multiple segments, which may involve surveys, interviews, or extensive research.


The biggest and most difficult challenge in market sizing is to remain objective and provide an unbiased assessment of how viable your service or product is on the market. An optimistic top-down analysis can play a cruel trick, giving confidence in winning million-dollar checks without providing a complete picture or considering a multitude of factors. While bottom-up analysis, in turn, can spoil the mood with modest sums, at the same time giving a boost for brainstorming and generating innovative ideas.

Both methods have their merits and can complement each other in market analysis, providing a comprehensive understanding of the market opportunity for a business. Therefore, we recommend using both approaches or their synergy to maximize the benefits, controlling the depth of immersion in data collection for the evaluation so that it does not take too long but will already be relevant to planning.

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