Marketing

Market Segmentation and Sizing

Market Sizing:  What it is and Why it's Needed

Whether you're a startup or a Fortune 500, you need to know the size of the market when considering a new market opportunity.  Otherwise, you can't evaluate the revenue potential and return on investment potential for the investment in the business.

Market size is measured in dollars!  It isn't measured in numbers of potential customers.  Or numbers of potential units.  Or numbers of potential subscribers.  You need to do the math and estimate the level of dollar sales.

Definitions

* Total market - the size of all of the available markets you plan to address over time

* Available market - size of the market segment who would/could consider the kind of solution you'll provide.

* Served market - size of the market segment the company has chosen to target

Auto market example, assuming you're selling a electric sports cars, and you decide to begin with a focus on high-end electric sports cars in the U.S.

* Available market: the dollar value of annual sales of sporty electric vehicles in the world

* Served market: the fraction of the available market in the U.S. that would consider   an expensive, high-end solution

 Beware of "total market" numbers that are much larger than the total market you realistically expect to address over the next 4-5 years.  Large, irrelevant market numbers get confusing.  Example: it's not clear that the size of the worldwide automobile market is terribly relevant if what you're selling is high-end electric sports cars.

Market sizing is an iterative process.  You segment, size, and validate.  And then you probably do it again.

     Market segmentation <--> Market sizing <--> Market validation

Start with Market Segmentation

You need to focus - especially early on.  So choose a first segment.

Sharper segment focus means better sizing (and a more focused company)

What segment will you target first?  Why?...