How do I estimate a market size?
- Define the market
Before one can estimate a market size, one must first understand what the definition of the market is. That is, what is and is not included. For example, if the market of interest is office products, are disposable items (paper clips, rubber bands) included along with durable items (staplers, calculators)? Other considerations may be: geographic boundaries, distribution channels, location of production (i.e. imports), technology utilized, store format, customer segment (e.g. government), etc.
It is important to carefully consider the market definition and not let that be determined by availability of market studies, government statistics, industry trade groups, consultants/experts – all of whom may define the market slightly differently.
- Conduct desk research
For most markets, there is almost always substantial information available that has been published. The trick is finding it. Common searches include: industry reports (available via direct searches using the industry name and keywords like “report” or “market size” or “industry data,” trade magazines, and competitor websites. Less common sources include: subscription databases such as Hoover’s and Avention, US Census and government industry reports, trade associations, SEC (public filings), analyst reports, webinars, speeches by industry leaders, seminars and symposia, syndicated research (Nielsen, IRI and others), white papers, Google images (pictures of competitor facilities), and many others.
- Primary research
If conducting interviews within the industry is an option, it is an excellent direct source of information. The two big challenges are finding the right people to speak with, and then actually getting them to talk with you. A third party can have conversations that someone involved in the industry simply cannot. In a B2B setting a (good) list of contacts is rarely available. Normally, the contacts are developed through exhaustive searching using LinkedIn, Google searching, Data.com, Xing, publications, press releases, industry associations and other sources.
Survey development is an art that is well beyond the scope of a FAQ document. PMG generally thinks of a qualitative survey as a question path instead of a questionnaire. We want to engage the respondent in a meaningful, insightful, and engaging conversation. We will share some of what we have learned through desk research both for confirmation of findings and to subtly communicate trust and as a quid pro quo. We will also let the respondent guide the flow – if we are on question 4 and the respondent begins talking about the subject of question 9, that’s where we go – then circle back to question 4 later.
Once data are gathered, some means of organization is required. We refer to this as a typology – a way of organizing data into a meaningful structure. A typology may be compared to a filing cabinet with file folders in each drawer. With that structure in place, information about industry trends and company strategies is associated with similar pieces of data/information, and may be understood more clearly.
Triangulation is the art of combining three or more pieces of data/information and deriving a conclusion. For example, one estimate of market size may come from published reports, another from statistics published by an industry association, and a third from the US Economic Census. Each may define the market differently and make different assumptions about growth rate, technology development, import levels, etc. Further, the market definition used in the size estimates may be for a larger market – the market of interest may require further assumptions. For example, the market of interest may be packaging and the only available market size data are for the packaged good. Estimating the percentage cost for packaging results in a reasonable estimate of packaging market size.
Lastly, multiple estimates of market size are compared by their publish date, reliability of source data, assumptions, and consistency. A final determination is made based on all of these factors. PMG has found that following a careful and systematic approach such as outlined above results in a market size estimate that has sufficient credibility and face validity for planning and forecasting.