Understanding your market is an essential part of any kind of business strategy, allowing you to recognize the number of customers you can reach and just how much profits you can produce. This will certainly enable you to make more concrete strategies and protect a budget and also buy-in from essential stakeholders.

Top-down market sizing is just one of the two main techniques we can make use of to compute the functional obtainable market. In this post, we'll look at what top-down market sizing involves, exactly how you can use it in your service, and also the strengths and weaknesses of this method.

What is top-down market sizing?
When we determine our serviceable accessible market, there are two primary ways to approach the calculation: top-down and bottom-up.

Top-down market sizing beginnings by considering the existing market as a whole, taking a macro view of all the potential consumers and also earnings. This is called total addressable market, or TAM. TAM is the entire market possibility if no competition exists. Functional Readily Available Market or SAM represents the portion of the TAM that a business's product or services can serve. Lastly, the serviceable available market, often called share of market or SOM, is the item of the SAM that can be genuinely captured as well as served by your brand or item.
Bottom-up market sizing, on the other hand, is where you start with your product as well as the basic systems of your business and also exercise just how to scale them. Where can your products be offered, just how much for, and just how much of the existing market could you command? You begin tiny and also build up to the result.
How to utilize top-down market sizing
To utilize top-down market sizing properly, you ought to start with a macro view of your market as well as work towards a micro perspective.

The primary step is to look at market size estimates to find your item's biggest possible market dimension. After that, lower it to a section you can reasonably target as well as calculate how many potential consumers are in that segment.

For instance, if you're marketing a repayment administration system for hairdresser in the United States, you 'd begin by determining the complete number of hairdresser in the United States. Then, lower that to a smaller sector. You might get rid of beauty salons with not enough customers to validate a settlement system. Lastly, figure out which beauty salons you have actually currently offered to or are already serviced by your competitors and also are unlikely to buy from you, and so forth, to narrow the overall market and also discover your functional obtainable market.

Below are some tips for doing this process as effectively as feasible:

Usage reputable data sources. A few of the data that can help you calculate your market dimension is available for free or at affordable as well as can be gotten from analysts like Gartner as well as the Bureau of Labor Statistics. This can be sustained by main study to give you an abundant photo of the market. Spend time assessing numerous reliable sources to find up with an estimate.
Correspond and clear in your approach. Make sure your calculations are well-documented and also rely upon the very same data.
Ask lots of concerns throughout the process. That are our customers? Where are they found? Is the marketplace growing? Purpose to get as total and exact an image of your market as possible.

The top-down as well as bottom-up approaches-- which one is finest?
So, which come close to is far better? The fact is that each method has its advantages and disadvantages. What functions exceptionally well for one service could not function well for your own, and also the other way around. Allow's have a look at the benefits and also downsides of each approach.

Top-down market sizing: the pros
It tends to be faster than a bottom-up method. Gathering existing data to approximate your market size is fairly straightforward, making it the most effective alternative to obtain a quick estimate of the functional accessible market, which you can supplement with main information later on to reach an extra exact forecast.
It functions well for huge, well established markets with plenty of data and also existing evaluation.
Top-down market sizing: the cons
It does not work well for brand-new, smaller markets and also disruptive items. If there's an opportunity your product can have a disruptive result on its market, this can dramatically impact the functional accessible market as well as make your top-down analysis mostly meaningless.
The first research study relies on general info accumulated by others, so the information is vague to your service and also situation. It's an excellent general guide yet requires to be sustained by key study particular to your specific market for higher accuracy.
Bottom-up market sizing: the pros
It's customized to your specific situations as well as uses your information
It's useful for new markets and markets where your product will likely make a significant, disruptive impact.
It results in far better projecting as well as more exact data on a much more granular level, assisting you much better recognize exactly how your individual tasks will make an influence.
Bottom-up market sizing: the cons
It can take longer and also need more sources than a top-down strategy, as a bottom-down strategy needs far more comprehensive analysis of your organization.
It tends to think there will be extra clients than there in fact will. This is very important to look out for.
Any type of mistakes you make beforehand at the micro-level become intensified as you work up to the macro degree. It's important to ensure you're doing whatever properly, or these errors as well as misconceptions will perform your whole evaluation.
Ultimately, using both versions in your market sizing can be useful. If they both concur, you can think you have a moderately precise market size estimate. The technique you choose will certainly additionally depend upon the kind of company you're building and also the product you're selling.

No matter your technique, it is necessary to do it right. At Kadence, we have years of experience helping businesses with their marketing research and in sizing the competitive intelligence research marketplace, and we can aid you do the same. To figure out much more, contact us.