Market Sizing techniques

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What is Market Sizing?

Market sizing is the name given to the examination of secondary research with the aim of obtaining information regarding market potential. Market potential is an important thing to have an understanding of if you plan on launching a new product or service. Within ‘market sizing,’ the following things are measured:

  • The total or potential size of a market

  • The main competitors of the market categorically

  • The characteristics and profile of the target customer

  • The services or products currently available in the market

  • The trends that are the most significant in the market

Market Sizing Analysis

For market potential estimation, a bottoms-up approach is often adopted. This entails breaking the unknown pieces down into smaller sets of assumptions and then bringing it back up to a more overall estimation of general market size.

Market Sizing Approach

You can also start with a quick estimate that will generally give marketers a good enough chunk of information to figure out whether investing further in development would make sense. It’s important to develop 2 or more estimates to increase accuracy and reduce risk.

Why is Market Sizing a Useful Activity?

Developing an estimation of market size is a crucial first step in the construction of the business case for any new initiative for product development. The required amount of investment to be successful must make sense given the potential turn that could be generated by the market.

By being upfront about the assumptions and facts that are used to generate an estimate of market size, we can identify the important factors that must be addressed in developing planning activities.

Market Sizing Questions in Interviews

Market sizing is a technique that measures the demand of a service or product across a group. A market sizing question has different components that can measure multiple criteria for a candidate. For example, structure of how you would approach a question, your mental math skills, analytical ability, as well as your ability to explain how you’ve arrived at this answer to a consultant, an interviewer, or how you would explain it to a potential client. You may get a question along the lines of “How many people use a smartphone in the US each year?”

This will involve making assumptions, for example that there are about 320 million people in the US, and that they are all equally distributed. A good approach would be to split the population into age groups, e.g. four age groups ranging from 0-20 to 60+. Because you have made the assumption that each age group is equally distributed, this would mean that there are 80 million people per age group. From there, the next step could be to estimate what percentage of this age group use a smartphone. This will give you rough totals of the amount of people using a smartphone in the US.

So going by this method and the previous explanation, market sizing uses a lot of assumptions, and your end result will only be an estimate. However, it will still give you a good idea as to whether your product or service has a potential market or not.

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