How to Estimate Market Size
Originally published: 14/03/2018 15:09
Publication number: ELQ-96496-1
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How to Estimate Market Size

This methodology provides 5 steps to follow to estimate market size as a startup.


Sizing the market is a necessary task for business and marketing planning, and budgeting for all startups, especially those that seek third-party financing such as venture capital (VC). Even though their investment philosophies may differ, most VCs and angel investors would like to know that they are investing in a market with a large potential size (typically, at least $1 billion).

Understanding your market potential

Even if you do not seek external financing, understanding your market potential is essential for a range of different strategic decisions, in areas such as:
-> Product development
-> Partnering and distribution
-> Organizational design and critical employee skills

Innovative startups must also evaluate the size and nature of their market when arranging more tactical issues such as selecting a bank, an accountant or legal representation.

Starting point for estimating market size:
Know the problem you are solving

The starting point for estimating market size is to understand the problem you solve for customers and the potential value your product generates for them. This is an aspect that many startup founders in the innovation community tend to overlook, since they get excited about the product they’ve developed without thinking about how it benefits their audience.
Depending on your technology, you may have to choose which customer problem to solve first. If this is the case, completing the exercise below may help you better grasp the market size for each application. This will make it easier to prioritize which problem to solve first.

Exercise: Estimating market size

This exercise consists of five steps to help you estimate the total market potential for a product. In each step, we build on a health innovation case study that assumes the problem we solve relates to patient safety in hospitals.

  • Step n°1 |

    Step 1. Define your target customer

    All early-stage entrepreneurs and startups must define their target customer. (This article outlines the key steps to do this. The creation of a “day-in-the-life summary” will also help you analyze the nature of the customer problem you are solving.)

    Your target customer equals the person or company for whom your technology solves a specific problem. To define your target customer you must:

    Determine who your target customer is.

    Create a profile of your typical/expected target customer.

    Given the importance of defining your target customer, it is crucial to set aside enough time to do a proper analysis of this first step.

    Case study: We have analyzed patient-safety procedures in a few hospitals. We have determined that our innovative technology would generate the most value in the largest hospitals (the top 25%, ranked by size).

    How to Estimate Market Size image
  • Step n°2 |

    Step 2. Estimate the number of target customers

    Estimate the total number of target customers in the market—companies who have a profile similar to that of your target customer.

    If you’re a startup venture in Ontario or another Canadian province, you can use industry databases such as those offered by Statistics Canada, U.S. Bureau of Economic Analysis or Hoovers to help you quantify your market.

    Case study: By studying publicly available sources, we have found out that in our target group there are 1,300 hospitals in Canada and the United States.

    How to Estimate Market Size image
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