Market Sizing Fundamentals
The total number of potential customers in a market
What is market size
If a country has 250 million people and 10% buy your product, this is your customer base.
What is 25 million?
The most logical first step when sizing the coffee market in London
What is estimating the population of London?
This concept measures how demand changes when price changes.
What is price elasticity?
Dividing customers based on where they live, work, or shop.
What is geographic segmentation?
The framework that breaks a market into total, serviceable, and obtainable segments
What is TAM, SAM, SOM
If 125 customers each spend £8 per month, this is the monthly revenue.
What is £1,000?
When sizing a gym market, this percentage determines how many people actually become members.
What is penetration rate/capture rate?
If your obtainable market is too small, investors worry about this.
What is limited growth potential?
Grouping customers by measurable characteristics like gender, location, or income level.
What is demographic segmentation?
A market sizing approach that starts with a large population and narrows it using assumptions.
What is top-down sizing?
If 50 million people live in a country, 60% are adults, and each adult spends £20 per year on your product, this is annual revenue.
What is £600 million?
To estimate taxi demand in a city, you could divide total daily rides by this figure per driver.
What is rides per taxi per day?
When entering a new market, this factor determines whether a company can sustain an advantage over competitors long term.
What is competitive advantage?
Grouping customers by how they use a product, how often, or their purchase history.
What is behavioral segmentation?
A market sizing approach that builds an estimate from unit economics like price multiplied by quantity.
What is bottom-up sizing?
If 100 customers visit your shop weekly and you want annual demand, you multiply by this number.
What is 52?
When sizing food delivery revenue, you multiply number of users by order frequency and this.
What is average order value?
High fixed-cost businesses benefit strongly from this economic effect.
What are economies of scale?
This type of segmentation helps companies market to people based on attitudes, activities, and opinions.
What is psychographic segmentation?
The key skill that makes assumptions credible in consulting interviews
A city has 4 million people. If the average household size is 2 and 70% of the population are adults, this is the number of adults.
What is 2.8 million?
Before finalizing a market size estimate, consultants perform this step to ensure the number makes sense.
What is a sanity check (or reasonability check)?
This framework analyzes industry attractiveness by examining suppliers, buyers, competition, substitutes, and new entrants.
What is Porter’s Five Forces?
Segmenting customers by combining multiple types of segmentation to get the most actionable insights.
What is hybrid segmentation (or multivariate segmentation)?