How Big is Your Market Opportunity

Step 3. How Big is Your Market Opportunity?

My last post focused on understanding how relevant your products are to your customers (Step 1 & 2), Step 3 below is about sizing your target market and quantifying what the current opportunity is. These are the key questions you need to consider as you work through sizing your opportunity.

Like Step 1 and 2 you’ll get more out of this step if you can get your sales, marketing and product teams working through these issues together. As a reminder all the Five Steps to Sales Growth are summarized here.

STEP 3: Current Market Opportunity

• When are customers ready to buy – are there market conditions that drive buyer readiness such as legislation, technology adoption or fundamental industry change on the horizon?
• Customer locations – Sizing the market by location can highlight future office sites, where to hire, where to build brand awareness, etc.
• Segments with identifiable value propositions – Do segments offer opportunity for separate lines of revenue, for example; new brands or bundling of products. Are different value propositions needed for each segment?
• Personas and motivations to buy – Humanizing demographics with the use of personas provides you with clear examples of the typical ideal customer (Buyer, User, and Influencer). This brings focus to conversations for your team about markets and customers.
• Size the Total Addressable Market – This is a numbers based exercise with as much real world data as can be gathered. Drilling down on the actual number of buyers will be useful here. Clear assumptions of size, sale price and forecast quantity purchased should be presented for debate and reviewed as more information comes to hand. This information is critical for any business case or investor pitch.
• The ideal sell price – There are many ways to set a sell price from the heavily research to the suck it and see approach. Find a pragmatic balance for your situation using an appropriate amount of market testing and then get on with releasing it to market. Always leave yourself room to change this in the future, including ensuring your customer contract T&C’s enable price changes. If unsure start high, customers will not resist price reductions. Note also that a low price can translate to perceived low quality for some buyers.
• Assess customer Lifetime Value – Understanding your Customer Acquisition Costs (CAC) and Lifetime Value (LTV) will also be critical for any business case or investor pitch. For this you will need to know, or assume recurring revenue, gross margin, churn and discount rates. As an example of a SaaS business, if LTV is 3X or greater than CAC, it is a good sign the business model will work.
• Position against key direct and indirect competitors – Understanding your competitive landscape will be an exercise in ongoing intelligence gathering, however getting a broad fix on this early is important. Data from large competing companies is relatively easy to obtain and often where most stop. You will need to dig around for data on the mid-size and small competitors as these can be significant in number but may not have the public presence. Using locals to gather data, customer contacts and industry insiders will improve your competitor data quality.

​The level of quantification each business needs to size its target market will vary considerably depending on your sponsor’s and stakeholder’s requirements. In most cases I have found market sizing is a combination of facts, hypothesis and assumptions. Get comfortable with the level of ambiguity you will accept and move forward.

What are some of the challenges you have experienced in sizing your target markets, does any of the above sound familiar?

In my next post I’ll provide more examples and thoughts to help you tell your story – Step 4: How Are You Telling Your Story?.