What is Market Size and How to Determine it [with a calculator]
This is the complete market size guide.
Contents
When do we need to do market sizing?
How to estimate the market size of a certain market
How to calculate the TAM (Total Addressable Market)
Tools and resources to estimate a market size
What is a Market Size
Market size is defined as the total number of customers of a certain product or service within a specific market.
For example, US diabetes market size is the total number of people with diabetes within the USA.
TAM or the total addressable market is the value of a specific market. That is, how much annual revenue can a business generate from a specific product.
When do we need to do market sizing?
When you are considering a new business or a startup it’s important to check what is your initial market size.
Investors (both angel investors and VCs) are interested in companies whose potential revenues won’t be limited by a small market size.
It is okay to start with a specific niche. In fact, it’s even recommended. But you should have a plan to address a large market.
Existing businesses also care about market size when they are considering launching a new product.
How to estimate the market size of a certain market
As mentioned above, the definition of market size is simply how many potential customers there are for a specific product in a specific market
For example, if I’m starting a drone fixing startup in the US I need to estimate the drone market size - which is how many drones exist in the US.
But I should also look at the growth rate of drone owners in the past few years and estimate what the market size will be in the next couple of years.
I don’t have to do that. But if the market is growing fast, it’s good to show investors (and know for yourself). If the market is slowing down, it might be a good reason to understand why.
There are more challenging market size calculations though. Let’s take CBD market size for example.
You need to take all CBD-related products (oils, gummies, drinks etc.) and calculate their total.
The challenging part of estimating a market size is finding the data. Sometime you’ll find it easily. But in many cases, you would spend a lot of time finding it. It might make sense to hire an online researcher to do it for you.
How to calculate the TAM (Total Addressable Market)
The TAM is how much annual revenue can you make from a specific product in a specific market. Here’s how to calculate TAM:
Find the total number of your potential customers. For example, if you are looking for home cleaning TAM, that would be the number of homes in the geography you target.
Estimate the percentage of your target audience. If your company provides home cleaning services for single-family homes, you need to exclude all town apartments. Of course, you might have more segments that narrow your audience such as a minimum number of rooms and so on.
What’s the average cost of your product or service. In our case, how much are you going to charge per home cleaning.
How many times are your customers going to pay you per year. For example, if you charge a fixed monthly fee, that would be 12 times.
Helpful tools to find market size
The hard part about finding your market size or TAM is finding the relevant data. These tools and website will help you:
Google - browse google to see if there is a data-backed answer already. Statista is one resource you might find there.
Keyword Research tools - keyword research tools like Google Keywords Planner or Ahrefs can help you understand how many times a keyword is being searched. It shows how many searches have been made and not how many people. But you can get a general understanding of that.
Facebook ads manager - When you are advertising on Facebook, you can get an estimation of your potential audience based on the targeting you do. For example, if you develop an app for elders in the US, you can target 60+ who own phones in the US and Facebook will show you your target audience. Of course, there are elders who are not on Facebook, but that’s not a lot probably.
You can hire an internet researcher on Spectroomz to do your online research and focus on other things while they do that.
Market size calculator
After finding your market size, here’s a calculator that will help you find your TAM (Total Addressable Market).