4 Strategies to Effectively Determine Your Market Size

Who doesn’t want to eat all the available donuts? Of course, it’s likely to show up sooner near your waistline. 

What if you want to have a little more share of the donut for your business?

Businesses love to have an entire donut or market size by themselves.


Capturing and estimating market size is a crucial step in acquiring a sizable market share. 

Regardless of the industry you’re in or plan to market your product, understanding your market size reveals insights that can help you drive the success of your business.

Also, if you have a fantastic product or service to launch, it makes sense to understand its sales potential, and for knowing this, you need to know your potential market size. 

What do you mean by market size?

The market size determines the number of people who could potentially become your customers. It helps you determine the size of sales opportunity that is available for your product or service. 

Usually, the smaller your market size, the smaller is your sales opportunity. 

However, it doesn’t mean that if you’re selling pizza or colas, your business will automatically witness enormous revenue potential. No, market size doesn’t work this way. 

Market size helps determine customers who can potentially buy your products, though it doesn’t mean the entire population consumes your product. 

Estimating your market size empowers investors to know whether there exists an opportunity for a product to become profitable. 

So, it’s imperative for new businesses or businesses launching new products to understand how to calculate market size

In this article, we explore different ways using which you can determine your market size.

4 Strategies to Effectively Determine Your Market Size

Here are four strategies to effectively determine your market size. 

1. Bottom-up Market Size Analysis

A bottom-up analysis estimates the potential sales to determine a total sales figure. Using this approach, businesses of all sizes can understand where they can sell products, the slice of current sales they can capture, and the sales of similar products. 

While this approach to market sizing is challenging and time-consuming, it provides accurate results. Overlooking the benefits of market size can make you commit the same mistakes as that of Kodak. 

Before the 90s, Kodak films were synonymous with photography, and the company sold a whopping 4.5 million units in 2000. But when digital technology paved its way, the company managed to sell only 28.3 million units in 2007. Instead of doubling or tripling their sales, Kodak failed to understand what digital meant to the available market and customers. As a result, the company is now an excellent source of business case studies of companies that failed due to ignoring the importance of market sizing. 

If you don’t want to meet the same fate as that of Kodak, focus on bottom-up market size analysis. 

 Here are some strategies to conduct bottom-up analysis:

A. Understand the sales of all market participants

One effective way to market sizing is calculating the total annual sales of all market participants. 

This strategy is best suited for industries with less competition and small markets. If you’re operating in a small market, it’s usually easier to find sales of all participants, making this approach yield accurate and fruitful results. 

However, if you’re operating in a large market or market where there are many competitors or if the market is constantly evolving, this may not be a perfect approach to identify your market size.

As a rule of thumb, using annual reports, you can find total revenue figures for a company. Still, it’s incredibly tedious to find data about a company’s sales by its product lines. So, when using this approach to market sizing, keep this rule of thumb in your mind. 

B. Weighted analysis of industry leaders

In high-tech and highly evolving markets, using the sales of all participants method to calculate your market size may not work. 

That’s where weighted analysis of industry leaders comes in. It’s a feasible and fruitful approach for fast-growing and large markets.

For example, when determining your market size using this method, you add up the sales figure of 5-10 large market participants in your industry. Based on the figure you get, you estimate the total sales of all the other market participants to understand total market sales. 

C. Survey customers

Another widely used approach is surveying customers to understand how much they spend on products similar to yours. It’s an excellent bottom-down approach to knowing your market size. 

In a market survey, you survey a population of customers and ask them questions about their spending habits within the market of interest. Based on the results obtained, you extrapolate the result for a larger market. 


Always keep in mind that this approach relies heavily on the accuracy of reporting by your surveyed customers. 

2. Top-down Market Size Analysis

In a top-down market size analysis, you start with a larger market, apply logic, and conduct research to estimate your share in that market. In a top-down approach, you primarily perform secondary research to estimate your market size. 

Two strategies to calculate your top-down approach using market analysis are:

A. Using a reference market

In this top-down analysis, you need first to understand the size of a reference market and then calculate the percentage contributed by products similar to yours. 

Though it’s an excellent approach to market sizing, you require the size of a reference market to calculate your market size. In instances where there is a documented and quantified study related to a particular reference market, it’s a great approach to market sizing. 

Companies that want to know their market size don’t use this approach because the accuracy depends upon how you calculate the reference number. 

B. Using population metrics

When a company uses population metrics for market sizing, it uses specific population sizes. It estimates the percentage of that population a company is likely to capture with its products and services.


So, according to this approach, 132 billion people live in India, and if a company captures 1% of the market share per year, it will have a customer base of 1.32 billion per year. 

Does it sound like a correct calculation of market size? Of course not! It’s a highly optimistic way of market sizing and rarely produces accurate results. 

3. Value Theory Approach

This approach to market sizing is practical when your product or service creates a new market. 

For example, suppose you want to penetrate the online payment methods with an AI-enabled payment solution. In that case, you may study the current online payment industry and focus primarily on digital payments. 


That will help you understand the opportunity and how well your audience will accept your new product. When using a value theory approach, you need to understand the willingness of a customer to pay for improvements your products or services are creating. 

In short, the value theory approach relies heavily on the estimated value provided by your products to customers. 

4. Triangulation Method

In most scenarios, using a mix of both top-down and bottom-up approaches makes sense. After determining your market size from each of these approaches individually, you present them together as an overall average. 

Another reason for using a triangulation method is maintaining a balance. If market size estimation from both approaches varies vastly, you may need to rethink your assumption to achieve accurate results. 

Market size example

Let’s understand how to calculate the market size of a company using an example. 

Let’s say you want to start a packaged drinking water business in New Delhi, India. Your first step is understanding how many shops are there in New Delhi that sell packaged drinking water. This can help you understand the total market to which you can potentially sell your product.

From your research, you determine 10,000 stores are selling packaged drinking water in New Delhi. Of that entire list, you plan to start by selling products into three prime locations in New Delhi. 

These prime locations have 2,000 stores selling packaged drinking water. You start talking to these shopkeepers and understand a 60% success rate in drinking water distribution. 

So, the market size for your business is 2,000 stores × 60% = 1,200 stores. 

Assuming that each store will earn a revenue of $5,000, the potential revenue for your business is 1,200 × 5000 = $60,00,000. 

This means you stand a chance to earn a revenue of up to $60,00,000 if you’re successfully penetrating 60% of the market in these three prime locations. 

However, these calculations don’t consider the packaged drinking water of competitors already available in these stores. So, when estimating your market size, businesses need to take a conservative approach and never get misled by fancy numbers. 

Calculating your market size

Regardless of whether you’re a new business or someone looking to gain entry into a product line, calculating market size matters the most when making intelligent business decisions. 

Apart from these strategies, the golden rule to market sizing is making an honest and unbiased opinion of how valuable and viable your products or services are for your target audience. 

While, in most cases, a bottom-up approach is likely to yield accurate results, you can even consider a triangulation method to get the best from both worlds.

However, the strategy you select depends upon the type of business you’re building and products you sell. Whether you choose a value-based approach, a top-down analysis, or a bottom-up approach, ensure you do it right. 

With the right market size in your arsenal, you can create ripples in your market and take your company to another level. 

Which of these strategies are you planning to use for determining your market size? Did we miss out on any strategy?

Please share your thoughts with us!


Author’s bio:

Priya Jain is a professional copywriter with 8 years of experience. She has an MBA and engineering degree. When she is not writing, you will find her teaching math, spending her day running behind her toddler, and trying new recipes. You can follow her on LinkedIn and Twitter.  

Email: priyajain1934@gmail.com

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