How to Size a B2B Market When the Number Has to Hold Up

The number in your head is probably too big

Most owners carry a figure for their market in their head. It came from an industry report, a conversation at a trade show, or a feeling. Ian Marshall of B2B International, a firm that sizes B2B markets for its clients, notes that clients often believe their market is much larger than it turns out to be, and that the belief usually rests on gut feel.

That matters because market size is where a marketing strategy starts. It is the measure of the potential available to you. A plan built on an inflated number spends against revenue that was never there.

Marshall's guide, The Secrets of Assessing B2B Market Sizes, sets out how researchers get to a better number. It asks for discipline more than it asks for data.

Decide how accurate the number needs to be

Before you calculate anything, name the decision the number serves. Accuracy costs time and money, and the decision sets how much of it you should buy.

If the number has to justify entering a market, it may be enough to know the market is at least a certain size. Once you know that, time spent getting more precise could be time wasted. If the number is there to guide strategic thinking, an approximation will usually do. And if the marketing investment that follows is small, it cannot justify a detailed and expensive study.

Marshall separates two measures, the total available market and the served available market. The accuracy question applies to whichever one you are assessing.

Build the number more than one way

A market size is nearly always an assessment rather than a measurement. So Marshall recommends calculating it two or three different ways and checking the answers against each other. There are three ways to come at it.

Top-down

Start with what is already published. Government statistics, trade association figures, industry reports, and input from people who know the market. Review all of it with caution and cross-check it where you can. The data rarely arrives in the exact form you need, so it often becomes the base for a further calculation. If you know a market's size in one country, for example, you can estimate it in another by relating it to a proxy such as population or GDP.

Demand side

This is the bottom-up approach. Find what drives demand, count the potential users, and model it. Marshall's example is workplace gloves. The obvious driver is the number of workers in an industry. You also need the share of those workers who actually wear gloves, and how long they wear a pair before it is thrown away. Change the inputs and watch what each one does to the total.

Supply side

Add up the sales of every company serving the market. The sum is the market. The difficulty is that a supplier's revenue rarely breaks out the product you care about, so press coverage, sales literature, and judgment fill the gap. Two shortcuts help. If survey data gives you market shares and you know one supplier's revenue, simple arithmetic gives you the others. And suppliers who will not share their own figures will often estimate their competitors'.

Five habits that keep the number honest

Marshall closes with five tips.

• Use both kinds of research. Secondary research builds the broad picture and shows where the gaps are. Primary research covers what only the people in the market can tell you.
• Talk to more than one audience. End users, suppliers, distributors, and manufacturers each see a different part of the supply chain. Industry experts, such as regulators and trade associations, are easy to overlook.
• Make assumptions with confidence, and say what they are. Even thorough work leaves gaps.
• Keep it simple. With a lot of data it is easy to get lost in the detail. Document every source so the number can be updated later.
• Bring in what the business already knows. People inside the company often know more about the market than they claim, and working through the calculation with them lets them see its logic.

What to do with this

Write down the market size you believe today. Then build it again from the demand side and from the supply side, with every assumption named. Where the answers disagree, you have found the assumption worth checking. Where they agree, you have a number you can plan against.