Market sizing model is a tool used by product managers to estimate the potential market size for a new product or service. It is a critical step in the product development process as it helps in determining the feasibility of the product and its potential profitability.
How does it work?
A market sizing model typically involves the following steps:
1. Defining the target market: The first step is to identify the target market for the product. This includes understanding the demographics, psychographics, and behavior of the potential customers.
2. Estimating the total addressable market (TAM): TAM is the total market demand for a product or service. It is the maximum revenue a company can generate by selling its product to the entire market. To estimate TAM, product managers use various sources such as industry reports, market research, and customer surveys.
3. Determining the serviceable available market (SAM): SAM is the portion of the TAM that a company can realistically target. It is the market segment that the company can reach with its marketing and sales efforts. To estimate SAM, product managers consider factors such as competition, pricing, and distribution channels.
4. Calculating the target market share: Target market share is the percentage of the SAM that a company aims to capture. It is based on the company's marketing and sales strategy, product differentiation, and competitive advantage.
5. Projecting revenue: Once the target market share is determined, product managers can estimate the potential revenue for the product. This helps in evaluating the profitability of the product and its viability in the market.
Why is it important?
Market sizing model is important for several reasons:
1. It helps in determining the feasibility of the product: By estimating the potential market size, product managers can evaluate whether the product is worth investing in. If the market size is too small, the product may not be profitable, and the company may need to reconsider its product strategy.
2. It helps in setting realistic goals: By projecting revenue, product managers can set realistic goals for the product. This helps in aligning the product development team and the sales and marketing team towards a common objective.
3. It helps in identifying opportunities: By understanding the market size and the target market, product managers can identify opportunities for growth and expansion. This can help in developing a long-term product strategy and roadmap.
Market sizing model is a critical tool for product managers to estimate the potential market size for a new product or service. It helps in determining the feasibility of the product, setting realistic goals, and identifying opportunities for growth. By using this tool, product managers can make informed decisions and develop a successful product strategy.