One of the key questions that an investor asks a potential investment fund consumer and wants to hear a super answer to it is:
How big is the market for your project?
The market – all the potential amount of money in the world or region (such as Russia) that the project can earn.
Total Available Market (TAM)
Total demand market for product or service
Example: Food market, delivery market
Segmented Addressable Market (SAM)
The TAM segment that your products are targeting is a geographically achievable market
Example: premium restaurant market, last mile delivery market, dinner delivery market
Share of the Market (SOM)
Part of SAM, achievable in the short term within the current business model – how much you plan to earn in the next 2-3 years.
TAM > > SAM SOM
if it turns out in an arc, something went wrong …
The purpose of calculating the market is
assess the business development potential
The business owner and investor looks at the market each with his bell tower:
The owner needs to understand that there is enough money in the market for the business to grow organically at least in the next 3-5 years.
Investor wants to make money on the rapid growth of the company, which is impossible in the small market
“To overestimate the market
“Start working in a small market
I feel like you’ve got a question in your head.
“How do I think of my market to avoid mistakes?”
That’s what we’re going to talk about.
First, we will define the boundaries of your market, your market segment. Let’s go!
How many people have a problem that your product solves?
How many people are late to go home, because a lot of people are in traffic jams and do not know how to get around them?
How many companies are involved in video rendering tenders each year?
How many people use social media every day?
To answer this question on will help segmentation and a couple of three hours of exploring your customer segment
What characteristics does your potential client have? Who is interested in your product?
And here are a couple of examples of what characteristics can be segmented
And here you should get some figure that shows the size of your segment. Some have more, some less. Who can have one at all (yes, it happens).
The method of dressing, trial, error, driving to the fortune teller found a pattern: the larger your segment, the more, as a rule, the lower the average check. There are exceptions, but that’s another story.
You can clearly describe this story as follows:
You can find fault that some of the brands have more check, and some customers – do not need. Just look at the market size curve that we’re getting.
Have you started multiplying your segments by average checks? It’s cool! And the markets are big? Hmm… That’s good, but there are a couple of interesting pieces and questions to ask.
The project market is how much the project will be able to earn in the future 3-5 years. This is our SOM, if you go back to the top of the page.
SOM is considered to be based on internal project limitations:conversions in channels, competitive advantages, average check, etc.
Let’s start with the conversion. Imagine that we want to earn 300 million good currency a year. What size should the customer segment be so that everything is fine? And what to set the price for the goods? Below is a sign that shows what the conversion to a purchase should be to earn the coveted 300 million. Grew up. rub.
The average conversion in Runet is 0.5% to 1%. It is better to focus on this figure in the early stages.
Imagine that “the number of potential customers” is the amount of traffic that can pass through you. Is there so much on the market? Often not.
The next point is the market stage.
When calculating, it is necessary to lay as far as the market can grow in the near future or, on the contrary, to fall. Or maybe chatbots have become popular again and the world is going through a second outing of the hype?
What’s your business model? How much money do you have left on the proceeds?
You have SaaS and you sell air – all your money, you don’t share with anyone
Or suddenly you’re an Airbnb that earns on commissions: the size of the market is the size of the commission, not the whole check
And finally a couple of important clarifying questions:
How is your market divided? It beats a bunch of small players without an obvious leader or acts a large mastodon, which monopolistic eats all the cream, leaving crumbs to everyone else.
Do you have a marketplace and it is not clear how to count money in this market? Count from buyers, because they have a budget that sellers should spend on your product or what you sell there.