“How did the product manager get leadership interested in that new product idea?”
“He showed them a billion-dollar total addressable market!”
Product managers use eye-catching market-sizing estimates of the total addressable market to gain executive interest and approval of their new product or service ideas. Although this approach can garner attention, it is just as likely to overlook key factors and overestimate realistic opportunities.
There’s a better way to size a market for technology products and services.
A structured approach that narrows down market opportunities from broad estimates to more targeted, segment-based opportunities empowers product managers to improve market-sizing estimates in product planning.
“Technology product managers must employ robust frameworks to quantify potential market demand and defend key business plan elements and assumptions,” says Emil Berthelsen, Senior Director Analyst, Gartner.
Use a four-step approach to craft thorough and grounded estimates of market opportunities and justify the assumptions in your estimates.
Step 1: Combine top-down and bottom-up research
To build more focused and defensible total market opportunity estimates, combine aggregate competitor sales data and industry forecasts along with more specific, “bottom-up” data reflecting the customer base dynamics of the product or service. This approach enables product managers to create more defensible estimates that address the company's specific customer definitions within the context of the broader addressable market.
Step 2: Shift focus from sizing the global market to defining the addressable market
Total available market is a segment or class of prospective buyers you have chosen to pursue first because of some unique positive characteristics shared by the members. Honestly assess and accept the strengths and limitations of your company's operations to refine a total market opportunity estimate into a total available market calculation.
Define and calculate the number of potential customers or users within the immediate sphere of your business's influence by applying important gating factors such as the company's segment focus, customer attributes and operational capabilities.