Target Market Slide

Investors like to see that lots of customers experience the problems that you are solving.

This gives them an idea of the revenue potential for your business and the size of the opportunity. In the market section, you need to define 👇

(1) Who are your target customers?

(2) How many customers are there in your target geography and market segment?

(3) How much money do they spend on similar products annually (market size)?

(4) How much will the market grow in the next 5 years?

The more stats and data you have from relevant and reputable sources, the better 💪

There are three ways to size the market ✍️

1. BOTTOM-UP

Target market size equals (1) the number of potential customers, multiplied by (2) how many units of product they buy, multiplied by, (3) the average price per unit.

2. TOP-DOWN

You start with an estimate from a reputable source of the overall market size. Then you apply some filters based on your target customer, your offering, and geography to narrow it down to your specific, and more realistic, target market size.

3. COMPETITOR MARKET SHARE

Sum up the revenues of your main competitors which publicly publish their revenue numbers. Then estimate the total market share of these competitors. Market size equals (1) Total competitor revenue, divided by (2) their market share.

The best practice is to calculate the market share using all three approaches with the hope that you come to similar market share estimates ✔️

↪️This is called TRIANGULATION

If you come to similar market share estimates, you have a solid and defensible market size analysis. However, in most cases, you will not have enough information for all three approaches or you will come to very different numbers with each approach.

In this case, the Bottom-Up approach is best if your business is entering a new market or trying to replace an existing market with a very different solution than the current market offerings 🤝

An example of this is Modeliks which offers a SaaS business planning tool when currently 98% of business plans are created in spreadsheets and word processing tools.

🍀The Top-Down and Competitor Market Share approaches are better if you are entering an established market with a similar solution to the existing market offerings.

An example of this is a furniture manufacturer that still offers furniture like all other furniture manufacturers but with its signature design.

Presenting your market sizing analysis

Usually you will want to present the following market size numbers:

Total addressable market (TAM)
TAM is the total market demand for a product or service in your target geographic area and your target customer segments. For the Modeliks SaaS business planning tool, this is the total market demand for business planning solutions for small and medium size companies.
Serviceable available market (SAM)
SAM is the total market demand for your service limited to your offering. For Modeliks, this would be the portion of the TAM that uses SaaS products for business planning.
Serviceable obtainable market (SOM)
SOM is the portion of the SAM that you plan to capture over a specific period of time, usually within 5 years. Or simply put, the revenues you plan to generate within 5 years.
Expected growth rate of the SAM
This is especially important when estimating the market size of new markets. A new market could be small currently, but if high growth is expected in the near future, it can become sizable within a few years.