Strong Fundamentals

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How to estimate your potential audience

Thomas MacThomas

Marketer in Residence @ Forward Partners

Proving there is a need for your product or service should in part be assessed by estimating the total audience size for the product. If there is a large estimated audience this will show that if there is a need for your product then it has the headroom to grow.

Key takeaways

  • You can do either a 'top down' or 'bottom up' approach;
  • Total achievable market is smaller than the total addressable market - we show you an example;
  • Where data is scarce, use a proxy.

Why should you try and estimate your potential audience?

Potential audience size or market size is hugely important when establishing whether a business is worth investing in. Remember that investors will be looking to make significant double digit returns on their investment and this will usually come when your business scales. If your addressable market is not very large, then it will be hard to rationalise the investment given there is no scale for growth. It's important to note that alongside total addressable market size you also have an important factor which is how likely your addressable market is going to pay for your product or service. This will usually depend on how much of a problem the problem you are attempting to solve really is, a so-called 'pain' factor. The higher the pain factor of the problem the more likely people will pay for your product or service. The metric Total Addressable Market (TAM) is a metric people use when understanding what the total market opportunity in terms of revenue would be if your business had 100% market share, i.e. where the pain factor is not taken into account.

Who are your potential customers?

Before you try and estimate your audience size, you’ve got to work out who your potential customer is. The devil is in the detail here and hence “everyone” or similar is a really poor answer. There are two common approaches here, one is 'top down' and the other is 'bottom up'.

  • A top down analysis looks at reports and data from analysts about a wide market and then applies relevant information about your business to deduce applicable market sizes for your business. For a consumer facing product this could be done by looking at publicly available census data and then drilling down into your target market by making calculations or sensible assumptions.
  • A bottom up analysis takes much more raw data from behaviour that you're either measuring as real data coming into your business or from observing the business landscape around you at 'ground level'.

Bottom up - a worked example

Assigning identities is a useful way of starting a bottom up process. For example, you might be starting an ecommerce website which aims to sell customised motorcycle helmets. A sensible approach to understand who might buy these helmets is to look around, in this example, London and see who is driving motorcycles. You might notice that most riders seem to be men, a lot of them are commuters and a lots seem to be couriers and delivery drivers. You also notice that a far fewer number are women. So you could then try and build out some characters for these groups that you have identified, here is an example of how it might look:

  • James - city commuter, professional, 20s-30s - 30% of London motorcyclists
  • Steve - courier by profession, 30s-40s - 30% of London motorcyclists
  • Amanda - city commuter, professional, 30s - 10% of London motorcyclists
  • Tom - delivery driver by profession, 20s - 20% of London motorcyclists
  • Other - varied motorcyclists, 10% of London motorcyclists

You might then assess what the likelihood of all your characters to buying some of your helmets might be, I would tend to estimate on the side of caution here.

  • James - 15%
  • Steve - 5%
  • Amanda - 5%
  • Tom - 1%
  • Other - 0%

An interesting next step would be to try and get a handle on the number of motorcyclists in London. This is where you’ll need to do some research, Google’s a pretty good bet, and discover some relevant statistics. From five minutes of work you could discover these great nuggets of information:

  • 1.0m-1.2m active riders in the UK
  • 100k in London

Use data like this to perform some quick maths, which then will spit out an interesting audience figure:

Profile London Audience Est. Share of Audience Estimated
  A B A*B
James 100,000 30% 30,000
Steve 100,000 30% 30,000
Amanda 100,000 10% 10,000
Tom 100,000 20% 20,000
Other 100,000 10% 10,000

N.B. To get TAM (total addressable market) for London you would need to incorporate the price of your product to give you a revenue number for the London Audience. If your product cost £50, then your London TAM would be £5m (as it assumes 100% market share). Now you know you have 30k James’ in London and so on. Combine this audience size with your likelihood of purchase for your profiles and you get an estimated achievable market size:

Profile London Audience Est. Share of Audience Est. Purchase Propensity Estimated Market Size
  A B C A*B*C
James 100,000 30% 15% 4500
Steve 100,000 30% 5% 1500
Amanda 100,000 10% 5% 500
Tom 100,000 20% 1% 200
Other 100,000 10% 0% 0
  London Estimated Market Size 6700

So now you have an estimated market size of 6700 riders for London and you could then scale it up to the UK. You would need to take into account of any fluctuations in the makeup of your audience. For example, you wouldn’t expect non-urban driver mix to be consistent with London’s driver mix. If the sale price was £50 then the London achievable market size would be £335k. This is a simple example of how you can go about estimating your audience and then market from very little data using observation, Google, logic and a bit of maths.

Proxying less tangible products or services

If you have an idea for a business which sells less tangible or less observable things than motorcycle helmets you can always do some keyword research with the free to use  Google keyword planning tool. You can use this tool to discover how many people, for example, are searching for 'cloud based photo editing' and then run some audience estimates from the number of monthly searches for this term that the tool gives you. You should probably also include other related terms, for example, like 'online photo editing'. There will be some occasions where you won't be able to find relevant keyword data or analysts reports which are relevant to your business or market. In this case you might need to invoke a procedure called proxying. Proxying looks at similar or related areas to your product that you can draw explainable, logical parallels from. Be warned that finding a true proxy of your product's market will almost be impossible. As a result you will need to apply further logical assumptions which enable you to draw up a picture of what your product's market size may be. As with all assumptions they should be highly explainable.

Useful links:

Thomas MacThomas

Marketer in Residence @ Forward Partners

Tom is Head of Marketing at Forward Partners. He is an award winning growth marketer, having gained experience heading up the marketing function at high growth daily deals site Wowcher, online gaming firm William Hill Online and more recently the mobile app Bizzby. Tom helps our startups with marketing strategy and support, everything from PPC all the way through to TV.

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