Census Data-Based market Sizing

Census-Based B2B Market Sizing

Census-Based B2B Market Sizing

Census-Based market Sizing

Note: This post is part of a series on 8 B2B Market Sizing Approaches to Quickly Assess Market Opportunity

Bottoms-Up Market SizingThis is a bottoms-up B2B market sizing approach (see the homepage for an explanation of top-down vs. bottoms-up market sizing) that enables you to size a market opportunity defined by industry, employment size, and/or geography. It relies on data collected via the US Business Census every five years. This approach is extremely sensitive to market definition and timing of the census survey. Therefore, it tends to overestimate market sizes. That said, it can give you a quick, general sense of magnitude.

When is it Useful?

The census-based B2B market sizing approach relies on government-collected business survey data to identify a market opportunity due to size, industry, sector and/or geography.

It is most applicable for early evaluation of a partnership, market, or acquisition opportunity. However, it does have a tendency to overestimate, due to its sensitivity towards market definition. That said, it can be a great sanity check for other sizing approaches because it is so quick and good for identifying appropriate magnitudes.

Market Definition Restrictions of Approach

Limited to US-only sizes, but similar approaches can be used with other country census data to arrive at a larger geography market size.

  • The maximum employment size threshold that the Census tracks is 10k.
  • Geographically, this approach can be used to get at state and MSA-level estimates.

A Step-by-Step Guide to Set Up and Execute a Census Composition Analysis

Step 1: Define the relevant/target market(s).  

  • In order to use this approach, your market definition will have to be limited to industry, sector, geography, revenue, and/or employment size characteristics. These are the only criteria that can be tracked via the US Business Census or calculated using publicly available employment multipliers.

Step 2: If industry/sector is one of the components of your market definition, you will need to find the NAICS code for each relevant/target market. 

  • You can use the following websites to find the relevant NAICS Codes: Census.gov and Naics.com. This census data is hierarchical survey data, so NAICS codes are only additive at the same level (Number of Digits in the Code) in the data if they are from the same industry subsets. Therefore, you’ll need to be cautious of the hierarchy that each NAICS code that you choose rolls up into. Failing to realize this will lead to double counting.
  • Census Source

Step 3: Use the NAICS codes for your relevant/target market(s) and the other market definition components to find an estimate of the number of companies in each market you are evaluating.   

Step 4: Calculate ASP in each of these markets with current customers so that you can get an estimate of size in dollar terms.  

  • If you do not have customers in the space you will either need to assume it is like another space with customers, search for stats online, search public competitor filing for data that provides color on this fact, or do a survey to figure out willingness to pay.
  • The survey should only be deployed with this approach if you are using it to validate other approaches. It is not worth running this type of survey to use with this approach in almost all instances due to the lack of precision.

Step 5: Multiply the ASP and company counts for each market and then add the estimates up. 

  • Remember that the data is hierarchical and make sure you do not double count. To avoid problems with this, I recommend setting the sizing up in Excel and including the NAICS number as one of the fields in the table. This way you will see if the different components you are combining have the same lead numbers, as this indicates they are from the same data sub-group.

Step 6: If revenue is one of your criteria, then you will need to find an employment multiplier to convert the revenue criteria into employment numbers. 

  • Many sources publish employee multipliers, so you should not have to look far to find these. You will have to look through the sources to find a match for your industry definition. One thing to keep in mind is that using a multiplier does through off the accuracy of your estimates because you are adding an additional assumption to your model.
  • Census Source, CNN Money Source

Step 7: Download the census data for the target geography (City, County, MSA, Group of MSAs, State, Region, or US) and relevant NAICS industry groupings and/or size groupings.

  • The 2010 Census Business data (most recent) can be pulled here. As you will see, there are many different cuts of this data. The right one will depend on your market definition components.
  • For example, if you are looking at sub-industries with employment requirements up to 10k and no geographic component to the definition, then you would use the following data set for your sizing.

Step 8: You will first need to determine if you want to count firms or establishments.

  • Most of the time you will want to be counting potential buying units, which is typically firms. However, this may not always be the case.

Example of Census-Based B2B Market Sizing in Action

Question: What is market size for a firm who sells to US-based architecture firms with greater than $2.5M in revenue and an ASP of $5,000 per year?

How many US-based architecture firms are there with greater than $2.5M in revenue?

  • Employee to Revenue Conversion: 20 employee minimum
  • Find NAICS Codes for target space: 54131 and 54132
  • Finding the right Census Data set: focus on data set that is most granular with firm size on the low end.
  • Note: Census Data is hierarchical, so components are only additive when have same number of NAICS digits.
What is the overall market opportunity for this firm?
  • Target Market Opportunity = Number of Opportunities * ASP = (1857+365) * 5,000 = $11,110,000

Additional B2B Market Sizing Approaches

Click here for the following how-to guides and stay tuned as more become available:

Marketing Manager, Pricing Strategy

Brandon Hickie is Marketing Manager, Pricing Strategy at LinkedIn. He previously worked at OpenView as Marketing Insights Manager. Prior to OpenView Brandon was an Associate in the competition practice at Charles River Associates where he focused on merger strategy, merger regulatory review, and antitrust litigation.
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