How to Approach Market Sizing Based on Resource Constraints
Note: This post is part of a series on 8 B2B Market Sizing Approaches to Quickly Assess Market Opportunity.
A market opportunity is only addressable if a company has the resources to go after and compete for it. However, top-down and bottom-down approaches do not account for this factor. Consequently, it is important to evaluate how resource constraints will affect a company’s expected share of addressable market (ESAM). Resource constraint market sizing does just that.
What is a Resource Constraint Market Sizing Approach?
It’s the process of estimating a market opportunity using production, capacity, and cost constraints. This is similar to sales forecasting within constraints. Typically, it is used alongside a demand estimate to estimate an overall opportunity available.
“Bootstrappers don’t build top-down models. For them, top down = belly up! Instead, they build bottom-up models, starting with real-world [cost, production, and opportunity rate] variables.”
— Guy Kawasaski, advisor to Motorola
This approach provides a realistic look at a market that can be taken within a given timeframe.
It fails to evaluate demand, so it can over-estimate what is there for the taking.
Example of a Resource Constraint Market Sizing Approach in Action
- Question: What is the market opportunity 1- year out for a firm selling marketing automation software to financial service firms with at least 50 million in revenue?
- Resource Constraints:
- Can bring on board 5 salespeople within budget this year
- Each salesperson can make 10 phone calls a day that get through to a prospect
- 3 weeks of vacation per employee
- 25% of attempts will convert into opportunities
- 20% of opportunities will convert into sales
- 5% of the sales calls will convert within six months
- ASP $240 revenue per year
- 20,000 target prospects
- Insight: Market size looks big enough to withstand well over a year of growth, so real constraint is company’s own resources.
- What can we expect the sales to be after first year of operation?
- 10 calls/day x ((365 days/year – 21 vacation days)*(5/7)) x 25% opportunity conversion rate * 20% sales conversion rate x $240/sale x 5 salespeople = $147,000
Additional B2B Market Sizing Approaches
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