Leveraging the Power Curve for B2B Market Sizing

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B2B Market Sizing: Leveraging a Power Curve

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

Measured CurrencyMarket sizing is as much an art as it is a science — the way you define the approach will typically lead you to different answers. The good news is that sometimes, there are cues you can pick-up about the market that make sizing it very quick.

One example of this is heavy market share concentration in the target market being served by a company. This is commonly referred to as a power curve.

When is it Useful?

Top-Down Market SizingA power curve is an indication that there may be a limited number of companies in the space that are large enough to purchase your product, and you may be able to figure this out just by finding a list of the top 100 firms in the space.

An Example of How to Leverage the Power Curve for B2B Market Sizing

  • Target Market: Company sells to accounting firms in the United States with at least $20 Million in revenue.
  • Prior Knowledge: This space is dominated by the Big 4 (Ernst & Young, KPMG, Deloitte, PwC).
  • Hypothesis: May be extremely consolidated space, whereby we can quickly use the power curve to size the market.
  • Approach: Validate power curve hypothesis by searching Google for list of top 25 accounting firms by revenue and then top 100 firms by revenue to confirm this theory.

Leveraging a Power Curve for B2B Market Sizing

Insight: There is a power curve, but does it cut off too soon to be used for our sizing exercise? We said the minimum revenue was $20 million and the top 100 all have over $30 million in revenue.  This means we need to find out what is left in the tail to answer this question with accuracy, but we already have a sense of magnitude for the market and that may be enough.

How to Answer this Question: We can answer this question rather quickly using one of the following 3 approaches.  For the purpose of this exercise, I will explain what I found with all 3.

  • Question: What is total revenue of the accounting market? The top 100 firms account for $49,468,330,000 and the total accounting market is $374,000,000,000. However, this seems to include lots of other spaces. The other data is not quick to find on Google, so let’s move on to next question. If the data was trustworthy, then we would have taken the difference and divided it by our minimum target revenue. Adding this to 100 would have given us the maximum number opportunities.
  • Alternative Question: If you cannot find this number, you can try to see what percentage of total employment in this space is accounted for by top 100 and use this as a ratio to estimate total revenue in space. This data was not regularly available online. Additionally, this tends not to be as accurate and more time consuming.
  • Alternative Approach to Answer the Question: Map revenues of the top 100 firms and extrapolate out how many firms it would take to get down to $20 million in revenue. Unless you need a very precise number, this is a pretty fast way to get at your answer. By doing so, we are able to identify the regression equation for the trend as y = 12923x-1.355. Using this we can estimate that there are eight additional firms with more than $20 million in revenue.

Extrapolation:

Leveraging a Power Curve for B2B Market Sizing

Zoom In on Extrapolation:

Leveraging a Power Curve for B2B Market Sizing

Conclusion: The number of opportunities in this space is approximately 108.

Additional B2B Market Sizing Approaches

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Marketing Manager, Pricing Strategy