How to Approach Market Sizing Based on Resource Constraints

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Viewing a Market Size 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.

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“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

Pros

This approach provides a realistic look at a market that can be taken within a given timeframe.

Cons

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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Marketing Manager, Pricing Strategy