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MARKET SIZING: EXAMPLE #2

(1) Identify the approach you want to take:

Bottom-up approach
Top-down approach

(2) Identifying key characteristics of the company, including:

Broad industry
Specific target industry
Region(s) of operations
Estimated market share

Step #1:

There are two key first steps you need to take before conducting a market sizing analysis: the first is identifying the appropriate approach to take - bottom-up or top-down, for the last example video we performed a bottom-up market sizing analysis, so for this one we will be using a top-down approach.

Next, you need to identify the key characteristics of the company you’re performing your analysis for which will inform what market and market segments the company operates in. These characteristics include, but are not limited to, the broad industry your company operates in, the specific target industry within that broader one, the regions of operations of your company, and the estimated market share your company will capture in the medium term. You should be able to gather this information from the entrepreneurs themselves.

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MARKET SIZING: EXAMPLE #2

Step #1 Applied:

Mexican Insurtech Company

Broad industry

Insurance Industry

Specific target industries

Auto Insurance Industry

Target geography

Latin America

Estimated market share (medium-term)

11%

Let’s move on to actually calculating the market sizes for our example company. For this example, I will use a made-up Mexican insurtech company. Please keep in mind all the company numbers and information used for this exercise is made-up as well.

Let’s identify the previously mentioned characteristics for our current example:

If we have a Mexican based insurtech company, the broad industry it operates in is the insurance industry. Let’s say the company currently offers auto insurance products - so its specific industry would be the auto insurance industry. It’s a Mexican company with plans to expand across Latin America, so the target geography is LatAm. Finally, based on their current market share and growth rate to date (say they have captured ~1.5% of the market so far in the past 1.5 years of operations), based on this historical data, the entrepreneurs estimate that in the next 7-10 years they will be able to capture around 11-15% of their market. To be on the conservative side, we will use the 11% number - as a general norm, it is always better to fall on the conservative side of assumptions when performing market sizing analyses.

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MARKET SIZING: EXAMPLE #2

In order to calculate the TAM, you need to:

Identify the market
Research publicly available data sources to identify the overall spend in this market

TAM DEFINITION: Total demand for a product or service

Maximum amount of revenue a business can possibly generate by selling their product or service in a specific industry
Showcases 100% of the market if a business were to acquire every single customer in it

Step #2: Calculating the TAM…

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MARKET SIZING: EXAMPLE #2

Identify the market:

Latin American Insurance Market

Research publicly available data sources to identify the overall spend in this market

$134.4B
Source: The Latin American Insurance Market in 2020, MAPFRE, 2020

…Step #2: Calculating the TAM

So, in order to actually calculate this TAM - let’s identify the market - we mentioned earlier that the broad category this company operates in is the insurance industry.

Then, the next step is likely the most critical one when performing a high-quality top-down market sizing analysis: you have to go research and find publicly available and reliable data sources that tell you general market information and market sizes. This can take time and sometimes be a bit frustrating, but once you find the right resource to pull data from, it’s all uphill from there.

At the end of this video I have included a slide with some tips and tricks for web searching and identifying useful and reliable sources on the internet.

For this particular example, after some time researching, I came across a great report from Mapfre, one of the largest insurance companies worldwide, detailing the state and size of the Latin American insurance market in 2020. You can find the link to access the full report in the pinned resources section of the Market Section Notion Page, as well as the embedded link in this presentation. According to this report, the overall spend in the insurance market in Latin America (which is the target geography of our Mexican Insurtech company) was estimated at $134.4B in 2020, so this is the size of our TAM, as simple as that.

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MARKET SIZING: EXAMPLE #2

Step #3: Calculating the SAM…

In order to calculate the SAM for this company, you need to:

Identify the segment of the TAM the company is targeting
Research publicly available data sources to identify the overall spend in this particular market segment

SAM DEFINITION: The sub-segment of your TAM that you could realistically capture based on your current business model

Maximum amount of revenue a business can possibly generate by selling its products or services to the potential customers who would realistically benefit from buying its solutions
Portion of the TAM that takes into consideration geographical and other logistical factors

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MARKET SIZING: EXAMPLE #2

…Step #3: Calculating the SAM

Identify the market:

Mexican Insurance Market

Research publicly available data sources to identify the overall spend in this particular market segment*

$27.1B
Source: The Latin American Insurance Market in 2020, Mapfre, 2020

*What to do if this more specific data point isn’t available?

Publicly available data sometimes isn’t as specific as we need it to be. In this case, a useful practice is estimating the SAM size by calculating what % of the total TAM population falls in this market segment (SAM).

For example, the Mexican population is 128.9M, the total Latin American population is 664.7M - what % does the Mexican population represent out of the total Latin American population? About 19% → Hence, 19% of $134.4B (TAM Size) = $25.5B (a good enough estimate).

So, if we’re calculating the SAM for our Mexican Insurtech, we need to identify which market segment our company is targeting - what geographical or other constraints we should take into consideration? For this example, we can identify the SAM as the Mexican Insurance market because our company currently operates only in Mexico and plans to double down within the country for the foreseeable future before expanding into broader LatAm. According to our report by Mapfre, the size of the Mexican insurance market is $27.1B. So that would be the size of our SAM.

Often times, the resource you found for your TAM will also include information about particular market segments within the broader market, which is the case for this example as you can see. However, if this is not the case, then you will need to do some additional research and find other credible sources that tell you the size of your SAM. OR, another way of calculating the SAM size if it’s not explicitly mentioned in the initial report you found is by drawing some reasonable assumptions about your TAM and SAM and then calculating a % of your TAM. For example, if your SAM were to be bound by geography, you can calculate the population living in your SAM as a % of the population living in your TAM, and then calculate that same % of your TAM market size. If we do this for our current example, the Mexican population is ~19% of the total population in Latin America. 19% of 134.4B is 25.5B, which is actually not that far off from the size of the market we found in the report. This is not a perfect science and there are certain assumptions that you will have to make but it often times works.

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MARKET SIZING: EXAMPLE #2

Step #4: Calculating the SOM…

In order to calculate the SOM for this company, you need to:

Identify the segment of the SAM the company is targeting in the medium term
Identify the market share the company will be able to capture in the medium term of this target market

SOM DEFINITION: The portion of the SAM that a business can realistically capture in the short-to-medium-term

Sub-sector of the SAM that a business is realistically able to target given the limitations of resource, presence of competition, and level of market awareness
SOM serves as a short-to-medium-term revenue goal

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MARKET SIZING: EXAMPLE #2

Identify the segment of the SAM:

Mexican Auto Insurance Market

Identify the market share the company will be able to capture in the short-to-medium term of this target market:

11%

Calculation:

The total spend on Mexican Auto Insurance products in 2020 was $4.9B
Source: The Latin American Insurance Market in 2020, Mapfre, 2020
11% of $4.9B = $542M

…Step #4: Calculating the SOM

So, if we continue with our example, let’s calculate the company's SOM.

Let’s say the company is currently focusing deeply on developing its auto insurance product and is not thinking about rolling out any other products in the medium term, so it operates in the Mexican Auto Insurance Market. Then, as we mentioned earlier, based on their current market share and growth rate to date, the entrepreneurs estimate that in the next 7-10 years they will be able to capture around 11-15% of the market. To be on the conservative side, we will use the 11% number.

So, per the great Mapfre report we found publicly available online, the size of the Mexican Auto Insurance industry is $4.9B in total. 11% of this is $542M, which would be the size of our SOM (which, again, serves as a short-to-medium revenue goal for the company).

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MARKET SIZING: EXAMPLE #2

Web Searching Tips & Tricks:

Don’t get frustrated & dig deep, very deep
Wording matters: use keywords, use synonyms, use “quotation marks” to indicate must-have terms
Perform an advanced google search and filter file types or type “pdf” at the end of a search
Use market research companies (e.g., Statista, MarketsandMarkets)
Get around paywalls for market research reports by subscribing with your email address to “learn more”, and communicate via email to ask for information snippets
Search for consulting firms reports (see this example of an in-depth report on the Global Retail Industry by Kearney Global Management Consulting)
Search on online scholarly databases (e.g., JSTOR, Google Scholar)
Useful sources to get population and demographic information are the IFC, the World Bank, the UN

Want to add your/your office’s best practices to this list? Please do so here!

Finally, as I promised earlier in the video, here are some tips and tricks for searching the web.

Searching the web for information can be quite overwhelming sometimes. This list includes some tips and tricks that our team has found useful over the years.

Our first, and probably most important advice is as simple as ‘don’t get frustrated, and dig very, very deep’ - sometimes the best resources are not the first to appear in a simple google search and finding an accurate, comprehensive, and reliable source can be time-consuming but very worth it in the end.

How you search matters, meaning, wording matters - use key words and use synonyms, if searching for eCommerce Indonesian market doesn't give you any results, try out searching for Indonesian retail market, and then mobile penetration in Indonesia, basically get creative and try multiple different terms and approaches. Also, use quotation marks for terms that you consider must appear. Another trick is to type pdf at the end of your search to filter by file type and get lengthier, more in-depth reports, or you can also directly filter by file type by doing an advanced google search.

Some useful resources to look for in-depth market analysis reports include the obvious market research companies such as statista and marketsandmarkets, and even though most reports are often times behind paywalls, you can surely find some that aren’t, and then another useful trick to get around these paywalls is subscribing to receive further communications via email and ask for additional snippets of information seeming interested in purchasing the report - this won’t give you access to the full report but will provide you with some useful market insights. Other resources include consulting firm reports which are publicly available a lot of the times, or scholarly databases like JSTOR or Google Scholar. And, finally, institutions like the IFC, the World Bank, and the UN are useful to get population and demographic information.

I hope you find these tips useful, and please feel free to add any of your own best practices for web-searching and information finding to the Market section notion page in the section under this video (linked in this presentation as well). Thanks again to all for listening and I hope you enjoyed this video!