Market size is one of the easiest claims to make and one of the hardest to check quickly. A large total addressable market can be accurate and still tell you very little about the business in front of you.
Start with the definition
Most disagreements about market size are really disagreements about what the market is. Before checking the number, pin down the product, the customer type, the geography and the year the figure refers to. "The US logistics market" and "regional truckload freight for mid-sized shippers in the Southeast" are different markets.
Build it two ways
- Top down: start from an industry total in a published source and narrow it to the segment the company actually serves.
- Bottom up: count the potential customers and multiply by what each could realistically spend with the company in a year.
If the two approaches land far apart, the gap usually points to an assumption worth questioning.
Use public data
US government datasets are a good starting point for counting businesses and establishments by industry and geography. The Census Bureau's County Business Patterns and Economic Census publish counts of establishments, employment and payroll by industry code.1,2 Industry associations and public company filings add revenue context.
Check share claims too
If a company claims a share of the market, divide its revenue by the market size it used. If the result is far from the claimed share, one of the numbers needs explaining. Our earlier post walks through an illustrative example.
A market-size claim is a finding like any other. It needs a definition, a method and a source.