Estimating market size for an innovation with data from Primary and Secondary Research

How do we estimate market size for an innovation? Here’s how we did it for one of our innovations – first, using data from secondary research and later, primary research (Survey).

The innovation is an IT solution that addresses the IT needs of SMEs (Small and Medium Enterprises) who use Microsoft Excel to capture their business data and manage their daily business operations.

Estimate market size in terms of:

  1. Total Available Market (TAM): Size of the pie
  2. Target Market (TM): Slices that we can eat

As part of our secondary research, we identified various reliable sources to get data. In this case, we used the data published by Ministry of Micro, Small and Medium Enterprises (MSME), Govt of India @http://www.dcmsme.gov.in.

We received raw data from the above source and filtered the data as follows:

# of SMEs within our city of domicile: 15,555
# of SMEs within our city of domicile and with turnover greater than Rs.25 lakhs: 984
# of SMEs within our city of domicile and with turnover greater than Rs.25 lakhs and who are into Discrete Manufacturing: 197

We then used primary research technique of Field Survey to estimate the size of those 197 SMEs who are using Ms-Excel in atleast one department.

Based on our primary research, the # of SMEs within our city of domicile and with turnover greater than Rs.25 lakhs and who are into Discrete Manufacturing and using Ms-Excel in atleast one department is: 78 (0.5%).

Next, we extrapolated the filtered data to get TAM in our state:

# of SMEs in our state: 80,501
Estimated size of TAM (# of customers): 404
Cost of our proposed solution: Rs.3,000/- per month (subscription based)
Estimated size of TAM (Rupees per Year): Rs.14,544,000/-.

Finally, estimating TM from TAM depends upon the organization’s capacity planning and marketing strategy.