NURTURE CONSULTANTS BLOG: GETTING YOUR MARKET SIZING RIGHT FOR YOUR PITCH DECK
This one is always a hot topic; I have seen great examples and many poorly thought-through examples. This is a critical area for founders going through the fundraising process, so I wanted to clarify this area.
A prominent area that any investor will want to know is what the potential is in your chosen market. It is something you should know both in volume and value. You must support these numbers with how you intend to enter or gain traction and share; your go-to-market slide.
There are two main methods used; one is top-down, and the other is bottom-up.
Top Down – macro-economic trends.
The TAM, SAM, and SOM slide is a commonly used overview in pitch decks. You can use another method, and I will continue this later. Let me first break down what this means.
TAM – Total addressable market.
The global fitness industry is currently estimated to be worth $90bn set to grow to $115bn. If everyone in this industry who could find value in your product bought it, this would be the size and value.
For example, you have a fitness app focusing on weightlifting, a niche area. In theory, everyone in this industry could be interested in weightlifting. The app’s positioning, messaging and packaging could be adapted to appeal to new market segments, so this would be your TAM.
SAM – Sizeable addressable market
This next part should be easy to work out now; what portion of the market is fitness apps? Statista tells us it’s 3%, with a forecast to grow to 5% by 2027. This is relatively low growth, but if you look at online and digital fitness, it has a much higher growth from 9% to 18% (NB. look into what base this is from). You can start to see how valuable this becomes in. your product planning.
SOM – Sizeable obtainable market
Not all of those using fitness apps will be interested in weightlifting. What percentage of these fitness apps does your current product appeal to? You could also look at a specific country and share of the weightlifting market. The key is to show a well-thought-through, evidence-backed plan. Demonstrate how this will be a repeatable, scalable, and profitable business.
If you say you are going after everyone, e.g., TAM, you have lost all credibility.
The second method I see less commonly used is the bottom-up method.
Bottom-up
You may have entered a market where you are bringing something new or niche where the data isn’t available, or you can demonstrate strong evidence that you know your customer and that they are willing to pay. You have a compelling strategy to acquire them, allowing you to share further evidence in your deck. To use this method then, you need to understand these things.
1. Who is your minimum viable segment?
2. What is your customer willing to pay for your product/service?
3. What is the estimated number of these customers available to you?
You will then have the plan to support how you will reach them and how you will continue to grow.
The second stage of this is knowing what price they will pay. A bottom-up market sizing is.
= The number of customers X price they are willing to pay.
In both market sizing models, the process (GTM) you are deploying to get there is key, not throwing up numbers. It will be this that investors will scrutinise you on.
Many other areas are within the market research stage of building a GTM, and I go more in-depth with my Six Pillars – Building a Go-to-Market plan Program. The next one starts in May, and places are limited to six. If you would like more details about this, you can email me at sharon@nurtureconsultants.com, or if you prefer to chat to see if it is right for you, then book a call from my website under the services and book tab.
I hope you found this brief overview helpful. Please share with anyone in your network that you think may benefit too.
Thank you
Sharon
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