Building a Market Forecasting Model
What is a Market Model?
A Market Model identifies the the market you want to target and the projected annual revenue. Market models help you understand how your market and revenue would grow. This component is a critical part of a business plan, providing clarity on your ability to penetrate a market, potential customers that could be reached and the revenue that can be generated.
A well designed and analyzed market model helps:
- size your market so you can model demand for your product or service and make decisions for geographic expansion, market entry and product development based on market health, strategic fit for customers.
- analyzing and assessing market dynamics and the key opportunity factors including highly viable and business accelerating use cases aligned with key customer personas.
- helps you get ahead of competition with thorough competitor profiling, understanding competition moves and public messaging.
- tap into underserved and unmet market needs and plan your go to market strategy based on attainable market share and revenue projections.
Evaluating Market: Types of Market Models
There are two types of Market Models.
- Top-down market sizing: Takes the market as a whole, macro view (Total Addressable Market — TAM), that is then split into the identified segments that you plan to address (Serviceable Obtainable Market — SAM) and the projected revenue calculated. This is done by identifying the segments that you desire to pursue, estimating the potential customers for those segments and multiplying by the price. Eg. 100K customers, with 5% penetration you address 5K customers.
- Bottom-up market sizing: You pick a base unit like number of sales representatives, number of agencies, number of Business Development Managers, etc and determine the revenue that can be generated by that base unit to scale your business. Here, the estimated potential sales of each sales unit is calculated to determine the total revenue.
Top-down Market Sizing Template