Hi everyone. I am struggling to understand how a bottom up approach to market sizing is used to solve estimation cases. More particularly I want to know the strategy so I can solve for Tech, SAAS cases. Can anyone help out or point me towards the correct thing?
Thank you
Hi there,
Stating the somewhat obvious but there is no single strategy for these type of things but let me start by framing how top-down and bottom-up works.
Top-down starts with a whole, big market, and you gradually peel back the layers to reduce it to a more specific and relevant market to yourself. An example could be the global payroll market, which is $A, of which the US is B% of it, and SME businesses are C% of that, and D% of that value is enabled through technology solutions.
Therefore the market size for US SME-focused payroll SaaS solutions is $A * B% * C% * D%.
A bottom-up approach starts with a small unit and scales up from that to extrapolate what the sum of all similar units looks like. Extending the above example to the bottom-up approach would look like the following: The number of SMEs in the US is X, the average monthly spend per SME on payroll SaaS solutions is $Y and the penetration of payroll SaaS solutions in SMEs is Z%.
Therefore the market size for US SME-focused payroll SaaS solutions is X * $Y * 12 * Z%.
Hopefully you can see that there is no single bottom-up strategy to calculating market sizes because it’s highly dependent on the market and the data available to you. As a side note, it’s typical for you not to get all the information you need to calculate these things and instead to use your good judgement to make a reasonable assumption (e.g. assume the number of SMEs in the US is about 30 million).
Cheers,
B.
Hey Eesha,
This is exactly why I created a whole course on this!
My main advice is actually don't worry on if it is top-down or bottom-up. Rather just think what is the logical breakdown for this problem.
Here is a botom-up market sizing question + answer with a video walkthrough of it: Market Sizing WITH SOLUTION - Coffee Shop Revenue | PrepLounge.com
Market Sizing WITH SOLUTION - Number of Internet Users | PrepLounge.com
And here, I've actually shown you through bottom up AND top-down approaches for the same prompt:
Market Sizing WITH SOLUTION - Number of Taxis | PrepLounge.com
If you're still struggling, please shoot me a message! These are just sample videos from the full coaching program I run
Hi Eesha!
Feel free to drop an example of a prompt so we can discuss one specifically.
More generally, the way you would think about bottom-up (or at least one way of thinking about it) is that you start from the individual. That could be the individual's needs or their behaviour.
Once you have managed to estimate that, then you scale up to the target population.
If you do have a specific prompt in mind, comment below and I'll get back to it.
Sharing also an article here on bottom up vs top down structuring techniques that you might find helpful:
Best,
Cristian
Hi there,
To get the best value out of an answer, would you mind sharing some examples of what you want to size bottom-up?
Otherwise, we are talking purely theory instead of practical application, which does not get you very far.
All the best,
Florian
