calculating market size - bottom up example

where are the bicycle lights typically sold?

• bike shops

• sporting goods stores

• online

• big box stores

  • focus on bike shops

how many bike shops are in the U.S.?

• 4,000 shops

why talk to the shops?

• do they carry lights? 

• how many do they sell?

• is there a demand for lights?

talk to some bike shop owners to see if they would be willing to stock your new light

• talk to 100 bike shop owners out of 4,000

  • learn about the # of lights sold @ the shops on average per year → about 200 lights per year

  • learn about the # of brands they sell (market share) → estimate we can get about 30% of market share

  • learn about retail prices of the lights they carry → sell light to store for $30 but they will markup to $60-$100

what we learned:

• 30 stores out of 100 say “yes” to carrying your light 

  • 15 stores is more realistic → talk is cheap count on action

    • reasonable to presume that 15% of stores might commit to selling your light

math

• 15% of stores X 4,000 stores = 600 stores that will carry light

  • 600 stores X 200 lights per year X 30% of total light sales X $30 retail sale price

  • = $1,080,000 → estimated market size in dolalrs