The Power of Bottom-Up Market Sizing for B2B Productization

Sean Gillispie
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Because productization can require significant investment, market sizing is often an important first step in testing the viability of an opportunity because business leaders need confidence that the investments have a good chance of paying off. Too often, B2B organizations rely on top-down market sizing to drive investment decisions. There seems to be an all-too-common practice of showing an opportunity is viable by arguing that you just need to capture a small percentage market share of a huge market segment in order to have a booming business. But this common top-down approach ends up misleading organizations into poor decisions because the models are designed mainly for direct-to-consumer businesses to make assumptions about vast markets. And these types of results provide no answer about near-term potential revenue.

 

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Many B2B services organizations don’t realize they have a major advantage in sizing a market. The big difference in B2B is that it typically targets a small enough niche that it is feasible to create an actual list of named prospects in the thousands or fewer. To put an even finer point on it, the initial prospects for a new product are often the existing customers. For this reason, B2B services organizations looking to productize should focus primarily on creating a bottoms-up market sizing that can guide decisions and create visibility on near-term revenue potential.

Bottom-up market sizing builds estimates based on specific data points and assumptions from existing customers and market segments. At Vecteris, we have customers who serve power utilities, U.S. school districts, specific financial ERP customers, U.S. manufacturers over a certain size, multi-national consumer packaged goods companies, government contractors, etc. In each of these cases, it is feasible to build a list of specific customers.

While I was at Social Solutions, I conducted a comprehensive market sizing. Social Solutions’ customers are non-profit organizations for human services. To demonstrate how to do a bottoms-up market sizing analysis, I will walk through three simple steps and use what we did at Social Solutions as an example for each.

 

Define Target Segments:

With bottoms-up or top-down market sizing, it is essential to first identify which customer segments are ideal to serve. Segments can be defined by various criteria, including demographic, geographic, psychographic, and behavioral factors. In early phases of market sizing, you may not yet know which segment may be most attractive, so you can consider several, but eventually, you will want to get almost uncomfortably narrow in planning where to start.

Social Solutions Example: When defining target segments at Social Solutions, I considered a broad set of segments before narrowing down after evaluating market potential against product fit. Those broad criteria are as follows:

  • Only consider non-profits in the US over a certain annual revenue, and we created revenue buckets to determine the best segment to narrowly target later.
  • Only consider non-profits performing human services.
  • Only consider non-profit segments where we already had multiple customers.
  • Further narrow the types of human services in the following areas: Housing & Community, Health & Social Services, Education, Workforce, Justice, Refugee & Immigrant.

 

Build a List of Customers and Prospects:

Top-down approaches rely on third-party sources for aggregated company counts in certain segments, but in the bottoms-up approach, you build a list of actual companies or buyers. The starting point for most B2B services organizations looking to productize should be the existing customer base. And there are now more resources and tools than ever to acquire lists of prospects, such as Apollo.io, Zoominfo, Salesforce’s data.com or “lightning data”, Hubspot insights, Guidestar for non-profits, etc.

Social Solutions Example: Because all non-profits must submit a tax form 990 that is public information, I was able to create a prospect list for Social Solutions by filtering on the specific segment attributes we had defined and create a more targeted list of non-profits for our sales and marketing teams.

 

Refine The List With Market Sizing Assumptions Grounded in Reality:

Because most B2B services organizations have an existing customer base, it is feasible to identify certain attributes that help build better assumptions for the market sizing model. This knowledge allows organizations to make two important assumptions: 1. the average potential price a given customer may be willing to pay per unit of value, and 2. The attributes of an ideal customer profile, including what the unit of value should be. When launching a new product, it is important to remember that the business model is often very different from the services model, so in most cases, direct customer research will be necessary to refine the model to validate key assumptions.

Once the list is refined, it turns out to be very powerful because you can hand this list to the marketing and sales as the prospect list to target. Marketing can start building campaigns, and sales can establish territories and start making pipeline estimates.

Social Solutions Example: We knew from working with many non-profits the size of the case management team who would be using the software directly in relation to the revenue. We also knew more about which sub-segments we served best. And finally, we knew the value of our solutions to our customers’ ability to operate efficiently and secure additional funding. This allowed us to make an estimated average price per user, allowed us to make assumptions on the number of users for each organization on the list, and allowed us to add a few additional fields to our list to identify the most attractive sub-segments into an Ideal Customer Profile (ICP) that is most likely to buy across multiple product offerings. With this information in hand, we could better target our product roadmap and give our sales and account management team a list of most likely current customers who would expand with us and targeted lists of prospects who are most likely to buy.

 

Market sizing through a bottoms-up approach creates a foundation for product management, marketing, and sales to build on.  It should be continually refined as more research is performed and as you start to sell into the market. Building a solid model in the first narrow segment provides tremendous learning and models to utilize as you expand into new segments. Regularly collect and analyze data to refine your market size estimates. This iterative process helps in making more informed business decisions.

 

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