White Paper: Determining B2B Market Size And Market Share


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In this white paper, we will present two scenarios that any CEO or marketing leader can employ to determine market size and/or market share numbers.

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White Paper: Determining B2B Market Size And Market Share

  1. 1. A BizCompare White PaperOctober 2010 Determining B2B Market Size and Market Share By: Geoff Vincent Founder & CEO BizCompare Inc.
  2. 2. Determining B2B Market Size and Market Share - IntroductionYou’re the CEO of as growing B2B business. While things have been going great, you don’t reallyknow the true potential for your company. Specifically: What is the size of the market that you play in? What is your current market share?The answers to these two questions are the foundation for your Marketing planning. Thechallenge is how to answer these questions and have confidence in the numbers.In this white paper, we will present two scenarios that any CEO or marketing leader can employto determine market size and/or market share numbers.The first scenario is what I call the “cheap and cheerful” solution that costs nothing but time. Itanswers the question:  What are all the general industries to which your customers belong?  Approximately, what is the size of your market?The second scenario is more involved (and will cost a bit of money) but will give you much moredetailed information such as:  What are all the specific industries to which your customers belong?  More specifically, what is the size of your market?  What are the predominant “firmographics” for your customers (i.e. sales, employees, etc.)  What is the profile of your best customers?  How many prospects match that profile?Let’s get started!Copyright Geoff Vincent BizCompare Inc. 2010Page | 2
  3. 3. Determining Industries and Market Size – The Cheap and Cheerful MethodHere’s a 4 step process that won’t take you longer than a few hours to complete. When you aredone, you’ll know approximately what industries you play in and the market size. Here goes:1. Generate a short list of some of your CURRENT customers. This needs to be a list that is manageable but also large enough for some commonalities to emerge (more on that later). I recommend you get a list of 20-25 of your largest customers and another 20-25 of your fastest growing customers*. You need their company name, street address, city, state, zip and phone. Presumably, you would like to have dozens more just like them. Put all this information in a spreadsheet. * While I suggest a total of 40-50 customers, if possible I would advise trying to use more customers in your analysis. This will just increase the sample size, ergo the accuracy level.2. Indentify the industry to which your customers belong. This next step will take a few hours because you need to do some high level research on each of your customers. However, this is an easy task so if you have an assistant, a sales administrator or any person with some smarts and eye for detail, so you can delegate the task. Objective: You want to indentify the NAICS code for each customer. One customer at a time, cut & paste the customer’s name and address into Google. Here’s an example for a fictitious company: Sample Company 1234 Anywhere Ave Sacramento, California 95838. A Google search would show a result as follows: Look for search results for your customer in business directories (as highlighted above) like BizCompare, Manta, AllBusiness or others. Next, click on one (or more) of the business directory links and look for the company’s NAICS code. Example:Copyright Geoff Vincent BizCompare Inc. 2010Page | 3
  4. 4. The number “561499” is the official NAICS numeric code. The words “All Other Business Support Services” is the official NAICS description. Record the number and description in separate columns in the spreadsheet beside each customer name. Repeat for all customers. You now have 40-50 of your best customers all in one spreadsheet ready for analysis.3. Now, indentify the DOMINANT industries by looking for industry patterns. Go to the NAICS description column and apply a “sort” or “filter” function. Both actions will deliver the same result which is to cluster companies by NAICS description. Now, perhaps for the first time, you are looking at objective information telling you the specific industries to which your best customers belong. What is the data telling you? How many unique industries are there? What are the industries with the most occurrences? You’ll likely see a classic 80/20 rule emerge where about 80% of revenue will come from 20% of the industries. Starting with the ones that occur the most (the 20%) you now have your target industries to help fuel your growth.4. Look for the total number of companies in your target industries. Now you have your top NAICS industry descriptions and you want to find out how many companies are in those same industries. You have a couple of approaches to choose from:  You can do a Google search using the industry phrase (“5614999 - All Other Business Support Services”) and, again, look for sites like BizCompare, Manta, AllBusiness or a government site like the U.S Census Bureau. Or  You can simply go directly to these sites and search/browse for your target industry. Either way, in short order, you will be presented with the number of companies for that industry. Example: Note: When looking for number of companies in a specific industry, there are bound to be some variations between sites and database. So I suggest that you look at 3 or more sites toCopyright Geoff Vincent BizCompare Inc. 2010Page | 4
  5. 5. the see number of companies on each site, take an average or select a number you’re most comfortable with. Complete! You now have:  Your dominant industry classifications  Your approximate market size Next steps: You are now equipped to go to any business list provider and request quotes by providing them with the NAICS industry classifications you just researched.Copyright Geoff Vincent BizCompare Inc. 2010Page | 5
  6. 6. Determining Industries, Market Size, Firmographics and “Best Customer” ProfileThis is a somewhat more elaborate effort and it will cost some money but it will give yousubstantially more detailed information to base your planning upon. Let’s dive in:1. Generate a list of your CURRENT customers. You want to generate a list of ALL your very good present customers. Eliminate dormant customers, poor payers, perennial money losers (ones that you keep just for the cash flow but would otherwise “fire”) and any other customers that, for whatever reason, you could live without. Your list should now represent the customers that you would consider to be your best customers. Put them all in a spreadsheet. For each customer, include company name, full address with zip code, phone number and you might as well include any other data at hand like their sales rep’s name, sales, average sale (if applicable), source (how they came to you), etc., all in separate columns. Presumably, you would LOVE to have hundreds more customers just like them.2. Indentify the industry to which your customers belong. This next step is the part that will cost some money because you will need to engage a data cleansing and append company. These companies maintain massive databases of virtually all companies in the U.S. (and internationally) with rich information on each company. They provide data cleansing and enrichment services and will also sell lists of companies for marketing purposes. They will take your database and, in general, do the following:  Apply an address correction software to your data (this helps with matching)  Run your database against their universe of companies  Endeavour to match each company in your database to the same company in their universal database based on company name, street address, city, state and 5-digit ZIP Code  The average percentage match rate is 30% - 60%, but varies depending on the accuracy of the data in your list.  They will return your database with extra data appended to each matched record that can include employee size, sales volume and NAICS code (all recommended). Cost: I researched one provider of this kind of service, a company called Melissa Data. They have a minimum order fee of $500 but they charge based on the size of the initial database you give them, the elements you want to append and the percentage match rate they ultimately achieve. Let’s show an example using published pricing from Melissa data: You submit 10,000 records and you want employee size, sales volume and NAICS code appended to as manyCopyright Geoff Vincent BizCompare Inc. 2010Page | 6
  7. 7. records as possible. They achieve a match rate of 40%. Their cost would look something like this: For 10,000 records Match rate Appended Price per 1000 Cost* Employees range 40% 4,000 $60 $240 Sales volume range 40% 4,000 $60 $240 NAICS code 40% 4,000 $69 $276 Total Cost $756 * Example: 10,000 x 40% x $60/M = $240 Match rate: You may wonder why only 40% or so are matched and this may seem low to you. However, in the world of basic data matching, 40% is not a bad result. It is possible to achieve a much higher rate, perhaps as high as 75% but that would entail a much more elaborate matching process that comes with a price tag that is many multiples of the solution I’ve outlined above. Also, in this example, we matched 4,000 and having that as our sample set should deliver a statistically accurate outcome. So it’s not absolutely necessary to have a high match rate to get your desired outcome, which is a profile of your best customers. Confidentiality: You may have reservations about data security and the confidentiality of your customer information in the hands of a third party. What I can tell you (and I worked for Dun & Bradstreet for 10 years) is that companies who do this kind of sensitive data work go to great lengths to handle a customer’s proprietary data with utmost care and security. Frankly, they have to because if there was even a whiff of data security issues, it could do serious harm to their business. In short, they have maximum incentive to handle your data with extreme caution. In this example, you would get your full database back and 4,000 of them will have this key firmographic info appended to it. This is your raw database to start the next phase of the work.3. Develop the KEY firmographics of your database. Using the matched data, you now want to do a few database exercises to give yourself separate views of sales volume, employees, NAICS code and State. I’ll show you examples of these in a moment. How to do the analysis: There are probably a number of methods and softwares that can enable you or someone on your staff to do these analyses. I prefer to use the Pivot Table function in MS Excel because it’s a commonly used software and (for me) it’s not too difficult to learn. Here’s a good introductory video about Pivot Tables. The purpose is to take our 4,000 lines of data and collapse it into useable tables. In other words, we’re going to take data and turn it into information. When the raw data is organized into summarized tables, you can quickly see where the numbers cluster. TheCopyright Geoff Vincent BizCompare Inc. 2010Page | 7
  8. 8. clusters for any given firmographic element are what I call the “Sweet Spot” and all of the sweet spots combined provide a “Best Customer Profile”. Please note that you are the one who identifies the sweet spots. The pivot table function does not do this for you. This is where your best judgment comes into play. Let’s do an example using our 4,000 matched database scenario. You’ll use Pivot Tables to develop summarized tables for Sales Volume, Employees and NAICS code. Here’s a view of the tables you should build using the Pivot Table function: Sales Volume: Sales Volume Customers # Customer % $1 - $500M 181 4.52% $500M - $1MM 1390 34.75% $1MM - $5MM 1142 28.56% $5MM - $10MM 313 7.82% $10MM - $20MM 231 5.76% $20MM - $50MM 278 6.94% Over 76% of your customers have $50MM - $100MM 237 5.92% sales volume between $500,000 and $100MM - $200MM 149 3.72% $20 million. Your sweet spot are all $200MM - $500MM 19 0.47% companies within this sales volume $500MM - $1 Bill. 19 0.47% range. Over $1 Bill. 43 1.07% Grand Total 4000 100% Number of Employees: Employee Range Customer # Customer % 1-9 1501 37.53% 10 - 24 886 22.15% 25 - 49 614 15.35% 50 - 99 425 10.63% Almost 86% of your customers have 100 -199 312 7.80% between 1 and 99 employees. Your 200 - 499 57 1.43% sweet spot are all companies within 500 - 999 40 1.00% this employee range. 1,000 or more 165 4.13% Grand Total 4000 100%Copyright Geoff Vincent BizCompare Inc. 2010Page | 8
  9. 9. Top Industries (by NAICS):NAICS Code NAICS Description Customer # Customer %561421 Telephone Answering Services 695 17.38%561422 Telemarketing Bureaus and Other Contact Centers 445 11.13%561439 Other Business Service Centers (including Copy Shops) 325 8.13%56144 Collection Agencies 216 5.40%56145 Credit Bureaus 191 4.78%561491 Repossession Services 155 3.88%561492 Court Reporting and Stenotype Services 135 3.38% Your customers are561499 All Other Business Support Services 100 2.50%56151 Travel Agencies 95 2.38% derived from 153561591 Convention and Visitors Bureaus 91 2.28% different industries561599 All Other Travel Arrangement and Reservation Services 88 2.20% but only 19 NAICS561611 Investigation Services 82 2.05% industries make up561612 Security Guards and Patrol Services 79 1.98%561613 Armored Car Services 77 1.93% 76% of all customers.561621 Security Systems Services (except Locksmiths) 65 1.63% Your sweet spot are56171 Exterminating and Pest Control Services 59 1.48% all companies within56172 Janitorial Services 58 1.45%56174 Carpet and Upholstery Cleaning Services 55 1.38% these 19 industries.56179 Other Services to Buildings and Dwellings 49 1.23% All others (134 NAICS codes) 940 23.50% Total 4000Customers by State: State Customer # Customer % NY 454 11.35% IN 375 9.38% Optional information: With more than PA 345 8.63% 70 percent of customers coming from FL 306 7.65% just 10 States, this can show either TX 269 6.73% a) regional strengths to build on OR CA 247 6.18% b) a missing opportunity to expand OR 239 5.98% into under penetrated States. OH 226 5.65% NH 195 4.88% NV 188 4.70% Others 1156 28.90%Grand Total 4000 100%Copyright Geoff Vincent BizCompare Inc. 2010Page | 9
  10. 10. Our final analytical step is to combine all of these “Sweet Spots” into one profile.This is the firmographic profile of this company’s best customers:Sales Volume: $500M - $20MMEmployee Size: 1 - 99Top Industries: 561421 Telephone Answering Services 561422 Telemarketing Bureaus and Other Contact Centers 561439 Other Business Service Centers (including Copy Shops) 56144 Collection Agencies 56145 Credit Bureaus 561491 Repossession Services 561492 Court Reporting and Stenotype Services 561499 All Other Business Support Services 56151 Travel Agencies 561591 Convention and Visitors Bureaus 561599 All Other Travel Arrangement and Reservation Services 561611 Investigation Services 561612 Security Guards and Patrol Services 561613 Armored Car Services 561621 Security Systems Services (except Locksmiths) 56171 Exterminating and Pest Control Services 56172 Janitorial Services 56174 Carpet and Upholstery Cleaning Services 56179 Other Services to Buildings and Dwellings You now have statistically reliable data that tells you:  Your best industries  Your best customers by size for sales volume and number of employees  Your best geographic markets4. Determining Market Size and Market Share. This last task is easy and should not cost any money to accomplish. Equipped with the firmographic profile of your best customers, you now want to determine how many other companies match that same profile ...this is the market size. You simply go to a business list provider, give them the firmographic profile of your company’s best customers and ask for a count of all companies that match that profile. Easy!Copyright Geoff Vincent BizCompare Inc. 2010Page | 10
  11. 11. Determination of market share: In this example, we would ideally want to identify the number of customers (of the 4,000) that have all three of the firmographic characteristics in common. If you have an analyst who can do this data manipulation, then you can take the resulting number and divide by the market size and you now have your market share. In the absence of this analytical skill set, I would be satisfied with simply taking the number of customers who match by industry code, adjust that number down by 20% to 25% (to broadly reflect sales volume and employees). Use the resulting number and divide by the market size and you now have your market share. A few final thoughts about this approach:  The methodologies described above are intended for use by small or medium size companies who require good estimates of market size and market share but do not have the resources to hire staff or organizations that do this for a living (and charge significant fees for their services). In other words, either of the solutions above will provide good estimates of size and/or share but are not a substitute for an intensive, robust market size and share exercise but which could easily be a five or even six figure investment.  The so called “sweet spot” ranges for sales and employees are intended to show the best ranges to target. These are the niches that your current sales and marketing efforts would indicate to be your best bets for new customer acquisition. However, that is not to say that one shouldn’t target prospects that fall outside these ranges. In fact, you may have a business growth strategy that specifically targets companies that fall outside these ranges. My one suggestion would be to test these secondary ranges and analyze the results before going full steam ahead with expensive acquisition programs.  Lastly, I currently do not have any kind of commercial relationship with Melissa Data and have not personally experienced their abilities regarding data cleansing and append services. Please proceed using our own best judgment on what company you might like to engage with this kind of project. All the very best,Copyright Geoff Vincent BizCompare Inc. 2010Page | 11
  12. 12. About the Author: Geoff Vincent is the founder and CEO of BizCompare Inc. which owns and operates www.bizcompare.com. Geoff’s background includes a plethora of senior marketing and management positions at leading B2B companies including American Express, FedEx, CCH and Dun & Bradstreet. Geoff can be followed at his blog and on Twitter. About BizCompare.com: The Bizcompare.com site is a business information portal that features over 100 industry research reports and 1.5 million company profiles focused on the business services vertical. Popular uses for the site include market research, lead generation, competitor analysis and B2B marketing planning. The site displays key firmographic information in insightful graphs so one can compare companies to their peer group for greater context. Quick links: BizCompare home page Browse our 19 industrial categories to drill down to 108 specific industries See a sample industry research report See a sample company profileCopyright Geoff Vincent BizCompare Inc. 2010Page | 12