Hi all,
I’m interning at a startup and I’ve been asked to come up with a realistic value for the market size of the BPO industry.
This is why my initial thought process has been:
- Market size = No. of enterprises x No. of minutes of service availed per enterprise x Rate per minute
- I intend on segmenting the number of enterprises across key industries (banking, insurance, healthcare etc.), then finding out what the BPO services are in each industry and approximately how many minutes would an enterprise avail on that service.
- This would give me the minutes per service across different services in different industries.
- I would multiply this by the rate per minute a BPO offers and arrive at the market size.
Does this seem like a realistic approach? This is how I would ideally do it in a case interview lol but I’m wondering if it makes sense in a real sense. Also not sure how I would arrive at the data for each of this.
Looking for any sort of help on how I could go about this, thanks!
Your approach is logical. Just ensure that the data sources you use are credible. Maybe try industry reports and surveys.
Yes thank you!
If your TAM is not in the billion change idea
lol fair enough
Sounds like you’re on the right track! In addition to what you’ve outlined, consider also accounting for industry growth rates, and emerging trends. Look for research studies or consultancies like Gartner or McKinsey for data. You might also want to factor in any potential disruptions, like technology advancements or regulatory changes.
This is helpful, thank you for replying!
Seems like you’ve put a lot of thought into this! Your approach feels very ‘case interview’, haha. Remember real-world data can be messier than case data. So, while your formula is neat, be prepared for some roadblocks and improvisations.
Haha, yes you’re right, definitely anticipating that, thanks
I spend a lot of time working with market sizes.
The first question I’d ask is the purpose of the estimation. Is it to prepare for an investor pitch or is it for their own internal use? This will help you figure out how “accurate” or realistic it needs to be.
Worth remembering there isn’t one correct way. What you’ve outlined is sensible. A good approach is to do it multiple ways, top-down, bottom up etc to sense check. Look at a big competitor and ask yourself if the estimation you came up with makes sense based on the competitor’s revenue and the implied market share.
Don’t forget to look for existing reports too. When googling make use of the image function. Sometimes the data points hidden behind paywalls are included in the infographics.
I admire your structured approach! While it might be challenging to find precise data, especially for minutes used per service, it’s a start. And sometimes, rough estimates based on credible assumptions can be just as valuable.
While your method is a good start, real-world scenarios might not fit neatly into such a formula. For instance, ‘rate per minute’ might vary widely based on the complexity of the service or expertise required. Consider using a range for such variables to get a more realistic market size estimate.
Wow everyone is being so professional in here.
I guarantee you most founders that raise and run big companies (including me) just put reliable figures from google that they can find which seem legit.
You’re on a great path if you’re down anything more complicated than that so props to you haha.
Your idea is a great starting point but I feel it misses the mark a bit. I’ve been using the TAM/SAM/SOM framework for many years now, and it’s not 100% accurate but it gives the most realistic estimation in my opinion.
* TAM is the full pie - the max revenue you could make if 100% of buyers got your product. Big picture stuff.
* SAM narrows it down to the slice you can realistically serve. Your geographic reach, target industries, ideal clients.
* SOM is your slice of the SAM pie. What you can actually obtain after considering competitors.
For your startup, you’d start by estimating the total demand for outsourcing services in your market/ industry.
Then refine to target industries you can serve, the specific services they’ll use, and realistic usage estimates.
Finally, calculate your attainable SOM based on the formula you described.
You can find a lot of information from industry reports, surveying potential clients, and competitors public financial reports. Let me know if any part needs clarifying. Market modeling done right is complex, but this framework makes it more bite-sized. 😊