Is There A Market

Are There People To Buy Your Platform

Before you even start developing your platform, you need to figure out if there are potential customers who are aware of the problem you are trying to solve and are willing to purchase a software platform to solve those problems for them.

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Determing Your Platform Market

Calculating your target market is a bit of a complicated process.

You need to be sure that you know the exact problems you are solving and whom you're solving for before you can determine how big that potential market is.

To complicate it even more, if you are entering a market that already has competitors, you need to understand how much of the market share they already own and ask yourself, if I can't displace them, can my business survive on the percentage of the market that is unclaimed?

Let's Get Started With Some Calculations

Before we get into the actual calculations, realize there are numerous ways to go about calculating your Total Addressable Market (TAM) but we're going to highlight top-down and third-party tools.

Top-Down Method

The top-down method looks at the entire market and then uses percentages that allow you to conclude if there is a market that you can tap into and make a profit.

Market Calculation Example

Let's say you're a software developer who coded a platform to help US Enterprise companies to assist them with their email marketing.

The first step you want to take is addressing what you consider Enterprise, usually a revenue or employee count metric.

Then you can go and do research on Google or public records to get a total count of the number of companies that match that profile.

This is why we went through the steps in the last chapter to understand who your ideal customer profile was. You can get into the details even further with our Who Is Your Ideal Customer Profile Guide.

Calculating Top Down Method

Once you run the numbers, you come to the conclusion that 5,000 companies match your criteria.

After Googling average industry conversion rates for SaaS companies, you come to find that on average, visitor conversion rates are between 3-7%.

The last step you need to calculate is the average sale price of your platform, in this example, we'll use $1,000 per month.

Market Size Range

5,000 Enterprise Prospects x 3% x $1,000

5,000 Enterprise Prospects x 7% x $1,000

Running the math, you come to the conclusion that you could potentially make between $150,000 and $350,000 per month or $1.8M and $4.2M per year.

Third-Party Tools

There are numerous third-party tools out in the market you can use to help you understand your TAM including ClearBit, CrunchBase, and ZoomInfo.

Using these tools, you are tapping into the data they have collected, so it makes completing these calculations much faster.

There are a few drawbacks to these calculations.

These calculations are done as though you're the only one functioning in this market, probably not the case, you need to understand the market share owned by the competition. You aren't subtracting your market share based on typical SaaS churn rates, usually between 3-5%, either.

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What Is Your Product

Don't sell yourself short by creating a handful of features and solutions to share with prospects thinking it's enough to persuade them. That position will be a race to the bottom with price, once they start talking to your competitors.

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