A client of mine was struggling with the dilemma of how best to go after sales for his software product. He was convinced that he had to have direct sales people, on salary (as opposed to commission only.) I didn't think the numbers would work, so I did some market-sizing of the various markets for his product and then the most-probable level of sales volume he could expect given the market size and sales cycle. As I suspected - he could not afford salaried sales people - the margins on his product simply wouldn't support it.

Although sales forecasting is an art and science unto itself - market forecasting (in other words - the total size of the market, given some reasonable assumptions) is not rocket science, and once you understand how to do market sizing, it is relatively straightforward.

Firstoff, let's be clear - we are talking about sizing a market for a product that is similar to current products, or similar enough to be understood, and is not a totally new genre or technology. We are not talking about sizing the market for personal computers before they existed. For that - consult your nearest crystal ball.

The most critical part of sizing a market, not surprisingly, is the assumptions that are made.

These assumptions mostly have to do with the characteristics of the user (or the problem to be solved by the product or service) - which will help you find the necessary data on how many of them exist. This is a common technique used, for example, in business plans presented to VCs - the individuals seeking the money typically point to certain existing businesses as typical of the type of model they plant to follow, or serving the market they intend to serve. Except, of course - they aren't Microsoft or Google (or whatever successful company they point to) - a fact not lost on the VCs.

This is why it is useful to determine the type of customer that will use the functionality of the product or service. For example, if you want to develop a law practice that specializes in real estate transactions above a certain size - then you need to find out how many of those transactions have taken place - and perhaps more importantly - how many will take place in the near term (hence, how many deal makers will need your legal services.)

Also keep in mind that markets that make sense in an uptick often don't make sense in either a downtick or recovering market. As one entrepreneur remarked to me: "I wish I had started my business six months later." (The economy was coming out of a long downtick, and he underestimated the speed of the recovery.) So part of market sizing is also timing - is the market growing, stagnant, or declining? Will that change? A useful byproduct of market sizing is that it can point to certain opportunities that will exist if the circumstances are right - which may involve waiting a while. Once these trend become obvious - then many others might dog pile on the opportunity and the healthy margins begin to disappear. If everyone is getting into it - such as subprime mortgages several years ago - that's a sign to begin exiting.

So another aspect of market sizing is estimating the potential for market downsizing - what circumstances would cause the market to begin to downsize? Usually - an uneasy feeling that things are changing and you don't quite know why, or in what direction - is a good reason to do a downsizing analysis.

One of my clients had a high-end specialty service organization for imported cars. For many years as imported cars were growing in cache among individuals with a lot of disposable income, his business grew year-over-year. He developed line extensions into ancillary products and services. Then we (I was his marketing advisor) began to notice a change in the industry - subtle at first, but with significant implications. The imported car manufacturers were beginning to extend their base warranties, and also offer extended warranties. Ths would potentially cut into his service business. They also began to offer many of the high-end add ons (specialty sound systems, etc.) that would also cut into his other service divisions. We began to pay increasing attention to these trends, and he began to shed service divisions (before they lost money) as the forecast got dimmer. Eventually, he got out of the business. So he was engaged in another form of market sizing - market downsizing analysis - just as important if you are in an on-going business.

One of the best examples of staying ahead of market downsizing has always been Sheldon Adelson, the creator of COMDEX in 1979. For years, he reaped enormous profits (estimated at 80% at one point) off an ever-growing show held the week before Thanksgiving in Las Vegas. He simultaneously invested in Las Vegas real estate. (the Venetian Casino Resort and the Sands Expo and Convention Center.) Then, in 1995 (only two years short of its peak attendance in 1997) - he sold his interest in COMDEX to the Japanese company Softbank for $860 million. By 2000, COMDEX began to unwind, major vendors pulled out, attendance took a huge dip in 2001 and eventually Softbank sold COMDEX for $1 in bankruptcy proceedings. Finally, in 2005, it was cancelled. Incidentally, Adelson, at last estimate, is worth something like $26.5 billion dollars.

There are various tools available for market sizing, most having to do with business demographics (e.g., number and sizes of various businesses.) Government statistics are invariably too vague and rather dated. Private research group or analyst firm market studies can be very expensive, and if they cover rapidly-moving markets, out of date in a very short period of time. Business counts from trade group can be useful. In certain industries - business leaders will tend to turn to their trade groups for the most reliable information on the industry.

Ever-present Google is always a source of information, and depending on your search skills, a rather useful research tool.

But you have to start somewhere. As mentioned - jot down your assumptions about the market - what sales you would have to have in order for it to make sense, then back into the size of the market that would support that volume of sales - based on your current sales abilities. Don't assume you will necessarily do better or worse. Also, be careful not to pre-condition your analysis. That is, looking only for data that supports a foregone conclusion.

Begin looking at the overall size of the market - for example, if you want to sell GPS to car rental companies, you need to know the size of the car rental market. With a bit of digging, you'll find out that only 10% of all drivers use GPS, and then make some more assumptions about rental drivers. Some casual conversations with the managers at car rental agencies could yield some additional anecdotal data, perhaps even a corporate contact that will share some detailed data.

The above example is a hypothetical, but demonstrates how market sizing can be done by a combination of both primary (source) data and secondary (Google-type) research. The more you collect, the clearer the picture will be.

As always, remember to stay focused on your primary question - will the market support the sales you need to make it worth your while?