How to Conduct Market Sizing Research for Home Improvement Products

How to Conduct Market Sizing Research for Home Improvement Products

Market sizing and structure research also enables you to identify new opportunities for acquisition, distribution and growth by forecasting and strategizing in an insightful way.

Understanding market potential is essential to making strategic decisions for your company regarding customer opportunity, brand and product sales.

Before you invest continued resources into maintaining certain products or strategies, you should first develop a detailed understanding of who is purchasing building materials and home improvement products in which you compete or want to compete.  Long-term product and category decisions require a thorough understanding of customer sales, distribution structure, and brand share.

Market sizing and structure research also enables you to identify new opportunities for acquisition, distribution and growth by forecasting and strategizing in an insightful way.

What is a Market Sizing Study?

There is often secondary data available for free or as reports for purchase that speak to the broad market size of large categories.  For example, you can find available secondary data on the size of the power tool market.  However, that includes over a dozen products or sub-categories.  What if you need to know the dollar value and brand share of the circular saw market?  That’s where custom market sizing research should be applied.

Assessing the size of a defined product or category involves identifying who is the buyer of your products or sub-products, AND/OR who is the seller of your products or sub-products.  Once identified, that audience becomes the source of primary research needed to provide you market sizing specific to your interests.

Some questions you can answer through market sizing research include:

  • What is the total market size in retail dollars for our product or sub-product?
  • How large is the total addressable market?
  • What share of sales is from each channel segment?
  • What is our brand share of the total market?
  • How much of the total market is PROs versus DIYers?
  • Is the product size and structure worth entering or investing in?
  • Should we increase/decrease our investment in a specific brand or audience?
  • Has the product market grown and at what rate?

Knowledge about your specific product market or one you are thinking about targeting is imperative to strategic and successful decision-making.

Preparing for Market Sizing Research

Before conducting a market sizing analysis, you must determine your main objective and establish certain parameters, such as how soon you need the data, the acceptable margin of error for your purposes and how much you can invest in obtaining the information.

Primary research, surveys and interviews designed around your specific needs, are more granular details for market sizing than available through secondary research, such as government reports or information compiled by reporting development companies. However, it’s important to use secondary information in combination with primary research and your company’s internal data.

Primary market sizing research involving customers is preferable when your products of interest are:

  • Higher-priced items
  • Durable goods
  • Infrequent purchases
  • Linked with high brand awareness
  • Limited end-user segments
  • Sold through multiple channels

Channel-related primary research is best when your products of interest are:

  • Lower-priced items
  • Consumable goods
  • Frequent purchases
  • Linked with low brand awareness
  • Multiple end-user segments
  • Sold through limited channels

While there is a wealth of data needed for accurate market sizing results, The Farnsworth Group is committed to providing digestible analysis that will allow your organization to easily identify market opportunities.  

Methods and Formulas for Conducting Market Size Research

For a robust and conclusive market size project to be complete, primary, secondary, and internal data are all necessary components.

Primary research differs from secondary research in that it is proprietary information gathered from research designed around your current and specific questions. Only your company can use custom research for decision making, whereas your competitors can access the same secondary research from associations and other sources that you can. 

Further, primary research needs to be looked at through the lens of internal data as well. For example, if your internal sales reports are showing a high volume of sales of one product in a certain region or a certain buyer persona compared to others, that’s a starting point to conducting custom, primary research for the sake of uncovering why that is the case. Primary research validates and provides deeper insights to what appears to be occurring on the surface.

In terms of how to calculate market size, there are two primary methods to apply: top-down market sizing and bottom-up market sizing. Here is a closer look at these distinct methodologies:

Bottom-up Market Sizing

As the name implies, bottom-up market sizing starts with basic information and builds up to create a more complete overview of a given market. To do so, you’ll use this formula: (# of units) x (average price) = market size.

So, for our above examples, you could calculate the market size for a specific type of power washer by multiplying the number of units sold in the United States per year by the average price for that tool.

While the formula is simple, the challenge is that you are likely assessing multiple product models at multiple price points. As a result, you will generally factor in market segmentation, with market sizings for each segment.

Bottom-up Market Sizing also accounts for the reality that not all channel sellers will pick up your product and your marketing efforts will not reach every person in the TAM. 

Top-down Market Sizing

Top-down market sizing, also called the chain ratio method, starts with a broad, general view of a market and then adds segmentation filters to distill it down to your specific market. With this approach, it is not uncommon for the market size of a competitor product to be researched. Primary market research is how this information is most often uncovered.  

Top-down market sizing research is often supplemented with secondary research from trade associations, government organizations or third-party reports. These sources can give you a rough estimate of the broader market—or a similar one—which is called the total addressable market or total available market (TAM). 

From the combination of primary research and secondary research, you’ll next need to determine your serviceable and obtainable market, also referred to as segmented available market (SAM), or the share of the market that you can realistically reach with your product. You might also want to assess the number of sales from each channel segment, such as sales from 

  • Direct Manufacturer Sales
  • Cooperatives
  • Distributors and Dealers

Here is an example of the kind of insights you would gain from custom market sizing research:

Best Method for Conducting Market Sizing Research

There are advantages and disadvantages to both the bottom-up and top-down methodologies, and the best option is often to compare them. If the figures from conducting bottom-up market sizing are drastically different from the figures calculated through top-down market sizing, then there may be an issue with your parameters or assumptions. If the data is roughly similar, you can benefit from taking the average to determine your overall market size estimate.

No matter which methodology you apply to your research, market size is just one factor to consider before approving an investment decision for your home improvement or building product. A few others to take into account include the quality and quantity of the competition, anticipated profit margins, and projected return on capital, among others.

Things to Remember When Conducting Market Sizing Research

  1. Markets are not static. New customer purchase trends, the emergence of truly innovative products and technologies, legislation and regulations, and new entrants to the market are all variables outside of your control that directly affect your ESAM. In addition to using market sizing research for product development research, keep a pulse on your share of market for existing products with regular primary research.
  2. If in doubt, assume the worst. In scenarios where you are defining your share of the market, it’s best to take a conservative stance about the data your primary research yields. Account for the margin of error and make your major decisions based on the worst possible scenario uncovered.
  3. Segment as much as possible. Segment by region. Segment by buyer type. Segment by distribution channel. Segment by demographic customer research methods.

Researching Market Sizing for Your Home Improvement Products

Market sizing research is a key step to analyzing demand for your product, distribution structure, and your brand share of the total market. From there, you’ll be able to define feasible goals and identify new opportunities for your company. 

Our team at The Farnsworth Group can provide you with the right tools to conduct effective market sizing research and collect valuable insights to help you successfully forecast the market and strategize your go to market tactics accordingly. 

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