Contact Us

Jobs Theory Blog

How to Size Your Market & Calculate a Customer's Willingness to Pay


Issue: Incorrectly Sizing a Market Leads to Product Failure

Market sizing is used to determine which markets are worth investing in. If a product wins its market, it still may not be worth building if the market is not large enough to generate a sizeable return. To make this decision, you need a good definition of a market.

What is a market?

The traditional way to size a market is to use a product-based market definition and a formula that looks something like: product price * number of buyers = size of market. But what do you do when your market sizing calculation leads you to invest in an existing product category that totally goes away when it is disrupted by a brand new invention?

And how would you size the market for that new product category and know whether or not it’s worth investing in? Defining and sizing your market incorrectly can lead directly to product failure and missing enormous opportunities.

In this post, we’ll show you how to avoid traditional market sizing mistakes by using Jobs-to-be-Done to size your market.


Traditional Way: Incorrectly Sizing a Market Leads Directly to Product Failure

Let’s look at an example of using the traditional product-based market sizing formula.

In 2007, you could have looked backward at iPod Sales and seen that Apple sold 200 million units at a price of $150. Our traditional formula (product price * number of buyers) tells us that the iPod market was $30 billion and the MP3 player market was even larger.

In 1990, you could have tracked sales of encyclopedias (Britannica alone sold 120,000) and identified a multi-billion dollar encyclopedia market.

In 1996, Kodak’s revenues reached $16 billion as it dominated sales in the enormous film market.

All of these market size calculations would have fooled you into making terrible business decisions.

Kodak went bankrupt in 2012.

Encyclopedia Britannica was sold for half its value in 1996.

And in fact, Microsoft thought the MP3 player market was so attractive, they invested in the Zune, which they wrote down as a $289 million loss in 2007. With the launch of the iPhone, the MP3 player market went away.

In 2007, customers didn’t want iPods anymore than they want records, cassettes or CDs. They wanted to create a mood with music.

“Creating a mood with music” is a job your customers want to get done and they hire product solutions to do it. In fact, the MP3 player market never existed. “Creating a mood with music” is the market.

The product-based definition of the market will lead you astray. Markets defined with Jobs-to-be-Done will remain stable over time and give your team a clear target for innovation. Sizing your market based on the customer’s job will help you put a dollar value on new product categories your company should invest in that cannot be sized looking backward at old product sales.


JTBD Way: Using Jobs-to-be-Done to Size Your Market

To size a market opportunity, don’t analyze the products currently in the market. Instead, analyze the willingness to pay to get the job done.

  1. Define your market as a goal customers are trying to achieve (a job-to-be-done)
  2. Identify the range of your customers’ willingness to pay to get that job done using interviews and surveys.
  3. Chart the answers on a scatter plot and draw a best fit line through the points. The area under the curve is the size of the market. This will help you identify if the biggest opportunities are in the premium market or the low-cost portion of the market.

Let’s look at an example. How would you do this if you wanted to take share from Google Maps and Apple Maps in which the traditional market sizing formula would show us a market worth nothing ($0 * Billions of users = 0)?

  1. Define the market not as the ‘map app’ market but as a job-to-be-done e.g. “get to a destination on time”.
  2. In interviews and surveys ask people who need to get the job done how much they would be willing to pay to get to their destinations on time every time they tried to it.
  3. Chart the range of answers on a scatter plot and calculate the area under the curve.

We actually did this research at thrv and found a premium ‘get to a destination on time’ market worth $2 billion. These customers are willing to pay for a new solution because they cannot get the job done effectively with the existing solutions in the market. In other words, they have unmet needs in the job.


Benefit: Make Confident Decisions in Your Product Investments

When you have an idea for a new product, it can be hard to answer the question “Is the market big enough for it?” when all you have is sales of existing products to size your market. If you use Jobs-to-be-Done to size your market, you will be able to justify investments in new product categories that make your company the leader. Instead of launching products like the Zune into markets that are about to disappear and recording losses, you will be focused on stable markets and be able to defend and win investments in products like the iPhone. You will accelerate your company’s growth.

Want to learn exactly how to apply this to your product and company? Take our Jobs-to-be-Done online course. After creating your own market sizing analysis, we’ll show you how to then identify unmet needs in your customer’s job-to-be-done and stop relying on demographic-based personas.

Posted by Jay Haynes

View all posts by Jay Haynes