There is a story about 3 blindfolded people trying to determine the size of an animal without seeing it. One had a grip on the tail, the second the trunk and the last person had their hands on the animal's middle. Each offered their own version of the animal's size. To no one's surprise, the results were small (the tail), bigger (the trunk) and enormous (the middle).
How are you figuring out the size of your market? Probably not blindfolded but are you blinded by what you see with your own eyes? Preconceived notions? Experience? Negotiation data? Hit rates? What your customers are telling you? How big is your market REALLY? (and, no, I’m not referring to your “available” market as compared to your “total” market. At least not today, anyway.)
Here's real life example of how the information can be accurate but the market forecast can be flawed. Certain customers purchase capital equipment in multi-year blankets. The customer identifies in the RFP that they will buy 10 units during that time frame (let's say 3 years), but there are no guarantees that the number will be exactly 10. It could be fewer and it might be more.
Things change. If you're the commercial person calling on an account like this, and you aren't successful in winning the blanket order, chances are pretty good you won't be spending much time with that equipment buyer for the next couple years, at least for the product line business you just lost. You report up the chain of command that the company lost 10 units to Competitor A and it goes into the information grist mill (market shares are calculated...) and you go chase different business from this and/or a different customer. Mark your calendar to come back in 20 months and see "how it's going" with that blanket.
Here's the rub: how often do we go back and check to see how many units the customer ACTUALLY purchased? What if the customer purchased 14 units instead of the 10 listed on the RFP? Or 6, not 10? Would that information change how you looked at market forecasts - your own or from a different source-in the future? I bet that it would. If it didn't change your thinking, mull this over - imagine you're the national sales manager and you have 15 accounts that said they were going to purchase 10 units but may have cut PO's for 15, or 3 or 11. What if each unit was worth $400,000? Now we're talking real money.... Imagine a scarier scenario – what if the net number of units purchased nationally during that time frame was exactly correct – but none of the original forecasts were accurate? How would that make you feel about forecasting?
There are several layers to this problem, but here are a couple takeaways to keep handy:
the estimate of your customer is just that, an estimate. The buyer may not have the full vision on the company's plans, and circumstances change every day. Just because you lost the blanket is not a reason to stay away from the purchasing department. Don't count on the buyer finding you in a time of need -s/he may have already found another supplier.
if you were successful winning the RFP, celebrate the occasion but pay close attention to the details. The buyer is now dependent on you and if you want the next one - or the unanticipated increase in requirements during the contract - then you need to stick to that person like glue. You'll be one of the first to hear the good news, and the bad should it come to shaving units off an existing contract.
don't make any assumptions about the future - verify, verify, verify - constantly.