Another Market Sizing Trick - Employees

Apologies if you’re getting sick of seeing another post on market sizing, but I promise this one will be the last for a while.  The devil really is in the details when coming up with a convincing market size estimate, so I wanted to share one more technique that can help you deal with scarce data.  It’s estimating company revenue based on employee numbers, which are often easier to find or approximate than actual revenue.

Typically, you will find that revenue per employee in a given industry tends to be fairly similar.  For instance, here’s a sample of some of the bigger enterprise software companies:

Company

2009 Revenue ($ MM)

Employees

Revenue Per Employee

Oracle

23,252

101,950

228,073

SAP

14,681

47,587

308,509

Symantec

6,150

17,500

351,429

CA

4,271

13,200

323,561

Adobe

2,946

7,564

389,476

VMware

2,024

7,100

285,070

McAfee

1,927

5,600

344,107

BMC

1,872

5,800

322,759

Average

7,140

25,788

319,123

There’s certainly some variation, and actually this sample has a fairly high standard deviation of about $48k per employee due to the small sample size (and due to Oracle).  So I don’t want to put this out there as a science.  However, estimating revenue for smaller, private companies that do not disclose financial figures using this type of analysis is certainly better than nothing.  For a professional market sizing exercise, you should try to get a bigger sample – ideally at least 30 companies with known revenue per employee figures.  From there, you can use the average (or a weighted average) to estimate revenue for smaller competitors.

There are some caveats to consider, as always.  This approach does not work well for early stage companies funded by outside investors, such as venture-funded startups.  These firms can afford to build up their organizations prior to achieving the revenue and cash flow required of bigger companies, and in extreme cases they might not have much revenue at all.  More generally, you might need to discount the revenue per employee average for smaller companies (i.e., under 100 employees), since they may not be as efficient at generating revenue as some of their larger competitors.  Finally, be very careful when applying these kinds of figures to conglomerates.  General Electric’s finance division will have very different dynamics than their jet engine division.  If your industry includes conglomerates, you may want to pursue this analysis based on individual business units rather than on entire companies.

For big public companies, employee numbers should be easy to get.  They are always included in 10-K and 10-Q filings, and they will often be listed somewhere on the company’s site as well.  For a quick and dirty version, you can often get relatively recent employee figures from Wikipedia.  The picture becomes murkier for private companies.  You should check the company site and so some quick web searches.  There are also a few other standard sources to consider:

  • LinkedIn – LinkedIn now provides company pages which often list employee numbers (although these can be overstated for small companies seeking to look more established).  Searching on the company name and counting people results returned works even if there is no company page.  The number of employees who show up LinkedIn searches is of course never the full number, and you’ll need to multiply out based on the industry to get an estimate of company employees.  So a management consulting company with 30 LinkedIn members might have 40 employees, while a small manufacturer with 30 profiles might actually have 300 employees.  Nevertheless, it’s one more data point to consider.
  • Hoovers – Each company profile includes an estimate of employees.  Note that their employee numbers are sometimes way off.
  • Also consider looking at individual resumes, if you have access to job sites like Monster or CareerBuilder.  People often list the number of subordinates they have managed, and this information can help you arrive at an overall estimate.

The truly old-school way of estimating employees used to be actually driving out to one or more of the company’s locations and counting the number of cars in the parking lot.  Management consultants used to end up spending a good bit of time on seemingly wasteful tasks like these.  Obviously, even basic information becomes a lot more valuable when it’s scarce.  These days, the contemporary analogue is satellite photos, available on any of the major mapping services like Google Maps.  Yet another example, if only a minor one, of how much easier technology has made our lives.


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