1 equation to validate a vertical

I shared 16 criteria to help you choose a vertical in yesterday’s email.

These 16 can help you narrow the options to 1, 2, or 3.

Now, it’s time to ensure the revenue for your agency is there.

Here’s how: If the amount of revenue you expect to generate in three years excites you, you have validated the vertical market.

I use the following formula:

TAM x 20% x 3% x average revenue per client = estimated revenue in 3 years

TAM = Total Addressable Market, the number of businesses in the vertical market

20% = Pareto Addressable Market, a conservative count of businesses who can hire you

3% = assumes you capture 3% of the 20% in 3 years

Average Revenue Per Client = your average annual revenue per client

I recently took a strategic integrated communications agency through this process. We identified hospital systems as a potential vertical market. The research shows 2,466 hospital systems in the U.S., and their average annual revenue for a hospital systems client is $150,000.

Let’s apply this data to the equation:

2,466 x 20% x 3% x $150,000 = $2,219,400

When I asked if that revenue target was exciting, my client responded, “It sure is!”

Want my help with finding a vertical market for your agency? My 1-hour Vertical Finder Strategy Session is for you!


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