How do I calculate how many customers I have?

I am dealing with controlling air conditioner through the internet (app). I have data how many airco's are being sold every year. I have data what's the penetration of smartphones in the countries i target. I have data how many households have WiFi (it's mandatory for my device). How do I get the number how many potential customers (airco, smartphone and WiFi) do i have?


Assume 1,000 air conditioners are sold each year, 50% of housholds have a smart phone, and 25% of households with a smartphone have wifi. Then your potential customer base is 1,000 * .5 * .25 = 125 customers. But that's a top down analysis; generally, bottoms-up analyses are more robust.

Answered 8 years ago

I've been heavily involved in building marketing, financial, and other mathematical predictive models.

In general, what customers spend (revenue) over some unit time (week, quarter, year, etc) is more important than how many customers you have, and is easy to define and measure. Where this question often comes up is in calculation Customer Lifetime Value (CLV) which can be used to justify greater marketing spend, even spending at a short-term loss, if it is believed customers will remain with the firm over long periods of time.

One of the ways customers are tracking is using the concept of a "Cohort" which tracks which point in time that group of clients first became customers. Similarly, you need a definition of when a customer is no longer a customer. (Perhaps they don't renew for a period of time, no longer visit the website, etc. In your case, not using the smartphone app for a given period time might be exiting a cohort.) You can then track customers in a given cohort. (The numbers will always decline.) If the customer renews after exiting the cohort, they become a customer in a new cohort. Your total number of customers at any given time is the sum of customers across all cohorts.

In your case, you may have multiple groups of cohorts. One cohort tracks air might track app installations. Another might track app usage, with customers entering and exiting cohorts after renewing their use following a lengthy absence.

This is a common way to build models of customer behavior. It may be far too detailed for your application. However, by constructing the dataset this way, a skilled modeler will be able to slice and dice the data to their needs, and thereby come up with estimates that are useful in predictive modeling.

I'd be happy to discuss this further in a Clarity call.

Answered 8 years ago

You can derive a loose TAM (Total Addressable Market) based on this data using the following formula:

Total Number of Aircos Sold x Smartphone Penetration Rate x Wifi Penetration Rate = TAM

In order to determine WiFi penetration, you'll simply divide (Number of Households with WiFi) / (Total Households)

I would suggest doing this per geography if you have the data that way.

An example: (100,000 aircos sold in Denmark) x (.75 (75%) Smart Phone Penetration In Denmark) x (.80 (80% WiFi Penetration in Denmark) = (56,250 Total Addressable Market in Denmark)

This will only paint a rough picture, because we cannot derive distribution within these statistics - like knowing a higher percentage of households with smartphones have wifi - which would increase your calculated TAM. For example, if we knew that everyone with a smartphone had wifi, even though individually smartphones and WiFi are still at 75% penetration - our calculated example above would be 75,000 not 56,250.

Hope this helps!


Answered 7 years ago

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