‘Market size’ is the number of individuals who are potential buyers of a product. The term is rarely cited in the humble world of consumer law and access to justice. But it has a role to play. The techniques used to calculate it allow existing institutions in the space, such as charities, Legal Aid, community legal centres and the like, to identify the size of unmet legal need and assist with resourcing decisions and funding. To the extent the techniques result in more private investment in affordable solutions for the unmet legal needs of the community, they should also be encouraged.
This post explores how the market size for a new consumer law product could be calculated, by working through a hypothetical example. The analysis draws on data from a specific jurisdiction, of which only a few of my readers will be personally familiar. However, there should be common threads between this analysis and other jurisdictions in North America, Australia and the UK. Many have similar first tier Tribunals with jurisdiction over tenancy disputes. The data sources I have used (annual reports, published judgements and daily lists) are likely to be available as a starting point in most other jurisdictions. The reasoning behind the subjective judgements on civil procedure, the financial capacity of the clients, representation rates and realistic market share may also have broader application.
For generic advice on market share calculations, see here and here.
Calculating the Market Share for a Tenant-Landlord Dispute Legal Product
|Total VCAT applications in the Residential Tenancies List||52,412||Annual Report|
|Estimated number of tenants in the list:||52,000||Assume 1 tenant per case|
|Estimated proportion of unrepresented tenants:||51%||Extrapolated from analysis of published judgements|
|Estimated number of potential “customers”:||26,500||(51% x 52,000)|
|Year 1 no. of customers:||130||(0.5% market share x no. customers)|
|Year 3 no. of customers:||1,300||(5.0% market share x no. customers)|
Table showing the expected number of customers for a tenant-landlord dispute legal product
We have a new product. (Well, not really, but for this exercise imagine something like this:) It provides legal assistance to tenants in dispute with their landlord. It may be a chat bot, a form filler, an online video call with a lawyer, a resource rich website, or some similar arrangement. It is purchased for a fixed price. It is used prior to and at the start of a formal dispute, but does not include ongoing advice or representation at a hearing.
The product assists tenants within the State of Victoria, Australia, whose dispute is within the jurisdiction of the Victorian Civil and Administrative Tribunal (VCAT). The product is designed for tenants both prosecuting and defending any tenancy related claim, including eviction, bond recovery, rent and compensation claims.
The ‘product’ is designed for those customers with some disposable income and who are willing to invest some additional funds for professional assistance. This will include a large portion of consumers who would otherwise be unrepresented. It is not aimed at the well-heeled who pay top dollar for private solicitors, or those with no disposable income.
Number of customers
VCAT publishes annual reports containing useful figures on tenancy disputes. In the most recent financial year, VCAT received 52,412 applications to its residential tenancies list (see Annual Report 2018-19, page 57). For simplicity, it will be assumed that each application consisted of one landlord (including rooming house and caravan park owners) and one tenant (including residents). Rounding down, let’s say 52,000 tenants were in tenancy disputes which warranted the commencement of proceedings at the Tribunal, per year.
But not all of these tenants will be our target “customer”. Some are at the upper end of the financial spectrum and will have their own counsel. Others may be happy for a DIY or qualify for Legal Aid. So how do we filter through them? There is no science to it. It is about making reasoned, defensible estimates. Once an initial estimate is made, it can be changed and the assumptions revisited as further information about the customer, the product and the market become available – true to the iterative design spirit.
As the product will be aimed primarily at unrepresented tenants, for this initial assessment I will estimate the total number of customers to be the currently unrepresented portion of the 52,000 tenants involved in an application in the residential tenancies list that year.
Unfortunately, the Annual Report does not specify the parties’ representation. So to obtain an average rate I analysed all published decisions from the residential tenancies list from that same year. These published decisions show each parties’ representative or, where applicable, if they are self-represented. The parties’ role as tenant or landlord is easily gleamed from the first few paragraphs of most decisions.
There were 85 cases with published reasons in the 2018-19 financial year, 43 of which had self-represented tenants – a little over 51%.
Extrapolating this 51% over all applications is far from perfect. The sample size of tribunal decisions in my analysis is only a tiny fraction of all decisions made in the Tribunal in the list, as the default is that judgement is given verbally. My analysis also excludes any cases settled prior to judgement. However it is nonetheless a reasonable first estimate. It is consistent with an understanding that the Tribunal is a forum which supports self-represented litigants. We can have further confidence in the figure because the corresponding percentage of self-represented landlords (12%) was consistent with the report’s assertions that landlords are frequently represented by agents or property managers, and with global studies about landlord representation in eviction cases (such as the PEW Charitable Trust research, from the US, indicating that 85-90% of landlords have counsel in eviction cases).
The figure of 51% of 52,000 tenants is therefore adopted to obtain an estimate of total potential customers of approximately 26,500 per year.
An alternative method to estimate the market size in litigious environments is the daily court lists. These will give an indication of the number of cases being heard in each period, and can be extrapolated over a year. The Residential Tenancies List in VCAT, for instance, on a recent count listed 70 cases in a day. Over, say, 200 sitting days, that comes to 14,000 cases heard per year. This is consistent with the larger number of claims filed (52,000, above), as many cases which are initiated would be settled or withdrawn without a hearing. Which number is selected for a market share analysis will depend on the specifics of the product and how the “customer” is defined. In this instance, the product assists the customer with the front end of the dispute (ie. the paperwork), rather than during the hearing, so the higher figure is more suitable.
The market share is the percentage of the customers in the market that could realistically be expected to buy the product. This product is not essential, nor mandatory, so the market share will be significantly less than 100%. Some customers will decide the product is not helpful. Others will continue with self-help. A vast majority are unlikely to know it even exists, especially in the early days following launch. As the product grows, competition may arise to cap the potential market share.
So what is a reasonable market share to aim for in this space? A small business guide suggests that a realistic target for a start-up in other markets is between 1% to 5% over the first few years, and 10 – 20% is optimistic even over the long run. The lack of affordable legal support to customers may result in no direct competitors to this product initially, suggesting a higher market share is attainable. However, the product is untested and brand recognition in the legal sector, generally, is low (eg. CMA Legal services market study (2016), UK, p.3.123), suggesting a conservative estimate is more appropriate.
The market share estimate therefore adopted is a growth from 0.5% to 5% over the first three years. At the end of the third year, we can hope to be serving over 1,300 tenants of the 26,500 total unrepresented tenant market in the jurisdiction.
Estimated revenue and cost
Whilst the price of the product will likely evolve in response to demand and cost, for now it can be estimated by reference to the price of competitors (not forgetting the zero dollar price tag on many existing alternatives in the consumer legal market, such as DIY), and as a portion of an estimated average amount in dispute.
If we take the price as $150 / unit, that brings the projected annual revenue for this product to just under $200,000 by the third year. Revenue projections can help guide an access to justice start-up in its early days by providing guidance on development costs, answering queries such as how many engineers should by brought on, and how many lawyers can be afforded, if required, once the product gains traction.
Market share calculations can be carried out in the consumer law space by drawing upon a range of public resources, including annual reports from courts and tribunals, daily court lists and published judgements. When coupled with defensible presumptions about the particular practice area and an understanding of the new legal product, it can provide early guidance on future revenue, financing and the prospects of long-term sustainability. Not-for-profit organisations may also benefit from the underlying techniques to assess funding priorities and estimate unmet legal needs in the community.
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