Comprehensive market sizing methodologies for calculating Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM) for startup opportunities.
Comprehensive market sizing methodologies for calculating Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM) for startup opportunities.
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Instructions
Clarify goals, constraints, and required inputs.
Apply relevant best practices and validate outcomes.
Provide actionable steps and verification.
If detailed examples are required, open resources/implementation-playbook.md.
Overview
Market sizing provides the foundation for startup strategy, fundraising, and business planning. Calculate market opportunity using three complementary methodologies: top-down (industry reports), bottom-up (customer segment calculations), and value theory (willingness to pay).
Skills relacionados
Core Concepts
The Three-Tier Market Framework
TAM (Total Addressable Market)
Total revenue opportunity if achieving 100% market share
Defines the universe of potential customers
Used for long-term vision and market validation
Example: All email marketing software revenue globally
SAM (Serviceable Available Market)
Portion of TAM targetable with current product/service
Accounts for geographic, segment, or capability constraints
Represents realistic addressable opportunity
Example: AI-powered email marketing for e-commerce in North America
SOM (Serviceable Obtainable Market)
Realistic market share achievable in 3-5 years
Accounts for competition, resources, and market dynamics
Used for financial projections and fundraising
Example: 2-5% of SAM based on competitive landscape
When to Use Each Methodology
Top-Down Analysis
Use when established market research exists
Best for mature, well-defined markets
Validates market existence and growth
Starts with industry reports and narrows down
Bottom-Up Analysis
Use when targeting specific customer segments
Best for new or niche markets
Most credible for investors
Builds from customer data and pricing
Value Theory
Use when creating new market categories
Best for disruptive innovations
Estimates based on value creation
Calculates willingness to pay for problem solution
Three-Methodology Framework
Methodology 1: Top-Down Analysis
Start with total market size and narrow to addressable segments.
Process:
Identify total market category from research reports
TAM = Total Market Category Size
SAM = TAM × Geographic % × Segment %
SOM = SAM × Realistic Capture Rate (2-5%)
When to use: Established markets with available research (e.g., SaaS, fintech, e-commerce)
Strengths: Quick, uses credible data, validates market existence
Limitations: May overestimate for new categories, less granular
Methodology 2: Bottom-Up Analysis
Build market size from customer segment calculations.
Process:
Define target customer segments
Estimate number of potential customers per segment
Determine average revenue per customer
Calculate realistic penetration rates
Formula:
TAM = Σ (Segment Size × Annual Revenue per Customer)
SAM = TAM × (Segments You Can Serve / Total Segments)
SOM = SAM × Realistic Penetration Rate (Year 3-5)
When to use: B2B, niche markets, specific customer segments
Strengths: Most credible for investors, granular, defensible
Calculate based on value created and willingness to pay.
Process:
Identify problem being solved
Quantify current cost of problem (time, money, inefficiency)
Calculate value of solution (savings, gains, efficiency)
Estimate willingness to pay (typically 10-30% of value)
Multiply by addressable customer base
Formula:
Value per Customer = Problem Cost × % Solved by Solution
Price per Customer = Value × Willingness to Pay % (10-30%)
TAM = Total Potential Customers × Price per Customer
SAM = TAM × % Meeting Buy Criteria
SOM = SAM × Realistic Adoption Rate
When to use: New categories, disruptive innovations, unclear existing markets
Strengths: Shows value creation, works for new markets
Limitations: Requires assumptions, harder to validate
Step-by-Step Process
Step 1: Define the Market
Clearly specify what market is being measured.
Questions to answer:
What problem is being solved?
Who are the target customers?
What's the product/service category?
What's the geographic scope?
What's the time horizon?
Example:
Problem: E-commerce companies struggle with email marketing automation
Customers: E-commerce stores with >$1M annual revenue
Category: AI-powered email marketing software
Geography: North America initially, global expansion
Horizon: 3-5 year opportunity
Step 2: Gather Data Sources
Identify credible data for calculations.
Top-Down Sources:
Industry research reports (Gartner, Forrester, IDC)
Government statistics (Census, BLS, trade associations)
Public company filings and earnings
Market research firms (Statista, CB Insights, PitchBook)
Bottom-Up Sources:
Customer interviews and surveys
Sales data and CRM records
Industry databases (LinkedIn, ZoomInfo, Crunchbase)
Competitive intelligence
Academic research
Value Theory Sources:
Customer problem quantification
Time/cost studies
ROI case studies
Pricing research and willingness-to-pay surveys
Step 3: Calculate TAM
Apply chosen methodology to determine total market.
For Top-Down:
Find total category size from research
Document data source and year
Apply growth rate if needed
Validate with multiple sources
For Bottom-Up:
Count total potential customers
Calculate average annual revenue per customer
Multiply to get TAM
Break down by segment
For Value Theory:
Quantify total addressable customer base
Calculate value per customer
Estimate pricing based on value
Multiply for TAM
Step 4: Calculate SAM
Narrow TAM to serviceable addressable market.
Apply Filters:
Geographic constraints (regions you can serve)
Product limitations (features you currently have)
Customer requirements (size, industry, use case)
Distribution channel access
Regulatory or compliance restrictions
Formula:
SAM = TAM × (% matching all filters)
Example:
TAM: $10B global email marketing
Geographic filter: 40% (North America)
Product filter: 30% (e-commerce focus)
Feature filter: 60% (need AI capabilities)
SAM = $10B × 0.40 × 0.30 × 0.60 = $720M
Step 5: Calculate SOM
Determine realistic obtainable market share.
Consider:
Current market share of competitors
Typical market share for new entrants (2-5%)
Resources available (funding, team, time)
Go-to-market effectiveness
Competitive advantages
Time to achieve (3-5 years typically)
Conservative Approach:
SOM (Year 3) = SAM × 2%
SOM (Year 5) = SAM × 5%
Example:
SAM: $720M
Year 3 SOM: $720M × 2% = $14.4M
Year 5 SOM: $720M × 5% = $36M
Step 6: Validate and Triangulate
Cross-check using multiple methods.
Validation Techniques:
Compare top-down and bottom-up results (should be within 30%)
Check against public company revenues in space
Validate customer count assumptions
Sense-check pricing assumptions
Review with industry experts
Compare to similar market categories
Red Flags:
TAM that's too small (< $1B for VC-backed startups)
TAM that's too large (unsupported by data)
SOM that's too aggressive (> 10% in 5 years for new entrant)
Inconsistency between methodologies (> 50% difference)
Industry-Specific Considerations
SaaS Markets
Key Metrics:
Number of potential businesses in target segment
Average contract value (ACV)
Typical market penetration rates
Expansion revenue potential
TAM Calculation:
TAM = Total Target Companies × Average ACV × (1 + Expansion Rate)
Marketplace Markets
Key Metrics:
Gross Merchandise Value (GMV) of category
Take rate (% of GMV you capture)
Total transactions or users
TAM Calculation:
TAM = Total Category GMV × Expected Take Rate
Consumer Markets
Key Metrics:
Total addressable users/households
Average revenue per user (ARPU)
Engagement frequency
TAM Calculation:
TAM = Total Users × ARPU × Purchase Frequency per Year
B2B Services
Key Metrics:
Number of target companies by size/industry
Average project value or retainer
Typical buying frequency
TAM Calculation:
TAM = Total Target Companies × Average Deal Size × Deals per Year
Presenting Market Sizing
For Investors
Structure:
Market definition and problem scope
TAM/SAM/SOM with methodology
Data sources and assumptions
Growth projections and drivers
Competitive landscape context
Key Points:
Lead with bottom-up calculation (most credible)
Show triangulation with top-down
Explain conservative assumptions
Link to revenue projections
Highlight market growth rate
For Strategy
Structure:
Addressable customer segments
Prioritization by opportunity size
Entry strategy by segment
Expected penetration timeline
Resource requirements
Key Points:
Focus on SAM and SOM
Show segment-level detail
Connect to go-to-market plan
Identify expansion opportunities
Discuss competitive positioning
Common Mistakes to Avoid
Mistake 1: Confusing TAM with SAM
Don't claim entire market as addressable
Apply realistic product/geographic constraints
Be honest about serviceable market
Mistake 2: Overly Aggressive SOM
New entrants rarely capture > 5% in 5 years
Account for competition and resources
Show realistic ramp timeline
Mistake 3: Using Only Top-Down
Investors prefer bottom-up validation
Top-down alone lacks credibility
Always triangulate with multiple methods
Mistake 4: Cherry-Picking Data
Use consistent, recent data sources
Don't mix methodologies inappropriately
Document all assumptions clearly
Mistake 5: Ignoring Market Dynamics
Account for market growth/decline
Consider competitive intensity
Factor in switching costs and barriers
Additional Resources
Reference Files
For detailed methodologies and frameworks:
references/methodology-deep-dive.md - Comprehensive guide to each methodology with step-by-step worksheets
references/data-sources.md - Curated list of market research sources, databases, and tools
references/industry-templates.md - Specific templates for SaaS, marketplace, consumer, B2B, and fintech markets
Example Files
Working examples with complete calculations:
examples/saas-market-sizing.md - Complete TAM/SAM/SOM for a B2B SaaS product
examples/value-theory-example.md - Value-based market sizing for disruptive innovation
Use these examples as templates for your own market sizing analysis. Each includes real numbers, data sources, and assumptions documented clearly.
Quick Start
To perform market sizing analysis:
Define the market - Problem, customers, category, geography
Choose methodology - Bottom-up (preferred) or top-down + triangulation
Gather data - Industry reports, customer data, competitive intelligence
Calculate TAM - Apply methodology formula
Narrow to SAM - Apply product, geographic, segment filters
Estimate SOM - 2-5% realistic capture rate
Validate - Cross-check with alternative methods
Document - Show methodology, sources, assumptions
Present - Structure for audience (investors, strategy, operations)
For detailed step-by-step guidance on each methodology, reference the files in references/ directory. For complete worked examples, see examples/ directory.
Limitations
Use this skill only when the task clearly matches the scope described above.
Do not treat the output as a substitute for environment-specific validation, testing, or expert review.
Stop and ask for clarification if required inputs, permissions, safety boundaries, or success criteria are missing.