Market Sizing Analysis

Comprehensive market sizing methodologies for calculating Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM) for startup opportunities.

Use this skill when

• Working on market sizing analysis tasks or workflows
• Needing guidance, best practices, or checklists for market sizing analysis

Do not use this skill when

• The task is unrelated to market sizing analysis
• You need a different domain or tool outside this scope

Instructions

• Clarify goals, constraints, and required inputs.
• Apply relevant best practices and validate outcomes.
• Provide actionable steps and verification.
• Use the examples below; no separate implementation playbook is bundled.

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).

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:

1. Identify total market category from research reports
2. Apply geographic filters (target regions)
3. Apply segment filters (target industries/customers)
4. Calculate competitive positioning adjustments

Formula:

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:

1. Define target customer segments
2. Estimate number of potential customers per segment
3. Determine average revenue per customer
4. Calculate realistic penetration rates

Formula:

TAM = Σ (Segment Size × Annual Revenue per Customer)
SAM = Σ (Eligible Customer Count in Each Served Segment × Annual Revenue per Customer in That Segment)
SOM = SAM × Realistic Penetration Rate (Year 3-5)

When to use: B2B, niche markets, specific customer segments

Strengths: Most credible for investors, granular, defensible

Limitations: Requires detailed customer research, time-intensive

Methodology 3: Value Theory

Calculate based on value created and willingness to pay.

Process:

1. Identify problem being solved
2. Quantify current cost of problem (time, money, inefficiency)
3. Calculate value of solution (savings, gains, efficiency)
4. Estimate willingness to pay (typically 10-30% of value)
5. 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

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