Sizing Your Market
Calculate TAM, SAM, SOM and estimate market opportunity
Your Progress
Section 4 of 5Why Market Sizing Matters
Before building a product, you need to know if the market is big enough to support a business. Market sizing tells you the revenue opportunity and helps you decide if it is worth pursuing.
Investors want to see market size. A $10M market might support a lifestyle business, but venture-backed startups need markets in the hundreds of millions or billions.
TAM, SAM, SOM Explained
TAM - Total Addressable Market
The total market demand for your product or service if you had 100% market share and zero constraints.
Example: Global email marketing software market = $2.5B annually
SAM - Serviceable Addressable Market
The portion of TAM you can realistically reach with your go-to-market strategy, geography, and product.
Example: Email marketing for US e-commerce businesses = $400M (16% of TAM)
SOM - Serviceable Obtainable Market
The portion of SAM you can realistically capture in the short-term (1-3 years) given competition and constraints.
Example: Year 1 realistic capture = $12M (3% of SAM, 0.5% of TAM)
Calculate Your Market Size
TAM / SAM / SOM Calculator
Try an example:
Two Approaches to Market Sizing
Top-Down
Start with total market size from industry reports, then narrow down to your segment.
• Global CRM market: $65B
• SMB segment: 30% = $19.5B
• US only: 40% = $7.8B SAM
Bottom-Up
Count potential customers, multiply by revenue per customer.
• 50,000 US SMBs in target segment
• 5% conversion rate = 2,500 customers
• $5,000 avg revenue = $12.5M SOM
Bottom-Up Calculator
Bottom-Up Market Sizing
Calculate market size by multiplying the number of potential customers by revenue per customer.
Calculation: 10,000 potential customers × 5% conversion × $1,000 average revenue = $500,000 market
Common Market Sizing Mistakes
Confusing TAM with SAM
Claiming you can reach the entire global market when you are only targeting one country or segment.
Unrealistic SOM
Assuming you will capture 30% market share in year 1. Most startups struggle to get 1-3% in early years.
Using Outdated Data
Citing market size from a 2015 report. Markets change. Use recent data or adjust for growth.
Ignoring Competition
Calculating market size as if competitors do not exist. SOM must account for competitive pressure.
Use Both Top-Down and Bottom-Up
The best market sizing uses both approaches. Top-down validates the market exists. Bottom-up validates you can actually reach it. If both approaches give similar numbers, you have a credible market size estimate.
Key Takeaways
- •TAM = total market, SAM = market you can reach, SOM = market you can capture short-term.
- •Top-down: start with industry data, narrow to your segment. Bottom-up: count customers × revenue per customer.
- •Use both approaches to validate your market size. If they agree, you have a credible estimate.
- •Common mistakes: confusing TAM/SAM, unrealistic SOM, outdated data, ignoring competition.