Market Sizing

---
name: Market Sizing
description: Builds a defensible TAM/SAM/SOM market-sizing model with bottom-up and top-down triangulation and a low/base/high sensitivity range. Use when someone asks "how big is the market", "calculate my TAM", "size this opportunity", is preparing an investor deck market slide, or needs to defend a market number under diligence. Do NOT use for revenue projections of an existing business - use revenue-modeling instead.
---

# Market Sizing

A market size number is only useful if it is defensible. Investors have seen a
thousand "100B TAM" slides and discount all of them. This skill builds a number
you can defend under questioning by showing your work.

## The Three Layers

- **TAM (Total Addressable Market)**: total spend if everyone who could buy,
  did, at your price. The ceiling.
- **SAM (Serviceable Addressable Market)**: the slice you can actually reach
  given product, geography, and segment.
- **SOM (Serviceable Obtainable Market)**: what you can realistically win in
  3-5 years given competition and execution. The number that matters for
  planning.

## Build Bottom-Up First

Bottom-up is the credible method; build it before you ever cite a top-down
analyst report.

TAM = (number of potential customers) × (annual contract value)

- Count customers from a real source: company databases, license counts,
  industry registries - not a guess.
- Use your actual or expected ACV, not an aspirational one.
- Segment the customer count by size; a mid-market customer and an enterprise
  pay very differently.

Bottom-up forces you to state your assumptions, which is exactly what a sharp
investor will probe.

## Triangulate Top-Down

Cross-check with top-down: take a credible total-spend figure from analyst
reports and narrow it by the addressable fraction. If bottom-up and top-down
land within ~2x of each other, you have a defensible range. If they diverge
wildly, your assumptions are wrong somewhere - find out where.

## SAM and SOM

- SAM: apply realistic filters - the segments your product actually serves, the
  geographies you operate in, the buyers you can reach.
- SOM: model market share capture over time against named competition. A 1-3%
  share of a large SAM in five years is more credible than 30% of a tiny one.

## Show the Math

The number is worthless without the assumptions. Always present:

- The customer count and its source.
- The ACV and its basis.
- The narrowing logic from TAM to SAM to SOM.
- A sensitivity range (low / base / high) on the key assumptions.

## Common Mistakes

- "1% of a huge market" - lazy and instantly discounted.
- Confusing market size with revenue opportunity for you specifically.
- Citing a single analyst report as the whole case.
- A SOM that implies implausible market share.

## When the Market Is New

If you are creating a category, size the adjacent budget you displace and the
problem's current cost (including the cost of doing nothing). New-category
sizing is about the pain, not an existing line item.

## Deliverable

Produce a sizing model with bottom-up TAM, top-down cross-check, SAM and SOM
with explicit filters, a low/base/high sensitivity, and a one-paragraph
defense of the SOM as the planning number.