What Is Market Sizing?
Market sizing estimates the total revenue opportunity available in your market. It is essential for business planning, fundraising, and deciding where to focus your growth effort.
Key Takeaways
- TAM (Total Addressable Market): the total revenue if you had 100% market share globally
- SAM (Serviceable Addressable Market): the portion of TAM you can realistically reach with your current model
- SOM (Serviceable Obtainable Market): the share of SAM you can capture in the near term
- Bottom-up sizing (counting real potential customers) is more credible than top-down (% of a big industry number)
TAM, SAM, and SOM explained
These three concentric circles define the market opportunity at different levels of realism. TAM is the broadest: the total global revenue available if every possible customer bought your product and you had zero competitors. SAM narrows this to the customers you can actually reach and serve with your current product, pricing, geography, and business model. SOM narrows further to the realistic near-term share you can capture given your stage, team, and resources. Investors use all three but focus most attention on SOM — it is the number that drives your 3-year financial model.
Top-down vs bottom-up sizing
Top-down market sizing starts with a large industry number (e.g. 'the UK logistics market is £100bn') and applies a series of percentage reductions to arrive at your addressable market. The problem is that each percentage is a guess, and errors compound. Bottom-up sizing starts from first principles: how many potential customers are there? How much would each one spend with you annually? Bottom-up is harder to produce but far more credible — and the exercise forces you to understand your customer base in granular detail.
How to build a bottom-up market size
Step 1: define your target customer precisely (industry, size, geography, use case). Step 2: count how many of them exist. Sources: Companies House, LinkedIn, industry directories, government data, trade associations. Step 3: estimate annual spend per customer (based on your pricing or market research). Step 4: multiply. If there are 50,000 SMEs in the UK that match your profile and each would spend £2,000/year, your SAM is £100m. Apply a realistic penetration rate (1–5% in years 1–3) to get your SOM.
Common market sizing mistakes
Claiming a percentage of a huge market: 'if we get just 1% of the £50bn market...' sounds impressive but is not credible without a plan for how you reach that 1%. Conflating TAM with SAM: geography, product fit, and go-to-market reach all constrain your real addressable market. Ignoring existing players: your SAM is the total market, but your SOM must account for what competitors already have. Using outdated data: market sizes change — use the most recent data available and flag growth rate assumptions.