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.
• 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).

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 = 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

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
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: - Probl