Market Sizing Analysis

# 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.