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name: calculating-market-size
description: Calculates Total Addressable Market (TAM), Serviceable Addressable Market (SAM), and Serviceable Obtainable Market (SOM) using bottom-up validation methods. Use when evaluating market opportunities, preparing investor pitches, or validating business assumptions.
---

Market Sizing Calculator

Basic TAM/SAM/SOM calculation:

Market: B2B Project Management Software
Target: Small-medium businesses (10-500 employees)

TAM (Total market):
- 32M businesses with 10-500 employees globally
- Average spend: $2,400/year on PM software
- TAM = 32M × $2,400 = $76.8B

SAM (Your serviceable market):
- English-speaking markets: 40% of TAM
- Tech-forward industries: 60% adoption rate
- SAM = $76.8B × 0.4 × 0.6 = $18.4B

SOM (Realistic capture):
- Market entry regions: 5% of SAM initially
- 3-year market share goal: 0.1%
- SOM = $18.4B × 0.05 × 0.001 = $9.2M

Phase 1: Market Definition

• Define target customer segment precisely
• Identify geographic boundaries
• Set time horizon (typically 3-5 years)

Phase 2: TAM Calculation

• Count total potential customers
• Estimate average annual spend per customer
• Validate with industry reports
• Cross-check with top-down data

Phase 3: SAM Refinement

• Apply accessibility filters (geography, channels)
• Factor in competitive landscape
• Account for adoption barriers
• Validate with comparable markets

Phase 4: SOM Reality Check

• Assess go-to-market capabilities
• Model market share trajectory
• Factor in competitive response
• Validate against similar company benchmarks

Phase 5: Bottom-Up Validation

• Build customer pipeline model
• Calculate unit economics
• Test assumptions with primary research
• Stress-test with scenario analysis

Example 1: B2B SaaS Input: "Food delivery software for restaurants under $5M revenue" Output:

• TAM: 640K restaurants × $3,600 avg spend = $2.3B
• SAM: English markets (200K) × 70% digitization = $500M
• SOM: 3-year 0.2% share target = $1M ARR

Example 2: Consumer Product Input: "Organic dog treats in US premium segment" Output:

• TAM: 38M premium dog owners × $180/year = $6.8B
• SAM: Organic-focused subset (15%) = $1.0B
• SOM: Regional launch capturing 0.1% = $1M revenue

Example 3: Service Business Input: "CFO services for Series A startups" Output:

• TAM: 3,000 Series A deals × $120K avg engagement = $360M
• SAM: US market 60% × suitable stage companies 40% = $86M
• SOM: 2% market share achievable = $1.7M

Data Sources Priority:

1. Government statistics (census, industry data)
2. Industry association reports
3. Public company filings
4. Reputable research firms (Gartner, IBISWorld)
5. Survey data from target customers

Validation Methods:

• Triangulate with 2+ methodologies
• Interview 10+ potential customers
• Analyze 3+ comparable companies
• Sanity-check against GDP/industry growth

Bottom-Up Building Blocks:

• Customer count: Use specific, verifiable sources
• Spending patterns: Validate with primary research
• Growth rates: Apply conservative assumptions
• Competitive factors: Model realistic market share

Avoid these errors:

• Using only top-down estimates without validation
• Conflating TAM with opportunity size
• Ignoring competitive dynamics in SOM
• Over-optimistic market share assumptions (>5% is suspect)
• Mixing time horizons across TAM/SAM/SOM
• Failing to account for market maturity
• Using outdated data sources
• Assuming linear adoption curves
• Neglecting regulatory or technical barriers
• Confusing addressable vs. accessible markets

Red flags in estimates:

• SOM >10% of SAM without strong justification
• Growth rates >3x market average
• Customer acquisition costs ignored
• No sensitivity analysis provided
• Round numbers without supporting detail