How to size a market without inventing numbers

Why bottom-up market sizing is more credible than top-down TAM figures, and a step-by-step way to build one from real data.

By Prathmesh Soni. Published .

Key takeaways

  • Top-down market sizes (a percentage of a big industry number) are easy to produce and easy for investors to dismiss.
  • Bottom-up sizing multiplies the number of real potential customers by what each could realistically pay.
  • Show your sources and assumptions so others can check and adjust them.

What are TAM, SAM and SOM?

  • TAM (total addressable market): total revenue if every possible customer bought.
  • SAM (serviceable available market): the part of TAM your product and business model can actually serve.
  • SOM (serviceable obtainable market): the share you can realistically win in the next few years.

Why is bottom-up sizing more credible?

A top-down figure usually starts from a large industry report and applies a percentage. It tells the reader very little about whether you understand your customers. A bottom-up model starts from countable things, such as the number of companies of a certain type and size, and builds up from there, which shows you know who you are selling to.

How do you build a bottom-up estimate?

  1. Define the customer precisely, for example “B2B software companies with 20 to 200 employees in India”.
  2. Count them using sources such as company databases, LinkedIn company search, industry associations or government registries.
  3. Estimate realistic annual spend per customer from your own pricing, competitor pricing or customer interviews.
  4. Multiply, then apply realistic filters for who can actually be reached and converted.
  5. Write down every assumption and its source.

How precise does it need to be?

Not very. The goal is a defensible order of magnitude and a clear method. A range with honest assumptions is more useful than a single, precise-looking number nobody can trace.

Frequently asked questions

Should I include both top-down and bottom-up numbers?

It can help to show both and explain the gap. If they differ wildly, that is worth understanding.

Where do I find company counts?

Common sources include LinkedIn company search, startup databases, industry association member lists and government business registries.

How often should I update the market size?

When your target customer changes or when you get better pricing data from real deals.