Market sizing quantifies the revenue opportunity for your product or service. It uses three nested metrics: TAM (Total Addressable Market) is everyone who could theoretically buy. SAM (Serviceable Addressable Market) is the subset you can actually reach with your current model. SOM (Serviceable Obtainable Market) is the realistic share you can capture in the near term.
Why It Matters
Investors, boards, and executives want to know the size of the opportunity. "It's a big market" isn't an answer. You need numbers. But top-down estimates from analyst reports are notoriously unreliable because they define markets differently than your product does. Bottom-up market sizing, counting actual companies that match your ICP and multiplying by your average deal size, produces numbers you can defend and actually use for planning.
How to Size a Market
- Define your ICP: Specify the company attributes that define a good customer: industry, size, geography, tech stack, buying signals
- Count the companies: Use firmographic databases to count how many companies match your ICP criteria
- Estimate penetration: How many of those companies would realistically buy? Apply conversion rates from your sales data
- Calculate revenue: Multiply addressable companies by your average contract value to get TAM, SAM, and SOM
- Validate against reality: Compare your bottom-up estimate against industry reports, competitor revenue, and your own growth rate
Example
A data enrichment company defines their ICP: B2B companies with 50-1000 employees, using Salesforce or HubSpot, in the US. Database search finds 84,000 matching companies (TAM). They can reach 35,000 through their current sales channels (SAM). At a 2% close rate and $5,000 average deal, the SOM is $3.5M. This number is credible because every input is measurable.
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