/market-sizing-analysis

name: market-sizing-analysis
description: This skill should be used when the user asks to "calculate TAM", "determine SAM", "estimate SOM", "size the market", "calculate market opportunity", "what's the total addressable market", or requests market sizing analysis for a startup or business opportunity.
version: 1.0.0

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.

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:**

• Problem: E-commerce companies struggle with email marketing automation
• Customers: E-commerce stores with >$1M annual revenue
• Category: AI-powered email marketing software
• Geography: North America initially, global expansion
• Horizon: 3-5 year opportunity

Step 2: Gather Data Sources

Identify credible data for calculations.

**Top-Down Sources:**

• Industry research reports (Gartner, Forrester, IDC)
• Government statistics (Census, BLS, trade associations)
• Public company filings and earnings
• Market research firms (Statista, CB Insights, PitchBook)

**Bottom-Up Sources:**

• Customer interviews and surveys
• Sales data and CRM records
• Industry databases (LinkedIn, ZoomInfo, Crunchbase)
• Competitive intelligence
• Academic research

**Value Theory Sources:**

• Customer problem quantification
• Time/cost studies
• ROI case studies
• Pricing research and willingness-to-pay surveys

Step 3: Calculate TAM

Apply chosen methodology to determine total market.

**For Top-Down:**

1. Find total category size from research 2. Document data source and year 3. Apply growth rate if needed 4. Validate with multiple sources

**For Bottom-Up:**

1. Count total potential customers 2. Cal