SkillMedev Market Sizing
A market size number is only useful if it is defensible. Investors have seen a thousand "100B TAM" slides and discount all of them. This skill builds a number you can defend under questioning by showing your work.
The Three Layers
- TAM (Total Addressable Market): total spend if everyone who could buy, did, at your price. The ceiling.
- SAM (Serviceable Addressable Market): the slice you can actually reach given product, geography, and segment.
- SOM (Serviceable Obtainable Market): what you can realistically win in 3-5 years given competition and execution. The number that matters for planning.
Build Bottom-Up First
Bottom-up is the credible method; build it before you ever cite a top-down analyst report.
TAM = (number of potential customers) × (annual contract value)
- Count customers from a real source: company databases, license counts, industry registries - not a guess.
- Use your actual or expected ACV, not an aspirational one.
- Segment the customer count by size; a mid-market customer and an enterprise pay very differently.
Bottom-up forces you to state your assumptions, which is exactly what a sharp investor will probe.
Triangulate Top-Down
Cross-check with top-down: take a credible total-spend figure from analyst reports and narrow it by the addressable fraction. If bottom-up and top-down land within ~2x of each other, you have a defensible range. If they diverge wildly, your assumptions are wrong somewhere - find out where.
SAM and SOM
- SAM: apply realistic filters - the segments your product actually serves, the geographies you operate in, the buyers you can reach.
- SOM: model market share capture over time against named competition. A 1-3% share of a large SAM in five years is more credible than 30% of a tiny one.
Show the Math
The number is worthless without the assumptions. Always present:
- The customer count and its source.
- The ACV and its basis.
- The narrowing logic from TAM to SAM to SOM.
- A sensitivity range (low / base / high) on the key assumptions.
Common Mistakes
- "1% of a huge market" - lazy and instantly discounted.
- Confusing market size with revenue opportunity for you specifically.
- Citing a single analyst report as the whole case.
- A SOM that implies implausible market share.
When the Market Is New
If you are creating a category, size the adjacent budget you displace and the problem's current cost (including the cost of doing nothing). New-category sizing is about the pain, not an existing line item.
Deliverable
Produce a sizing model with bottom-up TAM, top-down cross-check, SAM and SOM with explicit filters, a low/base/high sensitivity, and a one-paragraph defense of the SOM as the planning number.