Market Sizing

Market Sizing

Overview

Market sizing answers one question: how big is this opportunity? It's a critical input for prioritization, fundraising, and strategic planning. This skill guides you through TAM (Total Addressable Market), SAM (Serviceable Addressable Market), and SOM (Serviceable Obtainable Market) estimation using both top-down (macro data) and bottom-up (unit economics) approaches.

When to Use

• Evaluating whether to enter a new market
• Building a business case for a new product
• Preparing for investor pitches or board reviews
• Comparing multiple opportunity areas
• Don't use for: feature-level decisions (too noisy), already-proven markets (sizing is implied)

Instructions

1. Define Your Market

Top-down approach:

1. Start with a broad market number (industry reports, analyst data)
2. Apply filters to narrow to your addressable segment
3. Adjust for geography, business size, or other constraints

Bottom-up approach (preferred for accuracy):

1. Define your target customer unit (user, seat, account, transaction)
2. Estimate number of target customers
3. Multiply by expected price per unit
4. Adjust for adoption rate over time

2. Calculate TAM

TAM = total revenue opportunity if you had 100% market share.

• Top-down: Find industry revenue → multiply by your segment's share
• Bottom-up: (Total potential customers × Price per customer/year)
• Be explicit about your assumptions — document each one

3. Calculate SAM

SAM = the portion of TAM you can reach with your current or planned offering.

• Apply filters: geography, segment, use case compatibility
• Example: If TAM is $10B but you only serve mid-market US companies, SAM might be $500M

4. Calculate SOM

SOM = the portion of SAM you can realistically capture in the near term (3-5 years).

• Based on capacity: sales team size, distribution channels, marketing budget
• Based on competitive position: realistic market share given your differentiation
• SOM is usually 1-10% of SAM for new entrants

5. Sensitivity Analysis

Market sizing is guesswork with math. Run scenarios:

• Conservative: Lower end of estimates, slower adoption
• Base case: Best-guess estimates
• Optimistic: Higher adoption, faster growth
• For each scenario, show the key drivers that would make it true

6. Document Assumptions

Every estimate relies on assumptions. List them explicitly:

• "We assume 10% of Fortune 500 companies will adopt"
• "Based on Forrester report sizing the market at $X"
• "Assumes $50/user/month pricing with 20% annual discount for enterprise"

Sample Output

Market sizing for a team documentation tool:

• TAM: $12B (global knowledge management spend, per Gartner 2024)
• SAM: $1.8B (mid-market tech companies with 50-500 employees)
• SOM: $36M (2% of SAM over 3 years, given sales capacity of 12 reps)
• Bottom-up sanity check: 20,000 companies × 100 users × $15/user/month × 12 months = $36M/year ✓
• Key assumption: 40% gross margins, $15/user/month pricing

Common Pitfalls

1. TAM vanity — A $1B TAM doesn't matter if you can only reach $10M of it
2. Garbage in, garbage out — Bad assumptions produce precise-looking wrong answers
3. Confusing SAM with SOM — SAM is reachable, SOM is capturable. These are very different
4. Static sizing — Markets grow and shrink. Use growth rates, not single-year snapshots
5. Bottom-up vs. top-down divergence — If they differ by 10x, your assumptions are wrong

Verification Checklist

• [ ] TAM documented with source and methodology
• [ ] SAM calculated with explicit reachability filters
• [ ] SOM based on realistic capacity and market share estimates
• [ ] Assumptions listed and challenged (at least 5)
• [ ] Sensitivity analysis run (conservative, base, optimistic)
• [ ] Bottom-up and top-down estimates within 2x of each other

Source & license

This open-source skill is cataloged on AgentStack and links to its original source — we do not rehost the code.

• Author: uthumany
• Source: uthumany/uthy-legacy-os
• License: MIT
• Homepage: https://uthumany.github.io/uthy-legacy-os/

Install and usage instructions live in the source repository linked above.