Market Sizing

TAM/SAM/SOM framework for estimating addressable market and validating opportunity size.

Definitions

Metric Definition Question It Answers

TAM Total Addressable Market — everyone who could possibly buy "What's the theoretical ceiling?"

SAM Serviceable Addressable Market — segment you can actually reach "What can we realistically target?"

SOM Serviceable Obtainable Market — realistic share in 3 years "What will we actually capture?"

+-------------------------------------------------------+ | TAM | | +---------------------------------------------------+ | | | SAM | | | | +-----------------------------------------------+| | | | | SOM || | | | +-----------------------------------------------+| | | +---------------------------------------------------+ | +-------------------------------------------------------+

When to Use Top-Down vs. Bottom-Up

Method Use When Risk

Top-Down Industry reports exist; investor pitch; quick estimate Overestimates SOM

Bottom-Up Sales capacity known; pricing validated; more credible More work; requires assumptions

Both (recommended) High-stakes decisions; fundraising; board decks Cross-validate to build confidence

Always cross-validate both methods and reconcile within 20%. If they diverge by more than that, revisit your assumptions.

Quick Formulas

Top-Down TAM = (# potential customers) × (annual value per customer) SAM = TAM × (% your solution can address) SOM = SAM × (realistic market share % in 3 years)

Bottom-Up SOM = (# customers you can acquire) × (average deal size) SAM = SOM / (your expected market share %) TAM = SAM / (your segment as % of total market)

Example: AI Code Review Tool

Market Sizing: AI Code Review Tool

Top-Down

TAM

• Global developers: 28M
• Using code review tools: 60% → 16.8M
• Average annual spend: $300/developer
• TAM = $5.04B

SAM

• Enterprise only (>500 employees): 8M developers
• Willing to pay premium: 40% → 3.2M
• SAM = $960M

SOM

• Sales capacity supports ~$15M ARR (Year 3)
• Realistic market share: 2%
• Unconstrained SOM = $960M × 2% = $19.2M
• Constrained SOM = min($19.2M, $15M) = $15M

Bottom-Up

• Target accounts Year 1: 50 enterprise deals
• Average ACV: $100K
• Year 1 ARR: $5M
• Year 3 (3× growth): $15M ARR → SOM = $15M

Reconciled SOM: $15M (confirmed by both methods)

SOM Constraint Model

Do not report an unconstrained SOM. Always apply real-world limits:

SOM constraints: Sales capacity: supports $15M ARR max Competitive pressure: 5 strong incumbents → −20% market share Go-to-market reach: 70% of SAM reachable with current channels

Conservative SOM = min( SAM × target_share%, sales_capacity_ceiling, SAM × gtm_reach% × target_share% )

Confidence Levels

Confidence Evidence Required

HIGH Multiple corroborating sources, data < 2 years old

MEDIUM Single authoritative source, 1-2 years old

LOW Extrapolated, heavy assumptions, data > 2 years old

Always label each number with its confidence level in deliverables.

Common Mistakes

Mistake Correction

TAM = "everyone on earth" Define a specific, bounded customer segment

SOM = 10% of a billion-dollar market Apply actual sales capacity and GTM constraints

Single method only Cross-validate top-down and bottom-up

Old data Use sources < 2 years old; flag if older

Ignoring competition SOM must account for incumbents' share

References

• TAM/SAM/SOM Rules — Calculation methods, SOM constraint model, cross-referencing

• TAM/SAM/SOM Guide — Detailed guide with data source recommendations

Related Skills

• ork:competitive-analysis — Understand competitive dynamics that constrain SOM

• ork:business-case — Build financial justification once opportunity is sized

• ork:product-frameworks — Full product strategy toolkit

Version: 1.0.0