market-sizing

# 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 ```markdown ## 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](rules/market-tam-sam-som.md) — Calculation methods, SOM constraint model, cross-referencing - [TAM/SAM/SOM Guide](references/tam-sam-som-guide.md) — 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