market-sizing

name

market-sizing

description

USE THIS SKILL when the user asks to size a market, estimate TAM/SAM/SOM, calculate addressable market, project market opportunity, estimate market potential, determine market size, build a market model, or quantify demand. Trigger terms: "market size", "TAM", "SAM", "SOM", "addressable market", "market opportunity", "how big is the market", "total market", "serviceable market", "market potential", "demand estimation", "market forecast".

Market Sizing

Rigorous market sizing using dual TAM/SAM/SOM methodology (top-down and bottom-up) with reconciliation, sensitivity analysis, and growth projection.

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Required Inputs

Input	Description	Required?
Industry / product category	What market is being sized	Yes
Geographic scope	Country, region, or global	Yes
Target customer segment(s)	Who buys this product/service	Yes
Product/service definition	What is being sold, at what price point	Yes
Time horizon	Current year and projection period (e.g., 2026-2031)	Yes
Company capabilities	Current reach, channels, capacity constraints	For SOM
Known data points	Any existing research, revenue figures, customer counts	If available
Currency	Reporting currency	Yes

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Execution Steps

Step 1: Define Market Boundaries

Establish precise definitions before any calculation:

1. Product scope: What products/services are included and excluded?
2. Customer scope: Which buyer segments (B2B, B2C, enterprise, SMB)?
3. Geographic scope: Which countries/regions? Regulatory differences?
4. Value chain scope: Which parts of the value chain (manufacturing, distribution, SaaS layer)?

Document boundary decisions explicitly — these are the #1 source of market sizing disagreements.

Step 2: Top-Down Analysis

Start from the largest defensible number and narrow:

1. Identify macro data sources (in order of reliability):

   • Government statistics (Census, BLS, Eurostat, national statistical offices)
   • Industry association reports (trade bodies, industry groups)
   • Analyst reports (Gartner, IDC, Forrester, Statista, IBISWorld)
   • Public company filings (10-K revenue disclosures, earnings calls)
   • Academic research and published studies

2. Calculate top-down TAM:

   • Total industry revenue globally or in target geography
   • OR: Total number of potential buyers x average annual spend per buyer

3. Apply segmentation filters for SAM:

   • Filter by geography served
   • Filter by customer segment targeted
   • Filter by product/service fit (what portion of spend your offering addresses)
   • Filter by channel accessibility

4. Apply penetration and capacity constraints for SOM:

   • Realistic market share given competitive landscape (use analogues)
   • Channel and sales capacity limits
   • Brand awareness and reach constraints
   • Time-to-penetrate considerations

Step 3: Bottom-Up Analysis

Build from unit economics upward:

1. Count target customers:

   • Identify the number of potential buyers in each segment
   • Use company registries, industry databases, demographic data

2. Estimate purchase behavior:

   • Average deal size / ticket price
   • Purchase frequency (annual, monthly, one-time)
   • Adoption rate by segment (early adopters vs. mainstream)

3. Calculate bottom-up TAM:

   TAM = Σ (Customers_in_segment × Price × Purchase_frequency) for all segments
   

4. Calculate bottom-up SAM:

   SAM = Σ (Reachable_customers × Price × Frequency) for served segments
   

5. Calculate bottom-up SOM:

   SOM = SAM × Expected_penetration_rate × Conversion_rate
   

Step 4: Reconciliation

Compare top-down and bottom-up estimates:

1. Calculate variance: If top-down and bottom-up differ by >30%, investigate why
2. Identify discrepancy sources:
   • Pricing assumptions differ?
   • Customer count estimates differ?
   • Scope definitions misaligned?
3. Triangulate: Use a third method (e.g., analogue-based, value-theory) if gap persists
4. Select final estimate: State which approach is primary and why; use the other as a sanity check
5. Document confidence level: High (estimates within 15%), Medium (15-40% range), Low (>40% range)

Step 5: Growth Rate Projection

Project market growth over the time horizon:

1. Historical growth rate: CAGR over last 3-5 years from industry data
2. Driver-based growth model:
   • Population/business formation growth
   • Penetration rate increase (adoption curve position)
   • Price changes (inflation, premiumization, commoditization)
   • Usage intensity changes
   • Regulatory tailwinds/headwinds
3. Analogue comparison: How did similar markets grow? (e.g., cloud adoption curve for AI SaaS)
4. Adoption curve positioning: Where on the S-curve is this market? (innovators → early majority → late majority)

Growth Phase	Typical Annual Growth	Characteristics
Emerging	30-80%+	Pre-product/market fit, few players
High growth	15-30%	Product/market fit proven, competition entering
Growth	8-15%	Market maturing, consolidation beginning
Mature	2-8%	Established players, GDP+ growth
Declining	<0%	Substitution, obsolescence

Step 6: Sensitivity Analysis

Test key assumptions:

1. Identify the 3-5 variables with the highest impact on market size (typically: customer count, price, adoption rate, growth rate)
2. Define ranges for each variable (pessimistic, base, optimistic)
3. Build sensitivity table: Show how TAM/SAM/SOM change as each variable moves
4. Tornado chart inputs: Rank variables by impact magnitude

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Output Template

Market Sizing: [Industry/Product] — [Geography]

Date: [Date] | Prepared for: [Client/Project] | Confidence Level: [High/Medium/Low]

1. Market Definition & Boundaries

Dimension	Included	Excluded
Products/Services	[Specific offerings]	[Adjacent categories excluded]
Customer Segments	[Target segments]	[Non-target segments]
Geographies	[Countries/regions]	[Out-of-scope regions]
Value Chain	[Stages included]	[Stages excluded]

2. TAM / SAM / SOM Waterfall

Metric	Top-Down Estimate	Bottom-Up Estimate	Reconciled Estimate	Confidence
TAM (Total Addressable Market)	$[X]B	$[X]B	$[X]B	[H/M/L]
SAM (Serviceable Addressable Market)	$[X]B	$[X]B	$[X]B	[H/M/L]
SOM (Serviceable Obtainable Market)	$[X]M	$[X]M	$[X]M	[H/M/L]

SAM as % of TAM: [X]% — [Explanation of narrowing factors] SOM as % of SAM: [X]% — [Explanation of capture assumptions]

3. Top-Down Methodology

Step	Value	Source	Notes
Global industry revenue	$[X]B	[Source, Year]	[Methodology note]
Geographic filter ([Region])	$[X]B	[Source]	[X]% of global
Segment filter ([Segment])	$[X]B	[Source]	[X]% of regional
Product relevance filter	$[X]B	[Assumption]	[X]% of segment spend
Top-Down TAM	$[X]B

4. Bottom-Up Methodology

Segment	# of Customers	Avg. Annual Spend	Segment TAM
[Segment 1]	[N]	$[X]	$[X]M
[Segment 2]	[N]	$[X]	$[X]M
[Segment 3]	[N]	$[X]	$[X]M
Total Bottom-Up TAM	[N]	$[X] avg	$[X]B

5. Reconciliation

Approach	TAM	SAM	SOM	Variance vs. Reconciled
Top-Down	$[X]B	$[X]B	$[X]M	[+/-X]%
Bottom-Up	$[X]B	$[X]B	$[X]M	[+/-X]%
Reconciled	$[X]B	$[X]B	$[X]M	—

Reconciliation notes: [Explain why one approach is favored, what drove differences, how you resolved them]

6. Market Growth Projection

Year	TAM	Growth %	SAM	SOM
[Current]	$[X]B	—	$[X]B	$[X]M
[+1]	$[X]B	[X]%	$[X]B	$[X]M
[+2]	$[X]B	[X]%	$[X]B	$[X]M
[+3]	$[X]B	[X]%	$[X]B	$[X]M
[+5]	$[X]B	[X]%	$[X]B	$[X]M

Growth CAGR ([Current]-[+5]): TAM [X]% | SAM [X]% | SOM [X]%

Key growth drivers:

1. [Driver 1 — quantified impact]
2. [Driver 2 — quantified impact]
3. [Driver 3 — quantified impact]

7. Sensitivity Analysis

Tornado Chart — Impact on TAM (Base: $[X]B)

Variable	Low Case	Base Case	High Case	TAM Range
[Variable 1]	[Low]	[Base]	[High]	$[X]B - $[X]B
[Variable 2]	[Low]	[Base]	[High]	$[X]B - $[X]B
[Variable 3]	[Low]	[Base]	[High]	$[X]B - $[X]B
[Variable 4]	[Low]	[Base]	[High]	$[X]B - $[X]B

Combined scenario range: $[Low]B (pessimistic) → $[Base]B (base) → $[High]B (optimistic)

8. Data Sources & Confidence Assessment

Data Point	Source	Year	Confidence	Risk
[Data point 1]	[Source]	[Year]	[H/M/L]	[Key risk to accuracy]
[Data point 2]	[Source]	[Year]	[H/M/L]	[Key risk to accuracy]

9. Key Assumptions & Caveats

1. [Assumption 1 — impact if wrong]
2. [Assumption 2 — impact if wrong]
3. [Assumption 3 — impact if wrong]

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Quality Checks

• TAM, SAM, and SOM are each calculated using BOTH top-down and bottom-up approaches
• Top-down and bottom-up estimates are reconciled with variance explained
• Every data point cites a specific source with year
• Market boundaries (product, geography, customer, value chain) are explicitly defined
• SAM narrowing from TAM is explained with specific filters and percentages
• SOM includes realistic penetration assumptions, not aspirational targets
• Growth projections use driver-based methodology, not just trend extrapolation
• Sensitivity analysis tests at least 3 key variables with defined ranges
• Confidence level (High/Medium/Low) is stated for each major estimate
• Currency, time period, and geographic scope are stated in every table header
• No circular reasoning (not using own revenue targets to justify market size)
• Sanity checks applied: per-capita spend, comparison to adjacent markets, public company revenue benchmarks