market-sizing-analysis

Define your market and target customers, then calculate TAM using bottom-up (customer count times annual revenue per customer) or top-down (industry reports with filters). Narrow TAM to SAM with geographic and product constraints, then estimate SOM at 2-5% of SAM for years 3-5.

Top-down starts with industry research reports and narrows through geographic and segment filters, working best for mature markets. Bottom-up builds from customer counts and average revenue per customer, which investors find more credible for niche or B2B markets.

Investors prefer bottom-up analysis because it is granular and defensible, built from actual customer segment data. Best practice is to lead with bottom-up and triangulate with top-down, keeping variance under 30% between methods.

Use value theory when creating a new market category or launching disruptive innovation where no existing market research exists. It estimates willingness to pay at 10-30% of the quantified value your solution creates per customer.

Common mistakes include claiming the entire TAM as addressable, projecting SOM above 5% in five years, relying only on top-down data, cherry-picking inconsistent sources, and ignoring market growth or competitive dynamics.

Credible sources include Gartner, Forrester, and IDC reports, government data from the Census Bureau and BLS, public company 10-K filings, and B2B databases like LinkedIn Sales Navigator and Crunchbase. Always cite publisher, date, and scope.