How Big Is Your Market, Really?
Calculate TAM, SAM, and SOM using the bottom-up method VCs actually trust. Get investor-ready numbers, not fantasy projections.
Bottom-Up Method
Start with customer count and build up. This is the preferred method.
All companies/people who could use your product
How much each customer pays per year
For SaaS, this is usually 1 (annual subscription)
Narrow to SAM
What portion can you actually serve?
% of TAM in regions you can serve (language, regulations, etc.)
% that fit your ICP (company size, industry, tech stack)
Solid market size for VC-backed startup.
Investor Reality Check
- →TAM of $2.5B: Can support a large exit if you capture significant share.
- →Year 5 SOM of $11.3M: Reasonable for seed stage. Need to show path to $100M+.
- →Market share of 3%: Conservative and believable. Good for investor presentations.
5-Year Projection
| Year | TAM | SAM | Target Revenue (SOM) |
|---|---|---|---|
| Year 1 | $2.9B | $431.2M | $2.2M |
| Year 2 | $3.3B | $495.9M | $5.6M |
| Year 3 | $3.8B | $570.3M | $10.0M |
| Year 4 | $4.4B | $655.9M | $15.6M |
| Year 5 | $5.0B | $754.3M | $22.6M |
Top-Down Sanity Check
What TAM, SAM, and SOM Actually Mean
Total Addressable Market
The total market demand for your product if you had 100% market share and no constraints. This is your "if everyone who could buy, did buy" number.
Serviceable Addressable Market
The portion of TAM you can actually serve based on your product, geography, and go-to-market. This accounts for real-world constraints.
Serviceable Obtainable Market
The realistic portion of SAM you can capture in a given timeframe. This is your actual revenue target—what you can reasonably win.
Why Bottom-Up Beats Top-Down
Bottom-Up (Preferred)
Start with number of potential customers × average deal size. This forces you to defend real numbers and shows you understand your market.
- • Based on actual customer counts
- • Uses your pricing assumptions
- • Easier to defend to investors
- • Shows market knowledge
Top-Down (Sanity Check Only)
Start with industry reports and take a percentage. Easy to inflate, hard to defend, and shows you haven't done the work.
- • Based on analyst estimates
- • Easy to cherry-pick favorable numbers
- • VCs will challenge the assumptions
- • Use only to sanity-check bottom-up
Market Sizing Mistakes That Kill Investor Interest
Starting with "$X trillion industry"
Every pitch deck claims a trillion-dollar market. VCs tune this out. Start bottom-up with customer counts and work up.
Unrealistic market share assumptions
Projecting 20%+ market share in 5 years? That's Salesforce-level dominance. Most successful startups capture 1-5% of SAM.
Confusing TAM with SAM
Your TAM might be $50B, but if you only sell to mid-market in North America, your SAM might be $500M. Be honest about constraints.
Ignoring competition in SOM
Your SOM isn't just "SAM × market share." Account for competitive dynamics, switching costs, and market inertia.
Using outdated market reports
Markets change fast. A 2019 report doesn't reflect 2024 reality. Cite recent sources and adjust for current conditions.
Related Resources
Market Sizing FAQ
How big does my TAM need to be for VCs?
Most VCs want to see $1B+ TAM. This allows for venture-scale outcomes even if you capture only a small percentage. Smaller markets can work for angel investors or bootstrapping.
What's a realistic 5-year market share?
1-5% of SAM is realistic for most startups. Market leaders might hit 10-20%, but that takes a decade. Be conservative—VCs will push back on aggressive share assumptions.
Should I include adjacent markets?
Be careful. Your core TAM should reflect your current product. You can mention expansion opportunities, but don't inflate your TAM with markets you can't address today.
How do I find customer count data?
Use Census Bureau data, LinkedIn Sales Navigator filters, industry associations, or data providers like ZoomInfo. Government data is free and credible for many markets.