Investors and lenders read market size slides every week, and weak ones look alike: a huge number, no source, and a claim of “just 1% of the market”. This example walks through both ways of sizing a market and shows how to check that they agree. For the basics, start with our TAM SAM SOM guide.
Quick definitions
- TAM: total yearly demand for your kind of product.
- SAM: the part of the TAM you can serve with your product, location and price.
- SOM: the part of the SAM you can realistically win in the first few years.
Top-down example
All numbers below are examples. Replace them with sourced figures.
| Step | Value |
|---|---|
| Potential customers in the market | 500,000 |
| Average revenue per customer per year | $1,200 |
| TAM | $600,000,000 |
| Filter: regions you serve 30%, target segment 40%, can use or afford it 60% | 36,000 customers |
| SAM | $43,200,000 |
| Share you can win in 3 years: 2% | 720 customers |
| SOM | $864,000 |
Bottom-up example
Now build the number from what you can actually reach and sell.
| Channel | People reached | Conversion | Customers |
|---|---|---|---|
| Website | 20,000 | 1.0% | 200 |
| Outbound email | 5,000 | 2.0% | 100 |
| Partners | 800 | 10% | 80 |
| Social media | 10,000 | 0.4% | 40 |
420 customers x $1,200 = $504,000 per year.
Do the two methods agree?
Bottom-up revenue ($504,000) is about 58% of the top-down SOM ($864,000). Within a factor of two is a reasonable sign; if one method is ten times the other, an assumption is wrong. Fix the weakest input, usually the conversion rate or the share you expect to win.
Mistakes investors notice
- No sources. Write where each number comes from: an industry report, government statistics or your own sales data.
- “We only need 1%”. Show how you would reach those customers, channel by channel.
- A TAM that includes people who can never buy. Filter honestly to get the SAM.
- Only one method. Showing both is more convincing.
Skip the setup. The TAM SAM SOM Market Sizing Template (Excel, $12) has both methods, a sanity check and a one-line slide summary. It contains no market data, so you add your own sourced numbers.
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