---
title: "Market Sizing"
description: "TAM/SAM/SOM market sizing with top-down and bottom-up estimation methods, cross-validation of assumptions, and divergence reconciliation. Generates investor-ready materials with growth projections and confidence intervals. Use when estimating addressable markets, validating opportunity size, or preparing pitch deck market slides."
---

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# 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 &lt; 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 &lt; 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


---

## Rules (1)

### Size markets accurately using top-down and bottom-up approaches with realistic SOM constraints — HIGH


# TAM/SAM/SOM Market Sizing

Market sizing from total opportunity to achievable share.

## Framework Overview

```
+-------------------------------------------------------+
|                         TAM                            |
|        Total Addressable Market                        |
|     (Everyone who could possibly buy)                  |
|  +---------------------------------------------------+|
|  |                      SAM                           ||
|  |       Serviceable Addressable Market               ||
|  |    (Segment you can actually reach)                ||
|  |  +-----------------------------------------------+||
|  |  |                   SOM                          |||
|  |  |     Serviceable Obtainable Market              |||
|  |  |   (Realistic share you can capture)            |||
|  |  +-----------------------------------------------+||
|  +---------------------------------------------------+|
+-------------------------------------------------------+
```

| Metric | Definition | Example |
|--------|------------|---------|
| **TAM** | Total market demand globally | All project management software: $10B |
| **SAM** | Your target segment | Enterprise PM software in North America: $3B |
| **SOM** | What you can realistically capture | First 3 years with current resources: $50M |

## Calculation Methods

### Top-Down Approach

```
TAM = (# of potential customers) x (annual value per customer)
SAM = TAM x (% addressable by your solution)
SOM = SAM x (realistic market share %)
```

### Bottom-Up Approach

```
SOM = (# of customers you can acquire) x (average deal size)
SAM = SOM / (your expected market share %)
TAM = SAM / (segment % of total market)
```

## Example Analysis

```markdown
## Market Sizing: AI Code Review Tool

### TAM (Total Addressable Market)
- Global developers: 28 million
- % using code review tools: 60%
- Addressable developers: 16.8 million
- Average annual spend: $300/developer
- **TAM = $5.04 billion**

### SAM (Serviceable Addressable Market)
- Focus: Enterprise (>500 employees)
- Enterprise developers: 8 million (48% of addressable)
- Willing to pay premium: 40%
- Target developers: 3.2 million
- **SAM = $960 million**

### SOM (Serviceable Obtainable Market)
- Year 1-3 realistic market share: 2%
- **SOM = $19.2 million**
```

## Cross-Referencing Methods

Always use both methods and reconcile:

| Method | TAM | Notes |
|--------|-----|-------|
| Top-Down | $4.86B | Based on industry reports |
| Bottom-Up | $5.0B | Based on enterprise segments |
| **Reconciled** | **$4.9B** | Average, validated range |

## SOM Constraints

```
SAM: $470M

Constraints:
- Market share goal (3 years): 3%
- Competitive pressure: -20%
- Sales capacity: supports $15M ARR
- Go-to-market reach: 70%

Conservative SOM: min($470M x 3%, $15M, $470M x 70% x 3%)
= min($14.1M, $15M, $9.87M)
= $10M (3-year target)
```

## Confidence Levels

| Confidence | Evidence |
|------------|----------|
| HIGH | Multiple corroborating sources, recent data |
| MEDIUM | Single authoritative source, 1-2 years old |
| LOW | Extrapolated, assumptions, old data |

## Common Mistakes

| Mistake | Correction |
|---------|------------|
| TAM = "everyone" | Define specific customer segment |
| Ignoring competition | SOM must account for competitors |
| Old data | Use most recent (&lt;2 years) |
| Single method | Cross-validate top-down and bottom-up |
| Confusing TAM/SAM | TAM is total, SAM is your reach |

**Incorrect — Unrealistic SOM without constraints:**
```markdown
TAM: $10B
SAM (our segment): $3B
SOM (10% market share): $300M

This is achievable in 3 years!
```

**Correct — SOM constrained by realistic factors:**
```markdown
SAM: $3B

Constraints:
- Sales capacity: supports $15M ARR max
- Competitive pressure: 5 strong incumbents
- Realistic market share (Year 3): 0.5%

Conservative SOM: min($3B × 0.5%, $15M) = $15M
```



---

## References (1)

### Tam Sam Som Guide

# TAM/SAM/SOM Market Sizing Guide

Comprehensive guide for market size estimation.

## Definitions

```
TAM (Total Addressable Market)
└── "If we had 100% of the entire market"
└── The total market demand for a product/service

SAM (Serviceable Addressable Market)
└── "Segment we can actually reach"
└── TAM filtered by geography, segment, channel

SOM (Serviceable Obtainable Market)
└── "Realistic capture in 3 years"
└── SAM filtered by competition, capacity, go-to-market
```

## Visual Hierarchy

```
┌─────────────────────────────────────────────────┐
│                    TAM                           │
│                 $10 Billion                      │
│  ┌─────────────────────────────────────────┐    │
│  │                SAM                       │    │
│  │             $500 Million                 │    │
│  │  ┌────────────────────────────────────┐ │    │
│  │  │              SOM                    │ │    │
│  │  │           $10 Million               │ │    │
│  │  └────────────────────────────────────┘ │    │
│  └─────────────────────────────────────────┘    │
└─────────────────────────────────────────────────┘
```

## TAM Calculation Methods

### Top-Down Approach

Start with industry reports and filter down.

```
Example: AI Developer Tools
1. Global software developer population: 27M (Statista 2026)
2. Developers using AI tools: 60% = 16.2M
3. Average spend on AI tools: $300/year
4. TAM = 16.2M × $300 = $4.86B
```

### Bottom-Up Approach

Start with unit economics and scale up.

```
Example: AI Developer Tools
1. Target customer: Enterprise dev team (10+ devs)
2. Estimated teams globally: 500,000
3. Average contract value: $10,000/year
4. TAM = 500,000 × $10,000 = $5B
```

### Cross-Reference

Always use both methods and reconcile:

| Method | TAM | Notes |
|--------|-----|-------|
| Top-Down | $4.86B | Based on Statista data |
| Bottom-Up | $5.0B | Based on enterprise segments |
| **Reconciled** | **$4.9B** | Average, validated range |

## SAM Calculation

Filter TAM by your actual reach:

```
Example: AI Developer Tools (US/EU focus)
TAM: $4.9B

Filters:
- Geography (US/EU only): 40% → $1.96B
- Segment (Enterprise only): 30% → $588M
- Use case (Python/TS devs): 80% → $470M

SAM: $470M
```

## SOM Calculation

What you can realistically capture:

```
Example: AI Developer Tools
SAM: $470M

Constraints:
- Market share goal (3 years): 3%
- Competitive pressure: -20%
- Sales capacity: supports $15M ARR
- Go-to-market reach: 70%

Conservative SOM: min($470M × 3%, $15M, $470M × 70% × 3%)
= min($14.1M, $15M, $9.87M)
= $9.87M → Round to $10M

SOM: $10M (3-year target)
```

## Data Sources

### Primary Sources (Higher Confidence)
- Gartner, Forrester, IDC reports
- Company financials (public competitors)
- Industry associations
- Government statistics

### Secondary Sources (Lower Confidence)
- Press releases
- Expert interviews
- Survey data
- LinkedIn data (company sizes)

## Confidence Levels

| Confidence | Evidence |
|------------|----------|
| HIGH | Multiple corroborating sources, recent data |
| MEDIUM | Single authoritative source, 1-2 years old |
| LOW | Extrapolated, assumptions, old data |

## Common Mistakes

| Mistake | Correction |
|---------|------------|
| TAM = "everyone" | Define specific customer segment |
| Ignoring competition | SOM must account for competitors |
| Old data | Use most recent (&lt;2 years) |
| Single method | Cross-validate top-down and bottom-up |
| Confusing TAM/SAM | TAM is total, SAM is your reach |

