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

## 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 < 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 < 2 years old; flag if older
Ignoring competition	SOM must account for incumbents' share

References

• TAM/SAM/SOM Rules — Calculation methods, SOM constraint model, cross-referencing
• TAM/SAM/SOM Guide — 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

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Version: 1.0.0