Market Size Estimations

Every VC will ask about your market size. Most founders wait until they hear "the market's too small" 20 times before fixing it. I calculated mine upfront and raised $790k. Here's the exact playbook 👇🏾 When we started pitching Chezie, I knew market size would be the # 1 concern. DEI software? ERG management? VCs were already skeptical. So instead of waiting for rejection after rejection, I showed up with the exact math. Not some hand-wavy $50B TAM. Real, defensible calculations. "There are 57,000 companies globally with ERGs. At $25-125k average contracts, that's a $2.63B serviceable market." Whenever I explained our math, the mood changed. Investors leaned in, and suddenly, we weren't defending our market - we were discussing go-to-market strategy. THE MARKET SIZING PLAYBOOK Here's the step-by-step process I used: 1. Set up your foundation Create a spreadsheet with two tabs: - SAM_SOM Calculations - Definitions_Assumptions This keeps your math organized and easy to update. 2. Find your true customer count Skip the industry reports. Go to Perplexity and search: "How many [your specific customer type] exist globally?" For us: "How many companies have employee resource groups?" Answer: 57,000 companies 3. Research realistic pricing Check competitor pricing pages. If no direct competitors exist, look at adjacent markets. Our research: $25k (small companies) to $125k (enterprise) Average: $45k annual contracts 4. Calculate your SAM [Total customers] x [Average price] = Serviceable Addressable Market 57,000 x $45,000 = $2.63B This is what you can actually sell, not some theoretical market. 5. Estimate market capture Find market share data from leaders in your space. We used Workday's 20% HRIS market share as our benchmark. 6. Project your SOM [SAM] x [Expected market share] = Serviceable Obtainable Market $2.63B x 20% = $512M This is what you could realistically capture at maturity. THE RESULT When you show this level of detail, you're signaling to investors that you are thorough. For founders without a deep VC network, being thorough is how you build credibility. Stop pitching imaginary billion-dollar markets. Use this playbook and watch how differently investors respond. P.S. - I’ll share the prompt that I use to estimate the number of potential customers using AI in the comments 🤝🏾

I’ve reviewed hundreds of pitch decks. And if I’m honest, at least 50% get this wrong. Not the product. Not the design. Not even the financials. The market size slide. And yes, it can quietly kill a deal. Because if your market math doesn’t make sense, your return math doesn’t either. So here’s how to actually size your market properly. First, the three terms: TAM (Total Addressable Market) : The total revenue opportunity if you captured 100% of the market. Basic formula: TAM = Total potential customers × Average annual revenue per customer Example: 100,000 potential customers × $200/year = $20M TAM If you’re wondering where to get those numbers: – Industry reports (Statista, IBISWorld, McKinsey, government data) – Census data – Industry associations – Competitor revenue benchmarks – Customer surveys × pricing assumptions SAM (Serviceable Addressable Market) : The portion of TAM you can serve with your current model (geography, segment, regulation). Formula: SAM = Target segment customers × Average revenue per customer If only 25,000 of those 100,000 customers are in your actual launch market: 25,000 × $200 = $5M SAM To estimate this properly: – Narrow by geography (where you can legally operate) – Narrow by segment (who actually fits your ICP) – Narrow by distribution (who you can realistically reach) SOM ( Serviceable Obtainable Market) : The part of SAM you can realistically capture in the next 12–36 months. This is where most founders get vague. Formula: SOM = SAM × Realistic market penetration % If you believe you can capture 5% of your SAM: $5M × 5% = $250K SOM Now here’s where investors lean in. SOM should connect directly to: • Your distribution plan • Your sales capacity • Your marketing budget • Your partnerships • Your hiring roadmap If your SOM says $3M next year but your sales team is two people, that slide collapses. Two more things most founders miss: 1. Growth rate of the market 2. Bottom-up validation (real customer math, not industry report math) Top-down is easy. Bottom-up is convincing. Growth rate gets attention. Because here’s the nuance most founders miss: Some investors care deeply about absolute market size. Some care more about whether the market is expanding fast. If you’re in a smaller but rapidly growing category, that can be just as compelling as a massive but stagnant one. Sometimes it’s not just about how big the market is. It’s about whether it’s growing , and whether you’re positioned early. If you’re raising venture capital, this slide is not vanity. It’s the foundation of your fund-return logic. Top-down or bottom-up which did you use in your last deck? ♻️ if you found this insightful or know someone that well

Most founders I meet think their market is twice the size it actually is. I've seen this hundreds of times as an investor and a mentor. A founder pitches me on a "£5 billion market opportunity" and I immediately know they haven't done the work. There's a massive difference between the total market size and what you can actually capture. That's why understanding TAM, SAM, and SOM is crucial if you want to scale beyond £3 million. These aren't just acronyms to impress investors. They tell you if your business is actually scalable. Here's what they mean: ➡️ TAM (Total Addressable Market) The total revenue opportunity if you captured 100% of the market. How to measure: Total potential customers × Average revenue per customer. Example: If you're opening a gym chain in the UK, TAM = all UK adults who could use a gym × average annual membership fee. ➡️ SAM (Serviceable Available Market) The portion of TAM you can realistically reach with your product and business model. How to measure: TAM × percentage of market that fits your criteria (geography, customer segments, distribution). Example: If you only operate in London and target budget-conscious members, SAM = London adults interested in affordable gym membership × average budget gym fee. ➡️ SOM (Serviceable Obtainable Market) The portion of SAM you can realistically capture in 3-5 years given competition and resources. How to measure: SAM × realistic market share percentage based on competitors, your advantages, and growth assumptions. Example: If you plan to open 20 locations and estimate capturing 3% of London's budget gym market, SOM = SAM × 3%. When to use each: ✅ TAM: Long-term vision and total market opportunity ✅ SAM: Target market and go-to-market strategy ✅ SOM: Financial projections and realistic growth targets If your SOM is less than 1% of TAM, investors will question if the market is too competitive. If your SOM is more than 25% of SAM in 3-5 years, they'll question if you're being realistic. TAM shows the dream. SAM shows the strategy. SOM shows the plan. At HomeServe, we learned this the hard way. Early on, I thought our market was every homeowner in the UK. Our SAM was actually homeowners who would pay for home emergency cover. And our SOM was the percentage we could realistically sign up through utility partnerships. Once we understood the difference, we were able to offer our services to those who really needed it. If you want more strategies for building and scaling your business, sign up for my weekly newsletter "How to Make a Billion." Every week I break down lessons from 40 years of entrepreneurship and show you real businesses that have applied them. Subscribe here: https://lnkd.in/ergDQtiK Share this with founders who need to understand how scalable their business really is.

When I first started exploring investing, one question kept coming up again and again in IC meetings: 👉 “But how big is the market?” I’d freeze. Numbers flew around the room—billions here, trillions there—and I wasn’t sure how to break it down. That’s when I realised market sizing isn’t about memorising numbers, it’s about structured thinking. Here’s how I learnt it: I began with the Top-Down approach—pulling industry reports and narrowing them with assumptions. For example, I once took India’s $10B packaged snacks market and sliced it down to urban + premium consumers to estimate the serviceable opportunity. It gave me a big-picture view, but often felt too broad. Then I moved to Bottom-Up—starting with unit economics. I remember working on an edtech deal where I calculated ₹200/month spend × 10M students = ₹24B market. Suddenly, the math felt real. Later, I discovered Supply-Side thinking—perfect for traditional industries. Total cement production × average selling price? Boom, market size. Over time, I picked up the key terms too: TAM (total market), SAM (what you can serve), SOM (what you can actually win). And the biggest shift came when I started practicing: picking a sector like EV 2-wheelers, running both top-down and bottom-up, and then triangulating to see if the numbers converged. Today, I don’t get stuck when someone asks about market size—I get curious. It’s less about the “perfect” number, and more about showing a logical path to get there. 💡 If you want to start, try this: size the Indian pet food market in two ways—top-down (industry reports) and bottom-up (avg spend × number of pets). You’ll be surprised how quickly your intuition sharpens. What about you—do you prefer top-down, bottom-up, or supply-side when you size a market?

🚀 Is the #Observability Market Really Just $2.4𝐁? I Don’t Think So. This week, I came across a report estimating the observability market at $2.4B—a figure that felt way off to me. So, I rolled up my sleeves, dug into the data, and built my own market estimate. 💡 My conclusion? The #observability market is closer to $12B in 2024 with a growth rate of ~20% annually. Here’s how I arrived at the number: 🔍 I analyzed 27 companies—leaders from Gartner’s Magic Quadrant, emerging players like Dash0, and others outside the quadrant. 📊 I categorized revenues: public companies, private players, and some educated estimates for companies without public data (like Honeycomb or Chronosphere). 🧠 I validated the findings with a top-down approach: Observability spending typically equals 15-20% of cloud infrastructure costs. With the cloud infra market projected at $261B, this suggests a potential $40-50B TAM—4x larger than my estimate. The discrepancy? Many organizations still rely on home-grown or OSS tools like Prometheus that don’t directly contribute to market revenue. That untapped potential shows just how much room there is for growth. 🔗 For a detailed breakdown of my methodology, check out my blog post in the comments. I’d love to hear your thoughts! • Do you agree with my analysis? • Where do you see the observability market heading next?

Stop lying about your market size. (Yes, I'm talking to you) Global healthcare is $8T.   EdTech is a $250B market.  FinTech is $4.7T. Sounds impressive, right?  But, 99% of market-size slides are more fiction than fact.  Let’s bust the myth step by step:  The Top-Down Illusion   - Throwing massive industry figures into your pitch doesn’t make them relevant.  - Most of these numbers are far removed from what your product can realistically target.  What Investors Actually Think   - TAM (Total Addressable Market) slides? Often skipped.   - SAM (Serviceable Addressable Market)? Usually seen as optimistic.   - SOM (Serviceable Obtainable Market)? Gets an eye-roll if not grounded in reality.  The Right Way to Do It   - Forget the top-down numbers.  - A bottom-up approach is what stands out:   🔸 Price of your product/service   🔸 Number of realistic customers   🔸 Realistic usage patterns  Multiply these, and you’ve got a market size that’s believable.  Red Flags in Market Slides   1. Citing “If we just capture 1%...” logic   2. Including broad markets like China/India without proper justification   3. Over-reliance on third-party reports like Gartner or McKinsey   4. Throwing trillion-dollar numbers into the mix     A smaller market with a clear path to high penetration beats a massive market with no real entry point.  Pitch smarter. Focus on the market you can truly dominate, not the one you hope to reach someday.

Founders, the reason why you are miscalculating your Total Addressable Market (TAM). You take a top-down approach, assuming: "If I just capture 1% of this huge market..." But this often leads to unrealistic expectations. It is confusing problem size with market size. There is a better way. Your TAM should represent the total market demand for your product or service, now. Measured by the revenue potential if your product or service captured 100% of the market. Here is how to calculate it: 1. Start by identifying your specific target customers, not the entire market. Narrow down the funnel, define your demographics and geo, it most likely is a subset of the entire market. 2. Multiply this by the price you intend to charge. Use your actual pricing, the one you will charge your customers, not your competitors' pricing. 3. Total target customers x your pricing = your TAM, per month or per year. Document your assumptions. Investors want to see that you've done your homework and have a realistic view of your market potential. Also, - Your TAM should be a realistic reflection of your market opportunity.  - Your TAM will change and grow over time, as you improve your product, increase prices, add more upsell options. How's your TAM looking? Let's talk.

Your startup pitch deck undoubtedly has a market size slide. It’s easy to get this right, but there are also pitfalls. Here are some dos and don’ts for your TAM slide: ¶ Scope the market correctly, by counting the revenue potential for 𝘺𝘰𝘶𝘳 product or service. Where some folks get this wrong is in counting X instead of tools-for-X. For example, if you sell a machine for making zippers, your market size is not the value of zippers sold in a year, it’s the value of zipper-making machines sold in a year. This may seem obvious… but you’d be surprised. That said, you can triangulate the tools-for-X market based on the X that your tools serve. If you’re building software to manage something, the customer’s budget is generally going to be no more than a few percent of the value of the thing being managed. Know the standard percentage for your industry and use it as a sanity check. ¶ For most startups, data on historical spending doesn’t say much about your market size. i) if you have something that’s never existed before, of course nobody spent money on it last year. ii) if you’re replacing something that exists already, customers need an incentive to switch. Legacy vendors may lose more than you gain, shrinking the TAM. ¶ Even if your product is entirely new, it’s substituting for whatever the customer was doing previously, which involved some combination of hard costs and soft costs. There’s a common heuristic that for every $100 your product saves the customer, your share is up to $20; not every product commands the full 20%, but very few collect more than that. ¶ All of which leads to a good way to avoid many pitfalls: present your TAM as quantity × price. How many customers could eventually use your product, and how much will each one pay? If you tell me that the market for chocolate in the US is $20 billion, I don’t have a good sense of whether that number is reasonable; but if you say that 300 million Americans consume chocolate, and they spend about $6/month on average, I’d say yeah that could be right. For VC there are only two market sizes that matter: big enough and not big enough. Big enough means at least a couple of $billions; some funds may have thresholds that are even higher. There are fine businesses in smaller markets, but they’re not fundable by institutional venture capital. Finally, as I’ve written before, you should start from the end and work backward. Your insertion strategy will start with a segment of the big-enough market. That’s as it should be. I don't really care about the size of the entry segment though. If you have a three-step strategy (Roadster->ModelS->Model3), nobody is going to say they won’t fund you because the first step addresses too small a segment. Hence, TAM/SAM/SOM analysis is mostly useless. It’s more work for you, and more effort to explain - besides which the three terms are not used consistently. Your time is better spent on a solid and well-supported TAM analysis.

𝗨𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱𝗶𝗻𝗴 𝗺𝗮𝗿𝗸𝗲𝘁 𝘀𝗶𝘇𝗲 𝗶𝘀 𝗻𝗼𝘁 𝗮𝗯𝗼𝘂𝘁 𝗶𝗺𝗽𝗿𝗲𝘀𝘀𝗶𝗻𝗴 𝗶𝗻𝘃𝗲𝘀𝘁𝗼𝗿𝘀 𝘄𝗶𝘁𝗵 𝗮 𝗯𝗶𝗴 𝗻𝘂𝗺𝗯𝗲𝗿. 𝗜𝘁 𝗶𝘀 𝗮𝗯𝗼𝘂𝘁 𝗽𝗿𝗼𝘃𝗶𝗻𝗴 𝘆𝗼𝘂 𝗸𝗻𝗼𝘄 𝗲𝘅𝗮𝗰𝘁𝗹𝘆 𝘄𝗵𝗼 𝘆𝗼𝘂 𝘀𝗲𝗿𝘃𝗲 𝘁𝗼𝗱𝗮𝘆, 𝘄𝗵𝗼 𝘆𝗼𝘂 𝗰𝗮𝗻 𝗿𝗲𝗮𝗰𝗵 𝘁𝗼𝗺𝗼𝗿𝗿𝗼𝘄, 𝗮𝗻𝗱 𝘄𝗵𝗮𝘁 𝗶𝘀 𝘁𝗿𝘂𝗹𝘆 𝗮𝗰𝗵𝗶𝗲𝘃𝗮𝗯𝗹𝗲 𝘄𝗶𝘁𝗵 𝘁𝗵𝗲 𝗿𝗲𝘀𝗼𝘂𝗿𝗰𝗲𝘀 𝘆𝗼𝘂 𝗵𝗮𝘃𝗲. 𝗧𝗔𝗠 answers the question of potential. 𝗦𝗔𝗠 reveals the boundaries of reality. 𝗦𝗢𝗠 shows the revenue you can win soon if your execution is sharp. Investors look for founders who can separate these three with clarity, not optimism. Most early decks inflate TAM and ignore SAM and SOM, which creates a credibility gap. What actually builds confidence is a grounded view of how your market behaves, what portion of it you can capture in the next 12 to 24 months, and how that translates into revenue that can be forecasted with discipline. A well-defined TAM SAM SOM framework does more than help you estimate market size. It guides your resource allocation, sharpens your sales motion, improves pricing strategy, and aligns your team on what meaningful traction looks like. Founders who get this right are the ones who communicate a vision that is ambitious yet believable. Investors back that combination every time. #startups #venturecapital

I got to do office hours for an accelerator last week on market sizing…aka TAM, SAM, and SOM. I had so many questions that I’m launching something to help founders figure this out quickly, simply, and effectively. I’ll be honest. Investors see these figures in every deck and roll their eyes quite often. Because founders love to throw out a massive TAM number—“It’s a $50B market!”—without connecting it to a credible source. Or they say, “Our SOM will capture 5% of the SAM,” without backing this up with their go-to-market strategy, actual sales to date, or accounting for the target customers’ demographics. Here are some basics:    •   TAM (Total Addressable Market): The entire universe of potential customers, assuming 100% adoption. No one gets 100%. Investors know this.    •   SAM (Serviceable Available Market): The segment you can realistically reach with your product and distribution model today. This should be data-backed and specific.    •   SOM (Serviceable Obtainable Market): The customers you can actually capture in the near term based on your business model, pricing, and execution strategy. This is what investors care about. (FYI - This number is a 1-year figure, not your first 3 years added together.) Determine if you should use a Top-Down, Bottom-Up, or value theory (or some combo) to do the math. Because your assumptions are what matter the most. If your SOM is solid, the upside to SAM and TAM is a bonus. Vague, unrealistic market sizes won’t get you funded. A clear, data-driven path to revenue will. ----- I'm Katie Dunn, an Angel Investor, Board Director, and Startup Advisor. I prepare founders for fundraising, and they gain confidence, resources, and connections. Check out my LinkedIn Strategies for Founders guide (link in Featured Section).