Market Sizing Methodology (TAM/SAM/SOM)

Purpose

This recipe produces a complete market sizing analysis with TAM, SAM, and SOM calculated via three independent methodologies (top-down, bottom-up, value-theory), cross-validated against each other. The output includes confidence intervals, growth projections, and investor-ready formatting.

Prerequisites

• Idea Classification Report from Idea Classification Framework
• Feasibility check passed from Feasibility Quick Check
• Target customer definition — industry, size, geography, role
• Pricing hypothesis — approximate price point or range

Constraints

• TAM is a strategic planning input, not a vanity metric. Inflated TAMs destroy credibility. [src1]
• Bottom-up always required. Top-down alone is insufficient. [src3]
• SOM must be calculated from actual go-to-market capacity. [src6]
• Market data older than 2 years is unreliable for high-growth sectors. [src5]
• Cross-validation mandatory: if top-down and bottom-up differ >3x, fix assumptions. [src2]

Tool Selection Decision

Execution Flow

Step 1: Define Market Boundaries

Duration: 20 minutes. Define product category, customer segment, geography, price range, time horizon, and inclusion/exclusion criteria.

Step 2: Top-Down TAM

Duration: 30 minutes. Start with industry total from research reports, apply segment percentage and geographic filters.

Step 3: Bottom-Up TAM

Duration: 45 minutes. Count potential customers from Census/BLS data, multiply by average revenue per customer.

Step 4: Value-Theory TAM

Duration: 20 minutes. Calculate value created for customers, apply 10-30% willingness-to-pay ratio.

Step 5: Calculate SAM and SOM

Duration: 20 minutes. SAM = TAM filtered by accessibility. SOM = SAM filtered by go-to-market capacity.

Step 6: Cross-Validate and Report

Duration: 15 minutes. Compare all three TAM methodologies, generate investor-ready report.

Quality Benchmarks

Error Handling

Cost Breakdown

Anti-Patterns

Wrong: Starting with "the global market is $500B"

Top-down only from broadest number destroys investor credibility. [src6]

Correct: Lead with bottom-up, use top-down as ceiling

Count actual customers, multiply by your price. Use industry reports to validate the ceiling.

When This Matters

Use after feasibility screening and before financial models or fundraising. Market sizing is the quantitative backbone of every investor pitch.

Related Units

• Idea Classification Framework
• Market Research Source Guide
• Competitive Landscape Mapping
• Competitor Analysis Framework