Market Sizing

Market Sizing

TAM/SAM/SOM framework for estimating addressable market and validating opportunity size.

Definitions

+-------------------------------------------------------+
|                         TAM                            |
|  +---------------------------------------------------+ |
|  |                      SAM                           | |
|  |  +-----------------------------------------------+| |
|  |  |                   SOM                          || |
|  |  +-----------------------------------------------+| |
|  +---------------------------------------------------+ |
+-------------------------------------------------------+

When to Use Top-Down vs. Bottom-Up

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

Always label each number with its confidence level in deliverables.

Common Mistakes

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

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:

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

Common Mistakes

Rule Categories

1. TAM/SAM/SOM Sizing (market) — HIGH — 1 rule

Top-down and bottom-up market sizing methods with calculation templates.

• market-tam-sam-som.md — TAM, SAM, SOM estimation frameworks and validation approaches

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)            |||
|  |  +-----------------------------------------------+||
|  +---------------------------------------------------+|
+-------------------------------------------------------+

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

## 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:

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

Common Mistakes

Incorrect — Unrealistic SOM without constraints:

TAM: $10B
SAM (our segment): $3B
SOM (10% market share): $300M

This is achievable in 3 years!

Correct — SOM constrained by realistic factors:

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