How to Do Market Sizing and Why It Matters
Introduction
If you're launching a new product, pitching to investors, or mapping your next big strategy, one of the most critical steps is understanding how big the opportunity really is. That’s where market sizing comes in.
Whether you’re a startup founder, marketing strategist, product manager, or small business owner, knowing the size of your potential market helps you allocate resources, set realistic revenue goals, and persuade stakeholders.
In this post, we’ll break down what market sizing actually is, why it matters across industries, how to calculate it with real-world methods, and offer five tips for getting it right—even if you're just starting out.
What is Market Sizing, and Why Does it Matter?
Market sizing is the process of estimating the total demand for a product or service within a particular market. It answers key questions like:
How many potential customers are there?
What’s the total revenue opportunity?
Is the market growing, shrinking, or saturated?
There are different main types of market sizing:
Total Addressable Market (TAM): The overall revenue opportunity available.
Serviceable Available Market (SAM): The segment you can serve with your product.
Serviceable Obtainable Market (SOM): The portion you can realistically capture.
Market sizing matters because it grounds your ideas in reality. It’s not just about dreaming big—it's about knowing if that big dream is worth chasing. This is crucial for:
Building a compelling business case.
Attracting investors and partners.
Making smart, data-driven decisions.
How to Size a Market: Step-by-Step
1. Define Your Target Customer
Before you can size the market, get crystal clear on who you’re selling to. Are you targeting small business owners in the U.S.? Gen Z pet parents in urban areas? The more specific your ideal customer profile (ICP), the more accurate your numbers will be.
Tip: Create a simple customer persona with demographics, behaviours, and needs.
2. Choose a Sizing Approach: Top-Down or Bottom-Up
There are two main ways to size a market:
Top-Down: Start with broad industry data and narrow it down based on your segment.
Example: The global skincare market is $150B. You're targeting eco-friendly facial serums, 5% of that—so your TAM is $7.5B.
Bottom-Up: Start with your pricing and sales model, then multiply by potential customers.
Example: You sell a $300/year subscription to dog trainers. There are 50,000 dog trainers in the U.S. So, your TAM is $15M.
Bottom-up is often more accurate for startups or niche markets, while top-down works well when you have access to reliable macro data.
3. Gather Reliable Data
Use a mix of sources for your assumptions:
Industry reports
Government data
Customer surveys and interviews
Competitor analysis
Pro Tip: Validate your assumptions with more than one source to reduce bias or error.
4. Segment Your Market (TAM → SAM → SOM)
Break your market into layers:
TAM: Everyone who could buy.
SAM: Everyone you can reach with your offering.
SOM: Your realistic share based on resources and competitors.
This helps investors and team members see where you are today versus where you could go.
5. Adjust for Growth, Trends, and Market Dynamics
Markets change—fast. Consider:
Growth rates
New competitors
Changing regulations
Emerging trends or technologies
Including trend data in your sizing shows that you're forward-thinking and not stuck in today's numbers.
5 Quick Tips for Smarter Market Sizing
1. Start simple. You don’t need perfect data—just solid logic.
2. Show your math. Transparency builds trust.
3. Use visuals. Pie charts or funnel diagrams help stakeholders “get it.”
4. Update often. Markets shift; so should your model.
5. Know your goal. Are you sizing to raise money? Enter a new market? Tailor your scope accordingly.
Final Thoughts
Market sizing isn’t just a number—it’s a story. A story about opportunity, strategy, and scale. By breaking it down into manageable steps and using clear assumptions, you can paint a powerful picture of what’s possible for your business.
Ready to turn your idea into a data-backed pitch that lands? Start with your market size.
