Follow these 6 steps to size a market using top-down and bottom-up approaches. Includes formulas, examples, and tips for product managers.
Last updated: April 2026
Decide what one customer of your product looks like and what they pay you per year, before any number goes in the model. Without this anchor, the market-sizing math is just round numbers.
Formula
Unit of demand = (buyer + product unit + geography) priced at ACV or ARPU per yearPro tip: Write the unit definition on top of your sizing model. Every number below has to be consistent with it.
Bottom-up sizing multiplies qualifying buyer counts by annual revenue per buyer. Its usefulness depends on the quality of those counts and pricing assumptions.
Formula
Bottom-up TAM = qualifying buyers x annual contract valuePro tip: Bottom-up assumes 100% market capture, which is fine for TAM. The realism check comes in the SAM and SOM steps.
Top-down sizing starts with published category spending and narrows it to the market you serve. Check the report’s scope and the assumptions used to select your share.
Formula
Top-down TAM = total category spend x relevant segment percentagePro tip: Compare market definitions and assumptions when the two methods differ. Agreement within 30% is not evidence that either estimate is accurate.
When top-down and bottom-up disagree, the cause is usually definitional drift between the two models. Track it down before sizing SAM.
Formula
TAM = the reconciled number, with gap drivers documentedPro tip: Show both methods and explain any remaining difference so readers can assess the assumptions.
SAM is the slice of TAM you can realistically serve given your business model. Apply geography, segment, and channel filters. Don't apply competitor share yet. SAM still assumes you could win it.
Formula
SAM = TAM x serviceable filters (geography, segment, channel)Pro tip: Distinguish the customers you can serve today from those who depend on future product or channel changes.
SOM estimates the share of SAM you could capture within a stated planning period, given your team, sales capacity, and competition.
Formula
SOM = SAM x realistic capture rate in the planning windowPro tip: Check whether the customer count implied by SOM is achievable with your expected sales capacity, conversion, and retention.
Choose top-down or bottom-up TAM, apply SAM filters, and model SOM using competition and execution assumptions in the free calculator.
Open Free Market Sizing CalculatorUse both when suitable data is available. Bottom-up estimates make buyer counts and pricing assumptions explicit; top-down estimates provide a comparison with published category spending. Investigate differences before choosing the estimate you will use.
There is no universal percentage of SAM that makes SOM realistic. Estimate capture from your sales capacity, conversion, competition, and time horizon. In the worked example, a 2% share produces $4.2M SOM; it is an assumption to justify.
Government statistics agencies (Census, Eurostat), industry associations, public company filings (10-Ks for revenue figures), and commercial databases such as Crunchbase, ZoomInfo, or Apollo. Cite each source. If a number isn't sourced, it isn't credible.
Bottom-up only. Estimate buyer counts from analogous categories and use your own willingness-to-pay research for ACV. Be transparent that the number is a forecast, not a measurement.
Refresh the model when pricing, buyer counts, geographic scope, or product capability changes. Review the date of each input before reusing an estimate.