Bottom-Up Market Sizing

What is bottom-up market sizing?

Bottom-up market sizing means building your market size from the ground up: you count the actual customers who could buy, multiply by what one customer pays per year, and narrow the count to the ones you can reach. The opposite, top-down sizing, starts from a giant industry figure and claims a slice of it (“the wellness market is worth billions, we only need 1%”). Investors and your own bank account trust the first and wave away the second.

You end with three numbers. TAM, Total Addressable Market: every possible customer times yearly price. SAM, Serviceable Available Market: the part of TAM your product and location can serve. SOM, Serviceable Obtainable Market: what you can realistically win in the next 2 to 3 years with the time, money and channels you have.

When should you use it?

Use it when:

• You sell to a countable group: clinics, salons, schools, accountants, restaurants, parents of newborns, owners of a specific van model.
• You need to decide whether an idea can pay you a salary, or whether it needs investors and a bigger market.
• You are writing a pitch, grant application or bank loan request that asks for market size.

Keep it light when:

• You run a quick consumer test with a price under 10 euros. A rough count is enough until the landing page test shows people buy.
• Your category is brand new and has no countable customers yet. Count the people with the problem instead.

How do you do it, step by step?

1. Define one paying customer in a single sentence. Who signs, in which country, of what size. “Independent physiotherapy clinics in Spain with 1 to 5 therapists” works. “Healthcare providers” doesn’t, because you can’t count it.

2. Find an official count. For businesses in Europe, Eurostat’s structural business statistics break down enterprises by economic activity and size class. In the US, the Census Bureau’s County Business Patterns gives the number of establishments by industry and employment size. Your national statistics office publishes the same counts at country or region level. For consumers, use population and household tables from the same offices.

3. Cross-check with a second source. Search Google Maps for the business type in two cities and count the pins. Run a LinkedIn search for the job title plus location and note the results count. Look up the member list of the trade association. If two sources land within 30% of each other, you have a usable number.

4. Set a yearly price. Take it from a competitor pricing map or from what people said in interviews. Use the yearly amount: monthly price times 12, or one-off price times purchases per year.

5. Calculate TAM. Count times yearly price. Write the formula in the sheet so anyone can check it.

6. Filter down to SAM. Remove everyone you can’t serve yet: wrong region, wrong language, wrong size, already locked into a contract. Each filter gets its own row with its source, so the logic shows.

7. Build SOM from your capacity. This is where most decks cheat. Work out how many customers your channels can bring in per week: demos you can run, posts you can publish, partners who refer. Multiply by an honest close rate and by working weeks. Then multiply by price. A SOM picked as “1% of TAM” tells you nothing about your actual sales week.

What does a worked example look like?

Say Elena in Valencia wants to sell booking and reminder software to independent physiotherapy clinics. Every count below is invented to show the arithmetic.

• Count: say the national business register shows 9,000 physiotherapy businesses in Spain. Google Maps pins in Valencia and Seville, scaled up by population, suggest a similar figure.
• Price: €49 a month, so €588 a year.
• TAM: 9,000 × €588 = €5,292,000 a year.
• SAM: she can serve clinics with 1 to 5 therapists in the Valencia, Madrid and Catalonia regions that still book by phone. Say that leaves 2,400. SAM = 2,400 × €588 = €1,411,200.
• SOM: she can run 8 demos a week on her own. Our rule of thumb for a warm demo is a 20% close rate, so 1.6 new clinics a week. Over 46 working weeks that’s about 70 clinics in year one, or €41,160 a year in subscriptions. Keep that pace for 3 years and, ignoring cancellations, she reaches about 210 clinics and €123,480 a year.

That number changes her plan. €123,480 can pay a founder and one helper. For anything bigger she needs a channel that sells while she sleeps, so she adds a test with a physiotherapy association newsletter to her list.

Put these numbers next to your customer segments and channels in a business model canvas, and these business model canvas examples show how other founders filled theirs in.

Which free tools help?

What mistakes should you avoid?

• Starting from a headline figure. A report saying “the pet industry is worth billions” includes food, vets and insurance you’ll never sell. Start from countable customers.
• Counting users instead of payers. In B2B the clinic pays, though the therapist uses the tool. In family products the parent pays. Count the one with the wallet.
• Using monthly price as yearly. Multiply by 12, and for one-off products by how many times a year someone buys.
• Hiding the filters. Every SAM filter needs a row and a source. Otherwise you can’t defend it and you can’t adjust it later.
• A SOM with no sales engine behind it. If you can’t say which channel brings 70 customers, the SOM is a wish.

How do you know it worked?

You have one sheet with a count, a source for each number, a price, and TAM, SAM and SOM calculated by formula. Our rule of thumb for a go: your SAM is at least 10 times your target yearly revenue, and your SOM covers your living costs within 3 years using channels you can name today. If SOM can’t pay you even with optimistic close rates, change the segment, raise the price, or find a channel with more reach before you build.

What should you do next?

Pick the slice of SAM that wants you most with beachhead segment selection, and check what customers will cost to win with unit economics. Use the competitor analysis grid to see how crowded your SAM already is. Inside the F/MS startup game, an AI co-founder checks your numbers with you step by step.

FAQ

What is the difference between TAM, SAM and SOM?

TAM is everyone who could buy times the yearly price. SAM is the part you can serve with your current product, location and language. SOM is the part you can realistically win in 2 to 3 years with your actual sales capacity.

Is bottom-up or top-down market sizing better?

Bottom-up, for a founder. It forces you to name real customers, a real price and a real channel, and every number can be checked. Top-down is fine as a sanity check against your bottom-up result.

Where can I find free data on the number of businesses?

Eurostat for the EU, the US Census Bureau’s County Business Patterns for the US, and your national statistics office for country and regional detail. Add trade association member lists, LinkedIn counts and Google Maps pins as cross-checks.

Updated 26 October 2026 · Written by the Fe/male Switch team

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