chore: release v4.0.0 - sync 550+ skills and restructure docs
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skills/market-sizing-analysis/SKILL.md
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skills/market-sizing-analysis/SKILL.md
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---
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name: market-sizing-analysis
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description: This skill should be used when the user asks to "calculate TAM",
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"determine SAM", "estimate SOM", "size the market", "calculate market
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opportunity", "what's the total addressable market", or requests market sizing
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analysis for a startup or business opportunity.
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metadata:
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version: 1.0.0
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---
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# Market Sizing Analysis
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Comprehensive market sizing methodologies for calculating Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM) for startup opportunities.
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## Use this skill when
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- Working on market sizing analysis tasks or workflows
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- Needing guidance, best practices, or checklists for market sizing analysis
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## Do not use this skill when
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- The task is unrelated to market sizing analysis
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- You need a different domain or tool outside this scope
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## Instructions
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- Clarify goals, constraints, and required inputs.
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- Apply relevant best practices and validate outcomes.
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- Provide actionable steps and verification.
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- If detailed examples are required, open `resources/implementation-playbook.md`.
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## Overview
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Market sizing provides the foundation for startup strategy, fundraising, and business planning. Calculate market opportunity using three complementary methodologies: top-down (industry reports), bottom-up (customer segment calculations), and value theory (willingness to pay).
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## Core Concepts
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### The Three-Tier Market Framework
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**TAM (Total Addressable Market)**
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- Total revenue opportunity if achieving 100% market share
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- Defines the universe of potential customers
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- Used for long-term vision and market validation
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- Example: All email marketing software revenue globally
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**SAM (Serviceable Available Market)**
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- Portion of TAM targetable with current product/service
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- Accounts for geographic, segment, or capability constraints
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- Represents realistic addressable opportunity
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- Example: AI-powered email marketing for e-commerce in North America
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**SOM (Serviceable Obtainable Market)**
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- Realistic market share achievable in 3-5 years
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- Accounts for competition, resources, and market dynamics
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- Used for financial projections and fundraising
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- Example: 2-5% of SAM based on competitive landscape
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### When to Use Each Methodology
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**Top-Down Analysis**
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- Use when established market research exists
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- Best for mature, well-defined markets
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- Validates market existence and growth
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- Starts with industry reports and narrows down
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**Bottom-Up Analysis**
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- Use when targeting specific customer segments
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- Best for new or niche markets
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- Most credible for investors
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- Builds from customer data and pricing
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**Value Theory**
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- Use when creating new market categories
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- Best for disruptive innovations
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- Estimates based on value creation
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- Calculates willingness to pay for problem solution
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## Three-Methodology Framework
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### Methodology 1: Top-Down Analysis
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Start with total market size and narrow to addressable segments.
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**Process:**
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1. Identify total market category from research reports
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2. Apply geographic filters (target regions)
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3. Apply segment filters (target industries/customers)
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4. Calculate competitive positioning adjustments
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**Formula:**
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```
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TAM = Total Market Category Size
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SAM = TAM × Geographic % × Segment %
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SOM = SAM × Realistic Capture Rate (2-5%)
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```
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**When to use:** Established markets with available research (e.g., SaaS, fintech, e-commerce)
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**Strengths:** Quick, uses credible data, validates market existence
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**Limitations:** May overestimate for new categories, less granular
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### Methodology 2: Bottom-Up Analysis
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Build market size from customer segment calculations.
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**Process:**
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1. Define target customer segments
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2. Estimate number of potential customers per segment
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3. Determine average revenue per customer
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4. Calculate realistic penetration rates
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**Formula:**
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```
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TAM = Σ (Segment Size × Annual Revenue per Customer)
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SAM = TAM × (Segments You Can Serve / Total Segments)
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SOM = SAM × Realistic Penetration Rate (Year 3-5)
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```
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**When to use:** B2B, niche markets, specific customer segments
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**Strengths:** Most credible for investors, granular, defensible
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**Limitations:** Requires detailed customer research, time-intensive
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### Methodology 3: Value Theory
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Calculate based on value created and willingness to pay.
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**Process:**
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1. Identify problem being solved
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2. Quantify current cost of problem (time, money, inefficiency)
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3. Calculate value of solution (savings, gains, efficiency)
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4. Estimate willingness to pay (typically 10-30% of value)
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5. Multiply by addressable customer base
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**Formula:**
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```
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Value per Customer = Problem Cost × % Solved by Solution
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Price per Customer = Value × Willingness to Pay % (10-30%)
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TAM = Total Potential Customers × Price per Customer
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SAM = TAM × % Meeting Buy Criteria
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SOM = SAM × Realistic Adoption Rate
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```
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**When to use:** New categories, disruptive innovations, unclear existing markets
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**Strengths:** Shows value creation, works for new markets
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**Limitations:** Requires assumptions, harder to validate
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## Step-by-Step Process
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### Step 1: Define the Market
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Clearly specify what market is being measured.
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**Questions to answer:**
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- What problem is being solved?
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- Who are the target customers?
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- What's the product/service category?
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- What's the geographic scope?
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- What's the time horizon?
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**Example:**
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- Problem: E-commerce companies struggle with email marketing automation
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- Customers: E-commerce stores with >$1M annual revenue
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- Category: AI-powered email marketing software
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- Geography: North America initially, global expansion
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- Horizon: 3-5 year opportunity
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### Step 2: Gather Data Sources
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Identify credible data for calculations.
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**Top-Down Sources:**
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- Industry research reports (Gartner, Forrester, IDC)
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- Government statistics (Census, BLS, trade associations)
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- Public company filings and earnings
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- Market research firms (Statista, CB Insights, PitchBook)
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**Bottom-Up Sources:**
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- Customer interviews and surveys
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- Sales data and CRM records
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- Industry databases (LinkedIn, ZoomInfo, Crunchbase)
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- Competitive intelligence
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- Academic research
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**Value Theory Sources:**
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- Customer problem quantification
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- Time/cost studies
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- ROI case studies
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- Pricing research and willingness-to-pay surveys
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### Step 3: Calculate TAM
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Apply chosen methodology to determine total market.
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**For Top-Down:**
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1. Find total category size from research
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2. Document data source and year
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3. Apply growth rate if needed
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4. Validate with multiple sources
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**For Bottom-Up:**
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1. Count total potential customers
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2. Calculate average annual revenue per customer
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3. Multiply to get TAM
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4. Break down by segment
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**For Value Theory:**
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1. Quantify total addressable customer base
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2. Calculate value per customer
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3. Estimate pricing based on value
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4. Multiply for TAM
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### Step 4: Calculate SAM
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Narrow TAM to serviceable addressable market.
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**Apply Filters:**
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- Geographic constraints (regions you can serve)
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- Product limitations (features you currently have)
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- Customer requirements (size, industry, use case)
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- Distribution channel access
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- Regulatory or compliance restrictions
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**Formula:**
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```
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SAM = TAM × (% matching all filters)
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```
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**Example:**
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- TAM: $10B global email marketing
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- Geographic filter: 40% (North America)
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- Product filter: 30% (e-commerce focus)
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- Feature filter: 60% (need AI capabilities)
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- SAM = $10B × 0.40 × 0.30 × 0.60 = $720M
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### Step 5: Calculate SOM
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Determine realistic obtainable market share.
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**Consider:**
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- Current market share of competitors
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- Typical market share for new entrants (2-5%)
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- Resources available (funding, team, time)
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- Go-to-market effectiveness
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- Competitive advantages
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- Time to achieve (3-5 years typically)
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**Conservative Approach:**
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```
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SOM (Year 3) = SAM × 2%
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SOM (Year 5) = SAM × 5%
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```
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**Example:**
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- SAM: $720M
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- Year 3 SOM: $720M × 2% = $14.4M
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- Year 5 SOM: $720M × 5% = $36M
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### Step 6: Validate and Triangulate
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Cross-check using multiple methods.
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**Validation Techniques:**
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1. Compare top-down and bottom-up results (should be within 30%)
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2. Check against public company revenues in space
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3. Validate customer count assumptions
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4. Sense-check pricing assumptions
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5. Review with industry experts
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6. Compare to similar market categories
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**Red Flags:**
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- TAM that's too small (< $1B for VC-backed startups)
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- TAM that's too large (unsupported by data)
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- SOM that's too aggressive (> 10% in 5 years for new entrant)
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- Inconsistency between methodologies (> 50% difference)
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## Industry-Specific Considerations
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### SaaS Markets
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**Key Metrics:**
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- Number of potential businesses in target segment
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- Average contract value (ACV)
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- Typical market penetration rates
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- Expansion revenue potential
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**TAM Calculation:**
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```
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TAM = Total Target Companies × Average ACV × (1 + Expansion Rate)
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```
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### Marketplace Markets
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**Key Metrics:**
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- Gross Merchandise Value (GMV) of category
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- Take rate (% of GMV you capture)
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- Total transactions or users
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**TAM Calculation:**
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```
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TAM = Total Category GMV × Expected Take Rate
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```
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### Consumer Markets
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**Key Metrics:**
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- Total addressable users/households
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- Average revenue per user (ARPU)
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- Engagement frequency
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**TAM Calculation:**
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```
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TAM = Total Users × ARPU × Purchase Frequency per Year
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```
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### B2B Services
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**Key Metrics:**
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- Number of target companies by size/industry
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- Average project value or retainer
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- Typical buying frequency
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**TAM Calculation:**
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```
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TAM = Total Target Companies × Average Deal Size × Deals per Year
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```
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## Presenting Market Sizing
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### For Investors
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**Structure:**
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1. Market definition and problem scope
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2. TAM/SAM/SOM with methodology
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3. Data sources and assumptions
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4. Growth projections and drivers
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5. Competitive landscape context
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**Key Points:**
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- Lead with bottom-up calculation (most credible)
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- Show triangulation with top-down
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- Explain conservative assumptions
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- Link to revenue projections
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- Highlight market growth rate
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### For Strategy
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**Structure:**
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1. Addressable customer segments
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2. Prioritization by opportunity size
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3. Entry strategy by segment
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4. Expected penetration timeline
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5. Resource requirements
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**Key Points:**
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- Focus on SAM and SOM
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- Show segment-level detail
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- Connect to go-to-market plan
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- Identify expansion opportunities
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- Discuss competitive positioning
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## Common Mistakes to Avoid
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**Mistake 1: Confusing TAM with SAM**
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- Don't claim entire market as addressable
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- Apply realistic product/geographic constraints
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- Be honest about serviceable market
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**Mistake 2: Overly Aggressive SOM**
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- New entrants rarely capture > 5% in 5 years
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- Account for competition and resources
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- Show realistic ramp timeline
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**Mistake 3: Using Only Top-Down**
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- Investors prefer bottom-up validation
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- Top-down alone lacks credibility
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- Always triangulate with multiple methods
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**Mistake 4: Cherry-Picking Data**
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- Use consistent, recent data sources
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- Don't mix methodologies inappropriately
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- Document all assumptions clearly
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**Mistake 5: Ignoring Market Dynamics**
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- Account for market growth/decline
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- Consider competitive intensity
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- Factor in switching costs and barriers
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## Additional Resources
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### Reference Files
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For detailed methodologies and frameworks:
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- **`references/methodology-deep-dive.md`** - Comprehensive guide to each methodology with step-by-step worksheets
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- **`references/data-sources.md`** - Curated list of market research sources, databases, and tools
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- **`references/industry-templates.md`** - Specific templates for SaaS, marketplace, consumer, B2B, and fintech markets
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### Example Files
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Working examples with complete calculations:
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- **`examples/saas-market-sizing.md`** - Complete TAM/SAM/SOM for a B2B SaaS product
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- **`examples/marketplace-sizing.md`** - Marketplace platform market opportunity calculation
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- **`examples/value-theory-example.md`** - Value-based market sizing for disruptive innovation
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Use these examples as templates for your own market sizing analysis. Each includes real numbers, data sources, and assumptions documented clearly.
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## Quick Start
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To perform market sizing analysis:
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1. **Define the market** - Problem, customers, category, geography
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2. **Choose methodology** - Bottom-up (preferred) or top-down + triangulation
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3. **Gather data** - Industry reports, customer data, competitive intelligence
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4. **Calculate TAM** - Apply methodology formula
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5. **Narrow to SAM** - Apply product, geographic, segment filters
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6. **Estimate SOM** - 2-5% realistic capture rate
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7. **Validate** - Cross-check with alternative methods
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8. **Document** - Show methodology, sources, assumptions
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9. **Present** - Structure for audience (investors, strategy, operations)
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For detailed step-by-step guidance on each methodology, reference the files in `references/` directory. For complete worked examples, see `examples/` directory.
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