Start with customers you can describe and count.
Bottom-up market sizing starts with a defined buying unit, a counted population and an annual revenue assumption. TAM describes all relevant customers, SAM narrows to those you can serve, and SOM narrows further to those your plan can realistically reach.
A small arbitrary percentage of a large industry report is not a go-to-market plan. Support customer counts with segment evidence and reconcile the obtainable count with sales capacity, purchase frequency and a stated time horizon. Use separate calculations for segments with different pricing.
The formula, made clear.
- Buying unit
- A company, account or consumer; use the same unit in every count.
- ACV
- Annual recurring spend per buying unit, not lifetime value.
- Nested populations
- Reachable ≤ serviceable ≤ total potential customers.
Put the numbers in context.
100,000 potential customers at $2,400.00 annually imply $240,000,000.00 TAM. A 20,000-customer serviceable subset implies $48,000,000.00 SAM; a 1,000-customer plan implies $2,400,000.00 SOM.
| Input | Example value |
|---|---|
| Total potential customers | 100,000 customers |
| Serviceable customers | 20,000 customers |
| Reachable customers in your plan | 1,000 customers |
| Annual recurring value per customer | $2,400.00 |
| Obtainable annual revenue opportunity | $2,400,000.00 |
What this calculation assumes
One segment at a constant annual price. The model does not verify demand, willingness to pay or population counts. SOM is an annual revenue level at the user-defined horizon, not cumulative revenue over that horizon.
What to consider next.
Cross-check obtainable customers against sales and delivery capacity. Record the sources, date and segment definition behind each count.
How we approach financial models →