How to (Actually) Evaluate Your Market Size

Hey friends,

Today, we’re talking about the section that strikes fear into the hearts of many early-stage founders: market size.

First, some encouragement: You do NOT need to be a finance person, have an MBA, or come from a consulting background to figure this out. What you do need is a framework (we’ll cover that below), access to solid data, and focus. You can do this.

This is one of those slides that feels high-stakes, but once you understand the logic behind it, it becomes much more manageable, and maybe even a little fun. {gasp} It’s your chance to show the scale of the opportunity you’re going after, on your own terms.

In this post, I’ll walk through the high-level concepts of market sizing. If you want to go deeper, apply to be a Beta Reader and join our community.

Let’s get into it!

Let’s come right out and say it, this part of the pitch can feel like a guessing game, even when you’re doing your homework. One of my own investors, who’s both deeply experienced and very successful, put it bluntly: “F*ck market size. It’s all made up and doesn’t mean anything.”

In some ways, he’s right. The exact number matters less than your ability to make a believable, compelling case for why there’s meaningful money to be made, but don’t let that fool you into thinking this slide doesn’t matter because it absolutely does. Once you’ve shown how your business makes money, the next logical question from an investor is, “How big could this get?” That’s why I recommend placing your market size slide right after your business model. You’ve just explained who’s paying you and what they’re paying you for, now it’s time to show how many of those customers are out there and how much revenue potential that creates.

“We don’t think the market is big enough” often translates to “We don’t understand the people you’re building for.” 

For the rest of us, market size is also one of the most common excuses investors use to say no, especially when they’re not personally familiar with your target audience. This section isn’t about proving your precision with economic forecasts. It’s about using real-world data and sound logic to quantify a big enough opportunity to make your business worth betting on. Investors need to believe that:

· There are enough potential customers.

· They will spend real money.

· Your business can scale to generate enough revenue that they can earn a profit on their investment.

Let’s talk about calculating your TAM, SAM, and SOM to give investors a realistic picture of your market size:

Total Addressable Market (TAM)

TAM is your total revenue opportunity if you had 100% market share and indicates the potential of your company at scale. It’s the full size of the pie.

To calculate it: Number of potential customers × Average annual revenue per customer. The math is simple in concept. If everyone who could buy what you’re selling did buy what you’re selling at the price you're selling it, it would be this many dollars.

This is about scale. Investors, especially venture capitalists, are typically looking for TAMs in the $1B+ range because they need the opportunity to support big exits. But that doesn’t mean you should stretch the truth to hit that number.

Example: If you sell a $100/month subscription to therapists and estimate 200,000 potential U.S. customers, your TAM would be: 200,000 × $1,200/year = $240M

Serviceable Addressable Market (SAM)

SAM is the portion of your TAM that you can actually reach. Not all potential customers are realistically within your target or accessible via your sales model.

To calculate it: TAM × % of reachable or relevant customers

Think about distribution, access, and market constraints. For example, if you’re targeting older adults and know that only 30% use smartphones regularly, your SAM will be smaller than your TAM. Or, if you are selling to doctors, you’ll likely want a conservative estimate of the percent you can reasonably reach given they are notoriously hard to sell to. 

SAM doesn’t mean you will win these customers or that the revenue amount is in your financial projections; it’s that you could potentially sell to them with the right strategy and resources.

Serviceable Obtainable Market (SOM)

SOM is your realistic near-term sales opportunity, usually for the next 12-18 months, which aligns with how long your current fundraise is expected to last. 

To calculate it: SAM x % of customers you can realistically convert soon.

This is your proof-of-concept, or beachhead market. It’s where you’ll focus post-funding to prove traction, refine your go-to-market strategy, and set up for growth. Your success in capturing this slice of your market is indicative of how you’ll do when you expand to the larger market. 

Think about things like where you and your customers are located and if geography will help or hinder reach and sales, how strong your competition is and if you can reasonably expect to take market share from them right away, and how you are going to reach those customers based on your marketing plan and distribution channels. Once you accept money from investors, they will use your SOM as a reference point, as it relies heavily upon your research and assumptions. 

A word of caution: If your SOM is in the billions, it signals a red flag. Investors may think your assumptions are unrealistic or that you haven’t thought through your early adopter market for the next 1–2 years.

Top-Down vs. Bottom-Up Market Sizing

There are two general approaches to market sizing: top-down and bottom-up.

A top-down market size usually comes from secondary research or industry reports. You start with a big number from a firm like McKinsey, Statista, or IBISWorld and work your way down. For example:

“The luxury apparel market is worth $93 billion globally. If we can capture just 1% of that, that’s a $930 million opportunity.”

The problem with this method is that it’s not specific to your business. That 1% number is arbitrary. It doesn’t tell an investor who your real customers are, what they’d actually pay, or how likely it is that you’d win that piece of the pie.

A bottom-up market size starts with your own customer segments and pricing strategy. It’s built from the ground up, using real-world assumptions about who will buy from you and what they’ll pay. This is how investors calculate market size during due diligence. You’re better off doing it now before they do it for you.

The number may sound smaller than a top-down method, but it’s specific, it’s actionable, and it shows you know your audience. The rest of us are more likely to be challenged on their market size, even when it’s rational.

Many investors have limited exposure to the communities or industries you’re serving, so your market may be underestimated. That’s not your fault. But it is your job to present your market clearly and confidently, backed by real assumptions.

A strong bottom-up size helps close that credibility gap.

Market Size is one of the trickiest slides to get right, but it’s also one of the most impressive when done well. You don’t need to get every number perfect; you just need to show that you’ve done the work to understand your market and build a case for its potential.

Next week, it’s time to look at where your company fits into the competitive landscape and how to tell that story clearly on a slide.

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