This skill should be used when the user asks to "calculate TAM",
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npx mdskills install sickn33/market-sizing-analysisComprehensive framework covering three methodologies with formulas, examples, and validation
1---2name: market-sizing-analysis3description: This skill should be used when the user asks to "calculate TAM",4 "determine SAM", "estimate SOM", "size the market", "calculate market5 opportunity", "what's the total addressable market", or requests market sizing6 analysis for a startup or business opportunity.7metadata:8 version: 1.0.09---1011# Market Sizing Analysis1213Comprehensive market sizing methodologies for calculating Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM) for startup opportunities.1415## Use this skill when1617- Working on market sizing analysis tasks or workflows18- Needing guidance, best practices, or checklists for market sizing analysis1920## Do not use this skill when2122- The task is unrelated to market sizing analysis23- You need a different domain or tool outside this scope2425## Instructions2627- Clarify goals, constraints, and required inputs.28- Apply relevant best practices and validate outcomes.29- Provide actionable steps and verification.30- If detailed examples are required, open `resources/implementation-playbook.md`.3132## Overview3334Market 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).3536## Core Concepts3738### The Three-Tier Market Framework3940**TAM (Total Addressable Market)**41- Total revenue opportunity if achieving 100% market share42- Defines the universe of potential customers43- Used for long-term vision and market validation44- Example: All email marketing software revenue globally4546**SAM (Serviceable Available Market)**47- Portion of TAM targetable with current product/service48- Accounts for geographic, segment, or capability constraints49- Represents realistic addressable opportunity50- Example: AI-powered email marketing for e-commerce in North America5152**SOM (Serviceable Obtainable Market)**53- Realistic market share achievable in 3-5 years54- Accounts for competition, resources, and market dynamics55- Used for financial projections and fundraising56- Example: 2-5% of SAM based on competitive landscape5758### When to Use Each Methodology5960**Top-Down Analysis**61- Use when established market research exists62- Best for mature, well-defined markets63- Validates market existence and growth64- Starts with industry reports and narrows down6566**Bottom-Up Analysis**67- Use when targeting specific customer segments68- Best for new or niche markets69- Most credible for investors70- Builds from customer data and pricing7172**Value Theory**73- Use when creating new market categories74- Best for disruptive innovations75- Estimates based on value creation76- Calculates willingness to pay for problem solution7778## Three-Methodology Framework7980### Methodology 1: Top-Down Analysis8182Start with total market size and narrow to addressable segments.8384**Process:**851. Identify total market category from research reports862. Apply geographic filters (target regions)873. Apply segment filters (target industries/customers)884. Calculate competitive positioning adjustments8990**Formula:**91```92TAM = Total Market Category Size93SAM = TAM × Geographic % × Segment %94SOM = SAM × Realistic Capture Rate (2-5%)95```9697**When to use:** Established markets with available research (e.g., SaaS, fintech, e-commerce)9899**Strengths:** Quick, uses credible data, validates market existence100101**Limitations:** May overestimate for new categories, less granular102103### Methodology 2: Bottom-Up Analysis104105Build market size from customer segment calculations.106107**Process:**1081. Define target customer segments1092. Estimate number of potential customers per segment1103. Determine average revenue per customer1114. Calculate realistic penetration rates112113**Formula:**114```115TAM = Σ (Segment Size × Annual Revenue per Customer)116SAM = TAM × (Segments You Can Serve / Total Segments)117SOM = SAM × Realistic Penetration Rate (Year 3-5)118```119120**When to use:** B2B, niche markets, specific customer segments121122**Strengths:** Most credible for investors, granular, defensible123124**Limitations:** Requires detailed customer research, time-intensive125126### Methodology 3: Value Theory127128Calculate based on value created and willingness to pay.129130**Process:**1311. Identify problem being solved1322. Quantify current cost of problem (time, money, inefficiency)1333. Calculate value of solution (savings, gains, efficiency)1344. Estimate willingness to pay (typically 10-30% of value)1355. Multiply by addressable customer base136137**Formula:**138```139Value per Customer = Problem Cost × % Solved by Solution140Price per Customer = Value × Willingness to Pay % (10-30%)141TAM = Total Potential Customers × Price per Customer142SAM = TAM × % Meeting Buy Criteria143SOM = SAM × Realistic Adoption Rate144```145146**When to use:** New categories, disruptive innovations, unclear existing markets147148**Strengths:** Shows value creation, works for new markets149150**Limitations:** Requires assumptions, harder to validate151152## Step-by-Step Process153154### Step 1: Define the Market155156Clearly specify what market is being measured.157158**Questions to answer:**159- What problem is being solved?160- Who are the target customers?161- What's the product/service category?162- What's the geographic scope?163- What's the time horizon?164165**Example:**166- Problem: E-commerce companies struggle with email marketing automation167- Customers: E-commerce stores with >$1M annual revenue168- Category: AI-powered email marketing software169- Geography: North America initially, global expansion170- Horizon: 3-5 year opportunity171172### Step 2: Gather Data Sources173174Identify credible data for calculations.175176**Top-Down Sources:**177- Industry research reports (Gartner, Forrester, IDC)178- Government statistics (Census, BLS, trade associations)179- Public company filings and earnings180- Market research firms (Statista, CB Insights, PitchBook)181182**Bottom-Up Sources:**183- Customer interviews and surveys184- Sales data and CRM records185- Industry databases (LinkedIn, ZoomInfo, Crunchbase)186- Competitive intelligence187- Academic research188189**Value Theory Sources:**190- Customer problem quantification191- Time/cost studies192- ROI case studies193- Pricing research and willingness-to-pay surveys194195### Step 3: Calculate TAM196197Apply chosen methodology to determine total market.198199**For Top-Down:**2001. Find total category size from research2012. Document data source and year2023. Apply growth rate if needed2034. Validate with multiple sources204205**For Bottom-Up:**2061. Count total potential customers2072. Calculate average annual revenue per customer2083. Multiply to get TAM2094. Break down by segment210211**For Value Theory:**2121. Quantify total addressable customer base2132. Calculate value per customer2143. Estimate pricing based on value2154. Multiply for TAM216217### Step 4: Calculate SAM218219Narrow TAM to serviceable addressable market.220221**Apply Filters:**222- Geographic constraints (regions you can serve)223- Product limitations (features you currently have)224- Customer requirements (size, industry, use case)225- Distribution channel access226- Regulatory or compliance restrictions227228**Formula:**229```230SAM = TAM × (% matching all filters)231```232233**Example:**234- TAM: $10B global email marketing235- Geographic filter: 40% (North America)236- Product filter: 30% (e-commerce focus)237- Feature filter: 60% (need AI capabilities)238- SAM = $10B × 0.40 × 0.30 × 0.60 = $720M239240### Step 5: Calculate SOM241242Determine realistic obtainable market share.243244**Consider:**245- Current market share of competitors246- Typical market share for new entrants (2-5%)247- Resources available (funding, team, time)248- Go-to-market effectiveness249- Competitive advantages250- Time to achieve (3-5 years typically)251252**Conservative Approach:**253```254SOM (Year 3) = SAM × 2%255SOM (Year 5) = SAM × 5%256```257258**Example:**259- SAM: $720M260- Year 3 SOM: $720M × 2% = $14.4M261- Year 5 SOM: $720M × 5% = $36M262263### Step 6: Validate and Triangulate264265Cross-check using multiple methods.266267**Validation Techniques:**2681. Compare top-down and bottom-up results (should be within 30%)2692. Check against public company revenues in space2703. Validate customer count assumptions2714. Sense-check pricing assumptions2725. Review with industry experts2736. Compare to similar market categories274275**Red Flags:**276- TAM that's too small (< $1B for VC-backed startups)277- TAM that's too large (unsupported by data)278- SOM that's too aggressive (> 10% in 5 years for new entrant)279- Inconsistency between methodologies (> 50% difference)280281## Industry-Specific Considerations282283### SaaS Markets284285**Key Metrics:**286- Number of potential businesses in target segment287- Average contract value (ACV)288- Typical market penetration rates289- Expansion revenue potential290291**TAM Calculation:**292```293TAM = Total Target Companies × Average ACV × (1 + Expansion Rate)294```295296### Marketplace Markets297298**Key Metrics:**299- Gross Merchandise Value (GMV) of category300- Take rate (% of GMV you capture)301- Total transactions or users302303**TAM Calculation:**304```305TAM = Total Category GMV × Expected Take Rate306```307308### Consumer Markets309310**Key Metrics:**311- Total addressable users/households312- Average revenue per user (ARPU)313- Engagement frequency314315**TAM Calculation:**316```317TAM = Total Users × ARPU × Purchase Frequency per Year318```319320### B2B Services321322**Key Metrics:**323- Number of target companies by size/industry324- Average project value or retainer325- Typical buying frequency326327**TAM Calculation:**328```329TAM = Total Target Companies × Average Deal Size × Deals per Year330```331332## Presenting Market Sizing333334### For Investors335336**Structure:**3371. Market definition and problem scope3382. TAM/SAM/SOM with methodology3393. Data sources and assumptions3404. Growth projections and drivers3415. Competitive landscape context342343**Key Points:**344- Lead with bottom-up calculation (most credible)345- Show triangulation with top-down346- Explain conservative assumptions347- Link to revenue projections348- Highlight market growth rate349350### For Strategy351352**Structure:**3531. Addressable customer segments3542. Prioritization by opportunity size3553. Entry strategy by segment3564. Expected penetration timeline3575. Resource requirements358359**Key Points:**360- Focus on SAM and SOM361- Show segment-level detail362- Connect to go-to-market plan363- Identify expansion opportunities364- Discuss competitive positioning365366## Common Mistakes to Avoid367368**Mistake 1: Confusing TAM with SAM**369- Don't claim entire market as addressable370- Apply realistic product/geographic constraints371- Be honest about serviceable market372373**Mistake 2: Overly Aggressive SOM**374- New entrants rarely capture > 5% in 5 years375- Account for competition and resources376- Show realistic ramp timeline377378**Mistake 3: Using Only Top-Down**379- Investors prefer bottom-up validation380- Top-down alone lacks credibility381- Always triangulate with multiple methods382383**Mistake 4: Cherry-Picking Data**384- Use consistent, recent data sources385- Don't mix methodologies inappropriately386- Document all assumptions clearly387388**Mistake 5: Ignoring Market Dynamics**389- Account for market growth/decline390- Consider competitive intensity391- Factor in switching costs and barriers392393## Additional Resources394395### Reference Files396397For detailed methodologies and frameworks:398- **`references/methodology-deep-dive.md`** - Comprehensive guide to each methodology with step-by-step worksheets399- **`references/data-sources.md`** - Curated list of market research sources, databases, and tools400- **`references/industry-templates.md`** - Specific templates for SaaS, marketplace, consumer, B2B, and fintech markets401402### Example Files403404Working examples with complete calculations:405- **`examples/saas-market-sizing.md`** - Complete TAM/SAM/SOM for a B2B SaaS product406- **`examples/marketplace-sizing.md`** - Marketplace platform market opportunity calculation407- **`examples/value-theory-example.md`** - Value-based market sizing for disruptive innovation408409Use these examples as templates for your own market sizing analysis. Each includes real numbers, data sources, and assumptions documented clearly.410411## Quick Start412413To perform market sizing analysis:4144151. **Define the market** - Problem, customers, category, geography4162. **Choose methodology** - Bottom-up (preferred) or top-down + triangulation4173. **Gather data** - Industry reports, customer data, competitive intelligence4184. **Calculate TAM** - Apply methodology formula4195. **Narrow to SAM** - Apply product, geographic, segment filters4206. **Estimate SOM** - 2-5% realistic capture rate4217. **Validate** - Cross-check with alternative methods4228. **Document** - Show methodology, sources, assumptions4239. **Present** - Structure for audience (investors, strategy, operations)424425For detailed step-by-step guidance on each methodology, reference the files in `references/` directory. For complete worked examples, see `examples/` directory.426
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