This document discusses methods for estimating the total addressable market (TAM), serviceable available market (SAM), and serviceable obtainable market (SOM) for a company. It describes the top-down and bottom-up approaches to market sizing, providing examples of each for a company called Ugly Veggies that delivers discounted produce. The top-down approach estimates the SOM at $756 million by starting with total food spending and making assumptions to narrow it down, while the bottom-up approach estimates the SOM at $892 million by starting with customer purchasing habits and scaling up. Both approaches have pros and cons, so using both is recommended to obtain a more accurate market size estimate.

1. Market Sizing
Calculatingyour TAM, SAM, and SOM using the
top down and bottom up methods.

2. The truth is that you can’t be sure, as markets and
the company itself will change over time.
However, it’s still a good exercise for you (and an
essential one for investors) to think about this and
make an educated guess.
Why? This effects your scale, team, possibilities,
finances and more.
How big is your
company going to be?

3. Total Available
Market (TAM)
Total market demand for a
product or service
Serviceable
Available Market
(SAM)
The segment of the TAM targeted by your
products and services which is within your
geographical reach
Serviceable
Obtainable
Market (SOM)
The portion of SAM that you
can capture
Market size is generally done in three categories:

4. Top-down market sizing starts by looking at the current market as a
whole, taking a macro view of all the potential customers and
revenue, and then narrowing it down to a section you can
realistically target. This gives you your serviceable obtainable
market , (SOM).
Top Down Market Sizing

5. Top Down
Market Sizing
Step 1
Look at industry size estimates to
find the largest possible market
size for your product
Step 2
Reduce it using information and
assumptions about our business
and market
Step 3
Calculate how many potential
customers are in that segment

6. Top Down Example
Ugly Veggies, deliver "misfit" produce which would otherwise be thrown
out to consumers at a discounted price on demand. Using the top down
approach their SOM is $756M.

7. Step 1
How big is the market for Ugly Veggies? We'll start with how much consumers spend on
food today.
The Bureau of Labor Statistics publishes an annual Consumer Expenditure Survey (CES)
which tells us that the average household spends $751 on fruits and vegetables every
year, for a total of $94.4B spend every year in the US.

8. Step 2
Not everyone who buys produce on demand will be reachable with deliveries! In fact, it
only makes sense to offer Ugly Veggies in large cities. About 30% of the population
(according to the CES) lives in large cities so we’ll assume only 30% of those sales can be
served by Ugly Veggies. That reduces our estimate to $28.3B.
Also, not all of the produce that are purchased in the U.S. are available in our seasonal
box. According to the USDA, only 17% are tomatoes, carrots, and squash (our primary
offerings).That reduces our estimate to $4.8B.

9. Step 3
Not everyone orders their produce on demand. Supermarkets will always have some
market share, so we'll assume that 15% of households would order their produce on
demand if offered. That brings our estimate to $720M.
Finally, our business model assumes consumers will buy more produce when they are
delivered straight to your door at a discounted price and preventing waste! Our
expectation is to grow consumption by 5%. This increases our estimate to $756M.

10. Bottom-up market sizing is where you start with your own product
and the basic units of your business and work out how you can scale
them. Where can your products be sold, how much for, and how
much of the current market could you command? You start small and
build up to the result.
Bottom Up Market Sizing

11. Bottom Up
Market Sizing
Step 1
Conduct customer interviews &
surveys to understand the basic
units of your business (product,
price, customers).
Step 2
Map out all of the assumptions
you have regarding those units.
Step 3
Estimate how large you can scale
them.

12. Bottom Up Example
Ugly Veggies, deliver "misfit" produce which would otherwise be thrown
out to consumers at a discounted price on demand. Using the bottom up
approach their SOM is $892M.

13. Step 1
A Bottom-Up market sizing starts with the price of produce. Our local customer survey
tells us that consumers buy $22 of produce when they go to the market once a week.
That means the average consumer would buy $1,144 of produce per year.

14. Step 2
How many consumers can we reach? Based on the effectiveness of commercials, google
ads, and other channels our head of marketing thinks we can reach about 35,000
households in our hometown of Boulder, CO. That brings our estimate to $40M.

15. Step 3
Finally, we will assume that we can expand into the top 30 cities based on our operating
plan and available capital. That gives us an audience of 780K households or a total of
$892M.

16. Top Down
Pros
The process of gathering existing data is faster
Can supplement with primary data at a later date to
reach a more accurate forecast
Works well for big, established markets, where
there's already plenty of data and existing analysis
Pros
Tailored to your specific circumstances and uses
your own data
Especially useful for new markets and markets
where your product is likely to make a big, disruptive
impact
Tends to result in better forecasting and more
accurate data on a more granular level
Bottom Up
Cons
It doesn’t work as well for new, smaller markets
and disruptive products
Initial research relies on general information
collected by others, so the data isn’t specific to
your business and situation
Cons
Takes longer and requires more resources
Has a tendency to assume there will be more
customers than there actually will
Errors made early on at the micro-level become
compounded as you work up to the macro-level,
important to ensure you’re doing everything the
right way

17. Use Both!

18. Comparables
Comparable's are companies that are similar to yours, either in business model, product types or market
position. A good comparable is already at scale and serving the same customers that you will serve (both
now and in the future). By looking at the size of these comparable businesses you can determine if your
estimate is realistic.
Replacements
Sizing the market for a replacement works exactly the same as sizing for an existing product. You
simply size the market for the product you will be replacing and make an assumption about how much
of that market you can replace with your new product (Uber used Taxis).
New Demand
New demand sizing requires you to understand how much buying power your prospective
customers have today and how much is available to spend on something new. This is why new
products often target wealthier customer segments as luxury goods (iPhone, Tesla, etc.) because
those customers have more buying power and hence the ability to buy something new.