Two numbers for the same market
Picture an investment review. Slide four says the market is $200 million: a $2 billion category, of which 10% fits the product. Slide five builds it from the ground: 25,000 target companies, 40% of them likely buyers, ten seats each at $1,200 a year. That is $120 million. Slide four is two-thirds bigger than slide five, and nobody notices until the CFO does.
This calculator puts both methods on one screen. Enter a top-down chain and a bottom-up chain, and it returns both market sizes, the gap between them, what one point of adoption is worth, and obtainable revenue built two ways. You leave with a sizing a skeptic can take apart, and with the assumption you need to defend first.
The point of running both is not to average them. The gap is the finding. It tells you which link in which chain is carrying the answer, and that is where the next hour of work belongs.
Two methods that agree prove little. Two that disagree tell you where to look.
Market sizing calculator
Enter annual figures in one currency. The defaults are an invented illustration, not data about any market.
The published total you start from, before any narrowing.
$2,000,000,000The slice that matches your buyer, product and geography.
10%Firms or households that fit your buyer definition, from a source you can name.
25,000Seats, orders or visits. Match the unit to the price below.
10What customers actually pay after discounts, per year.
$1,200Bottom-up market: $120,000,000 · Obtainable revenue (lower of the two methods): $6,000,000
Results
| Value | |
|---|---|
| Top-down market | $200,000,000 |
| Buyers in the bottom-up count | 10,000 |
| Bottom-up market | $120,000,000 |
| Gap between the two (larger divided by smaller) | 1.7 |
| Bottom-up market change per point of adoption | $3,000,000 |
| Obtainable revenue, share method | $6,000,000 |
| Customers the share method implies | 500 |
| Obtainable revenue, capacity method | $9,000,000 |
| Obtainable revenue (lower of the two methods) | $6,000,000 |
Your inputs
| Value | |
|---|---|
| Top-down: annual spend in the wider category | $2,000,000,000 |
| Top-down: share of that spend your product could serve | 10% |
| Bottom-up: target customers you can count | 25,000 |
| Bottom-up: share of them who would buy this kind of product | 40% |
| Units each buyer purchases per year | 10 |
| Realized price per unit | $1,200 |
| Share of the bottom-up market you expect to win in the period | 5% |
| New customers your team can sign per year | 250 |
| Years in the plan period | 3 |
About the method
- Top-down market = category spend × share you could serve. Bottom-up market = customers × share who buy × units per buyer × realized price.
- Reading the gap: under 2, use the bottom-up figure as your base; 2 to 3, find a second source for the input you trust least; above 3, the two chains probably count different markets, so fix the definition first. These bands are our rule of thumb, not a statistical test.
- The capacity method assumes every customer signed stays for the whole period at full volume, so it overstates. Subtract churn and ramp-up yourself.
- Both methods count today's buyers at today's prices. Demand a new product would create needs its own line and its own evidence.
- Use annual figures, one currency and matching units throughout. The defaults are an invented illustration.
Read next
A thinking aid from The Strategist's Craft at stratrix.com. It does arithmetic on your assumptions; the gap bands are our rule of thumb, not a statistical test, and the defaults describe no real market.
Get the full report: PDF report, Word (editable), Excel
How the two chains work
Top-down starts from a published total and narrows it: category spend times the share your product could serve. Bottom-up starts from buyers you can count and builds up: customers, times the share who would buy, times units per buyer, times the price they actually pay. The definitions of TAM, SAM and SOM are in the Lexicon entry; the full method, worked with real government data, is in TAM, SAM, SOM, done honestly.
| Method | Formula in the tool | Strong when | Weak when |
|---|---|---|---|
| Top-down | Category spend × share you can serve | A credible category total exists | The share is a guess written as a percent |
| Bottom-up | Customers × share who buy × units per buyer × realized price | You can count the buyers | The count or the adoption rate is optimistic |
For US business buyers, the count can come from public data. The Census Bureau's County Business Patterns covers establishments with paid employees, by industry and geography 3. Nonemployer Statistics covers businesses with no paid employees, most of them self-employed people 4. If your buyers are sole proprietors, County Business Patterns alone will miss most of them.
Reading the gap
The tool divides the larger estimate by the smaller. The bands below are our rule of thumb, built on the two-to-three-times threshold the TAM page uses: they are a working habit, not a statistical test.
- Gap under 2. Use the bottom-up figure as your base, because every part of it can be checked, and keep the top-down figure as a sanity check.
- Gap of 2 to 3. Line the two chains up and ask which input you trust least. It is usually the top-down share or the bottom-up adoption rate. Find a second source for that one input.
- Gap above 3. Stop and redefine. The two chains are probably counting different markets: a wider category, a different buyer, a different unit. Fix the definition before you touch any number.
The output “market change per point of adoption” shows which assumption carries the answer. In the default illustration, each percentage point of adoption is worth $3 million a year. If adoption could plausibly be anywhere from 25% to 55%, the market runs from $75 million to $165 million, and the meeting should argue about adoption, not about the total.
From market to obtainable revenue
Obtainable revenue is where sizing usually goes soft. “We only need 5%” sounds modest and cannot be tested. The tool computes it twice, once from your share assumption and once from the customers your team can actually sign in the period, and reports the lower figure.
In the defaults, 5% of the bottom-up market is $6 million, which implies 500 customers. A team that signs 250 a year reaches 750 customers in three years, so capacity is not the limit; the share assumption is. Change the team to 100 signings a year and capacity caps you at $3.6 million, however large the market.
What a calculator cannot tell you
Both chains count today's buyers at today's prices. Gurley's objection was exactly that: “The past can be a poor guide for the future if the future offering is materially different than the past” 2. If your product creates buyers who do not exist yet, size that expansion as its own line, with its own evidence, rather than raising the adoption input until the total feels right.
Nor can it stop motivated inputs. Inside a company, the market size tends to drift toward whatever clears the investment hurdle. Two habits help: have someone other than the sponsor fill in the bottom-up count, and show the per-point sensitivity on the same slide as the total. For how to turn the weakest input into a testable claim, see hypothesis-driven problem solving.
A market size earns trust by being easy to attack. Run it both ways, find the input that moves it most, and put that input next to the number. To practice the method against the clock, try the market sizing drill.
Questions
- What is the difference between top-down and bottom-up market sizing?
- Top-down starts from a published category total and narrows it to the share your product could serve. Bottom-up starts from buyers you can count and multiplies by the share who would buy, units per buyer and the price they actually pay. Bottom-up is easier to check, top-down is quicker, and running both shows whether your assumptions agree.
- Which market sizing method should I trust?
- Use bottom-up as the base, because every link can be checked against a source, and use top-down as a sanity check. If the two differ by more than two or three times (our rule of thumb), do not average them. One chain is probably counting a different market or carries an optimistic input; find it first.
- How do I estimate obtainable revenue (SOM)?
- Do not pick a share because it sounds small. Estimate how many customers your sales capacity can sign in the period, multiply by what each pays, and compare that with your share assumption. The lower figure is the defensible one. Then subtract churn and ramp-up, which a simple calculation ignores.
- Where can I find customer counts for US businesses?
- The Census Bureau's County Business Patterns counts establishments with paid employees by industry and geography. Businesses with no paid employees, mostly self-employed people, are covered by Nonemployer Statistics instead. Remember that establishments are locations, not firms, if you sell to headquarters.
Sources
- Damodaran, A. (2014). A Disruptive Cab Ride to Riches: The Uber Payoff. Musings on Markets (blog), June 9, 2014. A total market for taxi and limo services of $100 billion; a 10% market share described as “at the optimistic end of the spectrum”; a base case value of $5.895 billion.
- Gurley, B. (2014). How to Miss By a Mile: An Alternative Look at Uber's Potential Market Size. Above the Crowd (blog), July 11, 2014. The argument that Damodaran's core assumptions may be off by a factor of 25, and the line “The past can be a poor guide for the future if the future offering is materially different than the past.”
- US Census Bureau (2026). About County Business Patterns. US Census Bureau. Coverage of establishments with paid employees; data items; geographies from the nation to ZIP code.
- US Census Bureau (2026). About Nonemployer Statistics. US Census Bureau. Coverage of businesses with no paid employees that are subject to federal income tax, most of them self-employed individuals operating unincorporated businesses.
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