It makes sense to open up new markets for a successful product or service. But how do you know whether it’s worth the investment? What makes for a potential buyer in your home territory might not apply in a new location where the total addressable market could be much smaller or many times the size. Enter the market researchers. We explain how to calculate market potential.

Estimating sales can be a chore even when you have historical and well-honed market instincts to work with. But in a new market this is even harder. There’s no historical data to review and it’s challenging to estimate the kinds of expenses and risks that might crop up.

An inability to judge sales makes the decision of whether to enter a new market much harder. Without a decent estimate – of both sales and likely profits – it’s almost impossible to decide on how you might enter and what kind of investment to make there.

What’s the market really worth?

The starting point is to get a handle on the existing market for your brand or product in the new territory. A basic market analysis is a great starting point. Typically it breaks down into:

  • Market sizing (current and future)
  • Market trends
  • Market growth rate
  • Market profitability
  • Industry cost structure
  • Distribution channels
  • Key success factors

But within each category, there’s lots to research. A more superficial look at the data can be helpful for a ‘first cut’ look at which new markets you might want to enter. But a deeper dive into the numbers will be essential if you’re going to properly evaluate the strategy for what looks like a high-probability candidate.

That more sophisticated analysis could take the form of a total addressable market (TAM) analysis. This looks at both the TAM itself, as well as serviceable available market (SAM). This is the portion of TAM that your company’s products or services play inside; and serviceable obtainable market (SOM), the percentage of SAM which your might realistically reach.

Best guesses?

But getting to SOM for a brand new market isn’t a simple calculation. It’s not exactly easy in markets where you’re a known quantity and understand the competitive environment, either! For businesses in mature categories and with previous experience of being a new entrant to markets, it’s possible to make educated guesses. This can be refined with local research on factors that might shape consumer behaviour.

In some industries that data might be possible to obtain – from industry associations, for example, or government agencies. In others – and particularly in product segments that a relatively underdeveloped in the market you plan to enter – sales figures might be harder to come by.

Then there’s the difficulty of calculating market share. You will know what it might cost in contracts, infrastructure and marketing to build share in existing markets. But the assumptions may be way off-base for a brand new market.

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At this point there are two avenues:

Research sales results that have been achieved by other companies like yours. They don’t even need to be in precisely the same line of business. The lessons of other companies looking to sell into the new markets can reveal both the optimum routes in, the barriers to adoption and the appetite for new brands.

That might even mean contacting other businesses to ask their experience of making the adaptation to the new market – as well as learning about potentially important busy and slow seasons, noteworthy business practices and quirks of the system that might not have a direct bearing on the size of the opportunity, but will allow you to adjust your assumptions.

Talking to local partners, however, is probably the best way of calibrating your expectations. Even if you plan to enter a market by establishing a local entity and investing in your own facilities and marketing, you’ll still be working with many different counterparties. This can span everything from local professional services firms such as lawyers and accountants, to warehousing, distribution or media buying agencies.

They ought to be able to offer anecdotal evidence at the very least; at best, they’ll have insights into the size of the market and chances of capturing that crucial market share. And if the route to market entry is contracting with a local distributor, licensees or franchisees, their sense of the opportunity could be invaluable.

But above all, rigorous quantitative and qualitative market research will reveal a great deal about attitudes and appetites for your brand or product. The more you can contextualise the hard data on existing spend and potential market growth with consumer insight, the more realistic your evaluation will be.

Focusing on behaviour

One other way to address uncertainties about how a new market might embrace a product or service is to think not about that category, or even look at domestic rivals’ sales and strengths. It’s to create a strategy based on consumer behaviours.

If you can analyse why your brand, product or service is successful in its existing markets and break down the results into some key motivators or even behavioural traits of your consumers, it might be possible to assess where those traits are visible in a new market before you enter. In what situations is your product used? What type of people love it? What are those customers’ attitudes across different domains? What role does it play in their lives – and why?

That will require some pretty deep insight into the market you want to enter. Clearly it’s a more useful investment to make if there are other positive signals to encourage you in – fundamentals such as infrastructure, spending power or pre-existing local interest in your brand or product.

How good is your cost analysis?

Knowing your potential sales, market share and growth are all important. But the scale of the opportunity isn’t just sales – it’s profit. And even seasoned businesspeople can misstep when it comes to keeping costs under control in their market entry strategy. Here’s a brief list of costs that won’t affect domestic-only businesses:

  • Shipping costs – which can also fluctuate wildly, as we’re finding out during the COVID-19 pandemic. Consider, also, capacity. Shipping out of markets with a high balance of trade deficit (Europe, US, UK) to major exporters (China, for example) is much easier than going the other way.
  • Legal expenses – from registering a business in a new location, sorting out licensing, contracts, the right insurance cover… and complying with local regulations on everything from product labelling to anti-bribery laws.
  • Foreign taxes – and other local accounting quirks, which might be different depending on your headquarters domicile and the mode of entry into the market.
  • Translation services – for everything from contracts and technical specs, to instruction manuals and marketing.
  • Recruitment and HR – even a light-touch market entry will benefit from putting some employees into the new market to oversee set-up and manage local relationships.
  • Travel expenses – for the above, but also for ongoing check-ins with local teams or business partners.

What do you know about rivals?

Some lucky businesses will find an overseas market where there are few local rivals, legal and business structures that allow them to port across their defensive attributes from existing markets and a ready but as-yet-untapped consumer base. But those will be rare. So to properly understand the market potential, you’ll need competitor analysis. Our typical approach to this considers:

  • Who are your rivals in that market? Not just currently selling what you want to sell, but addressing your potential customers, too.
  • What is their range of products? How easily might they change?
  • How do they pitch their consumers? What messages are they using? Which channels?
  • What is their competitive advantage? What’s their cost base like? What could you replicate – and where can you out-compete them?
  • What’s their market share? How fragmented in the competition? What opportunities does that present either in terms of the industry cost-base or even acquiring smaller rivals?
  • What is their company structure? If they outsource (for supply or support) or license (to address the market), could those be vulnerabilities increasing your potential strength?

In summary

A lack of prior experience and knowledge can make it challenging for companies to assess the potential of new markets. We help lots of business overcome this – not just through the use of primary and secondary market research, but also by having people on the ground in many countries and regions to add specific local knowledge.

This creates a much more rounded view of the market potential – and the optimum ways to tap into it – than simply applying a cookie-cutter approach to market entry. The key steps:

  • Understand the demographic and economic drivers that underpin the total market for your products or services.
  • Think laterally about the broader factors – such as the types of consumer and cultural attitudes – that dictate market size.
  • Analyse existing market activity to deduce a TAM, SOM and SAM.
  • Conduct consumer research to evaluate your specific opportunity in the market.
  • Competitor intelligence will help you test assumptions about potential market share gains.
  • Rigorous local insights into costs and risks will reveal the profit potential – the ultimate rationale for market entry

Find out more about our market entry services, read our expert guide to market entry or get in touch with us to discuss a project with our team.

How do you calculate your market size and determine your serviceable obtainable market?

Understanding your market is a vital step in building a strong business case. It enables you to quantify the number of potential customers and estimate your revenue potential. If you’re new to the concept, start by exploring what is market size to get clarity on the fundamentals before diving deeper into the models. Accurate sizing helps secure internal buy-in, allocate resources, and prioritise opportunities with confidence.

Top-down market sizing is one of the two primary techniques used to calculate the serviceable obtainable market (SOM). This article explores what top-down market sizing entails, how to apply it, and the benefits and limitations of this approach.

What is top-down market sizing and how does it work?

There are two main approaches to estimating your serviceable obtainable market: top-down and bottom-up. Each method offers a different perspective on how to define your market opportunity.

  • Top-down market sizing begins with a macro-level view of the total addressable market (TAM)—the entire revenue opportunity available if every potential customer were to choose your product or service. From there, you narrow the focus to your serviceable available market (SAM), which includes only those customers your offering can realistically reach based on product fit, geography, or business model. Finally, the serviceable obtainable market (SOM) refers to the portion of the SAM that you can actually capture, given your resources, competition, and reach.
  • In contrast, bottom-up market sizing starts with your business fundamentals—your product, pricing, distribution, and existing customer base. From there, you build upwards, estimating how those units can scale over time. This method focuses on operational realities and helps model growth based on specific inputs, rather than general assumptions.

Comparing TAM, SAM, and SOM

To help visualise the differences between these three market size tiers, here’s a simple breakdown:

Market Size TermDefinitionExample
TAMTotal market demand for your product or serviceAll meal kit buyers in the UK
SAMThe portion of TAM you can serve based on business model and capabilitiesUrban households with broadband
SOMThe portion of SAM you can realistically win in the short term2% of urban households with broadband

This comparison gives a clear snapshot of how broad market figures are refined into realistic, actionable segments. Whether you’re assessing your current position or sizing up a new launch, distinguishing between TAM, SAM, and SOM is a vital step in making grounded commercial decisions.

How to apply top-down market sizing in practice

To apply top-down market sizing effectively, start by taking a wide-angle view of the total market before narrowing down to your realistic opportunity. This method begins at the macro level, using available industry data to assess the largest possible market size your product or service could address.

The first step is identifying your total addressable market (TAM). Look at reputable industry reports, government databases, and analyst forecasts to understand the size and scope of the broader market. From there, narrow this to your serviceable available market (SAM)—the subset of customers that your product could logically serve, based on location, product features, or business model constraints.

Let’s say you are launching a payment management platform for hair salons in the US. You would begin by estimating the total number of salons across the country. Then, refine the segment: remove those that are too small to need a digital system, or those operating in regions where your business does not currently operate. Next, account for existing clients and competitors—salons that are already served or unlikely to switch—until you are left with a realistic estimate of your serviceable obtainable market (SOM).

To strengthen your approach:

  • Use trusted data sources. Analysts like Gartner, Statista, or government bodies such as the Bureau of Labor Statistics can provide foundational data. Supplement this with primary research to validate assumptions and add nuance.
  • Maintain consistency. Use a clear, repeatable methodology and document your data sources and assumptions for transparency.
  • Interrogate the data. Ask critical questions as you work through the sizing: Who are our ideal customers? Where are they located? What share of this segment can we realistically convert?

Accurate market sizing is not just a numbers exercise—it sets the foundation for strategic planning, forecasting, and investor confidence.

Worked Example: Calculating Top-Down Market Size

Imagine you’re launching a new meal kit service in the UK. Here’s how you might size the market using a top-down approach:

  • TAM (Total Addressable Market):
    Start with the number of UK households (28 million). Let’s assume 60% are open to subscription services → 16.8 million.
  • SAM (Serviceable Available Market):
    Focus on urban households with broadband access and sufficient disposable income. Say that’s 50% of your TAM → 8.4 million.
  • SOM (Serviceable Obtainable Market):
    Based on marketing budget, delivery infrastructure, and competitive landscape, you estimate you can capture 2% in the next 3 years → 168,000 households.

Top-down and Bottom-up Market Sizing — Which is Better?

There’s no universal answer to which method is superior—it depends on your product, industry, and growth stage. Both top-down and bottom-up market sizing offer valuable perspectives and are often most effective when used together to cross-validate your estimates. Below, we outline the strengths and limitations of each approach to help you choose the most appropriate one.

Top-down Market Sizing

ProsCons
Quicker to execute—ideal when time or resources are limitedRelies on third-party data that may be outdated or not tailored to your specific business
Leverages existing market reports and analyst data, making it suitable for large, mature industriesNot well-suited for innovative, niche, or emerging categories with limited historical data
Provides a broad, investor-friendly view of market opportunityLacks granularity and may overlook critical micro-level dynamics such as distribution bottlenecks or customer behaviour

Bottom-up Market Sizing

ProsCons
Built on your actual sales model, pricing, and operational footprint—making it highly customisedCan be time-consuming and resource-intensive, especially without strong internal data tracking
Better suited to disruptive innovations or new product categories where historical data is unreliableRisk of compounding small errors across calculations, leading to inflated market size estimates
Enables detailed forecasting by linking market size directly to your business inputs (e.g. units sold, price, conversion rates)May be overly conservative if market expansion potential is underestimated

In practice, many successful brands apply both models. The top-down approach paints the bigger picture, while bottom-up offers a ground-level view rooted in operational reality. When both tell a consistent story, you can move forward with stronger conviction.

Ultimately, using both models in your market sizing can be useful. If they both agree, you can assume you have a reasonably accurate market size estimate. The approach you opt for will also depend on the type of business you’re building and the product you’re selling.

Why Market Sizing Should Be an Ongoing Process

While market sizing is essential for initial planning, it shouldn’t be treated as static. Markets shift. New competitors emerge. Consumer behavior evolves. That’s why the most successful brands revisit their estimates regularly—especially when expanding into new regions or launching new products.

In global contexts, market sizing becomes even more complex. Brands must factor in cultural nuances, economic conditions, and local demand patterns. Combining top-down and bottom-up approaches can help validate assumptions and reduce risk.

If you’re preparing to enter a new market, you may also find it helpful to explore our advanced techniques to calculate market size globally and dive into the nuances of how to calculate market potential in specific categories.

Market sizing is more than just a numbers game. When done right, it becomes a strategic tool to guide investment, align internal stakeholders, and prioritise where to compete. Whether you’re just starting out or fine-tuning a go-to-market strategy, it pays to get your numbers right.

Partner with Kadence to Build a Robust Market Sizing Strategy

At Kadence, we don’t just calculate market size—we help brands turn that data into direction. Whether you’re exploring a new category, entering an unfamiliar region, or reassessing your growth strategy, our market sizing services can help you build an accurate, defensible model that guides smart decision-making. Get in touch to see how our research can power your next move.

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Frequently Asked Questions

Q: What is the difference between TAM, SAM, and SOM?
A: TAM (Total Addressable Market) is the total demand for a product or service in a given market. SAM (Serviceable Available Market) refers to the portion of TAM you can actually serve based on your business model, region, or capabilities. SOM (Serviceable Obtainable Market) is the realistic share of that market you can capture, considering your resources and competition.

Q: When should I use top-down market sizing instead of bottom-up?
A: Top-down market sizing is ideal when you need a quick estimate and have access to reliable secondary data sources—such as industry reports or government statistics. It works best for mature industries with established competitors and historical data.

Q: How do I calculate SOM from TAM or SAM?
A: First, estimate your TAM using high-level data. Then define your SAM by narrowing this to only the segment your product can serve. From there, calculate SOM based on your expected market penetration rate or the percentage of the SAM you believe is attainable, factoring in competitors and current reach.

Q: Is it better to use both top-down and bottom-up methods?
A: Yes. Combining both approaches provides a more robust and accurate estimate. If both methods converge on a similar figure, it can increase your confidence in the forecast. This is especially helpful for cross-functional alignment or when seeking investment.