What is Top‑Down Market Sizing?

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 Term	Definition	Example
TAM	Total market demand for your product or service	All meal kit buyers in the UK
SAM	The portion of TAM you can serve based on business model and capabilities	Urban households with broadband
SOM	The portion of SAM you can realistically win in the short term	2% 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.

Formula:
SOM = Reachable Customers × Revenue Per Customer
168,000 households × £600/year = £100.8M in potential revenue

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

Pros	Cons
Quicker to execute—ideal when time or resources are limited	Relies 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 industries	Not well-suited for innovative, niche, or emerging categories with limited historical data
Provides a broad, investor-friendly view of market opportunity	Lacks granularity and may overlook critical micro-level dynamics such as distribution bottlenecks or customer behaviour

Bottom-up Market Sizing

Pros	Cons
Built on your actual sales model, pricing, and operational footprint—making it highly customised	Can 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 unreliable	Risk 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.