Market Sizing Estimator
Estimate your market size using both top-down and bottom-up approaches. Compare results side by side to validate your opportunity and build confidence in your numbers.
Top-Down Approach
Start with the total industry size and narrow down to your target segment.
Bottom-Up Approach
Start with unit-level data and build up to total market size.
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How to Size a Market: A Practical Guide
Market sizing is a critical exercise for any business — whether you're launching a startup, entering a new market, or pitching to investors. The two primary methods are the top-down approach and the bottom-up approach, and using both together produces the most reliable estimates.
Top-Down Market Sizing
Start with the total industry size from analyst reports, government data, or trade publications. Then apply filters to narrow down to your addressable segment: geography, customer type, price point, use case. For example, the global SaaS market might be $300B, but if you only serve mid-market healthcare companies in North America, your addressable slice might be 2-5% of that.
Bottom-Up Market Sizing
Start with the unit economics: how many potential customers exist, and how much would each pay annually for your solution? This approach is grounded in real data and is generally more credible to investors. Count the number of companies in your target segment, multiply by average contract value, and apply a realistic penetration rate.
Comparing Both Approaches
If your top-down and bottom-up estimates are within 30-50% of each other, your sizing is likely reasonable. If there's a large gap, investigate why — you may need to refine your assumptions. Investors will ask you to justify your numbers, so understanding the methodology behind both approaches is essential.
Frequently Asked Questions
- What is market sizing?
- Market sizing is the process of estimating the total revenue opportunity for a product or service within a defined market. It helps founders, investors, and analysts understand how large the opportunity is and whether it's worth pursuing.
- What is the difference between top-down and bottom-up market sizing?
- Top-down starts with a large industry number (often from analyst reports) and narrows it down to your specific segment using percentages. Bottom-up starts with unit-level data (number of customers, average spend) and multiplies up to estimate total market size. Bottom-up is generally considered more credible because it's based on real customer data.
- Which approach is better — top-down or bottom-up?
- Both approaches have value. Top-down is faster and useful for initial estimates, but can be overly optimistic. Bottom-up is more work-intensive but produces more defensible numbers. The best practice is to use both and compare results. If they're within 30-50% of each other, your estimate is likely reasonable.
- How accurate are market sizing estimates?
- Market sizing is an estimation exercise, not a precise calculation. Even professional analysts' estimates can vary by 20-50% for the same market. The goal is to get a reasonable order of magnitude (is this a $100M market or a $10B market?) rather than an exact number.
- What data sources can I use for market sizing?
- Common sources include industry analyst reports (Gartner, McKinsey, Grand View Research), government census and economic data, trade association publications, company annual reports and earnings calls, and customer surveys. For bottom-up estimates, you can use your own customer data, publicly available pricing information, and industry benchmarks.