How to actually size your market (beyond TAM, SAM and SOM)

Part of the guideHow to choose a new market for expansion

“We’ll capture 2% of the market.”

It’s one of the most common lines in a growth plan. There’s a slide with a big number on it. 20,000 companies fit the profile. Average contract value of €25k. Multiply the two and you’re looking at a €500 million market. Capture 2% and you’ve built a €10 million business.

If you’ve ever built or reviewed a market sizing, you’ll recognize the structure: TAM, SAM, SOM. The total addressable market for the category. The serviceable market you can reach with your product, in your geographies and segments. And the obtainable market: what you can realistically capture.

The logic is sound. The problem is how it’s usually filled in.

TAM and SAM tend to get real research. SOM rarely does. It’s supposed to answer the most important question on the slide: how much can we actually win? Yet in most plans, it’s simply a percentage of SAM. 1%, 2%, 5%. Chosen because it sounds modest, not because anything supports it.

It looks rigorous. It isn’t.

Market size tells you what could happen. It doesn’t tell you what is likely to happen.

A large market is only attractive if enough of it actually comes into play, and if you can realistically win when it does.

So when I look at whether a market is worth pursuing, I work through three questions, each one narrowing the one before:

1. Market size
   How many potential buyers exist?
2. Opportunity flow
   How many of them actually enter a buying cycle?
3. Contestability
   How many of those can we realistically win?

Potential market. Active buying opportunities. Winnable opportunities.

The first question gets you to an honest SAM. The other two replace the percentage in SOM with something you can actually defend.

Market Size: How Big Is the Prize?

Start with a defined segment. Geography, industry, company size, whatever targetable dimensions your segmentation uses. Say: manufacturing companies in Germany with 100 to 500 employees. For the sake of the example, that’s 20,000 organizations.

That gives you a population to investigate. Not yet a market.

Being in the segment isn’t the same as having the problem your category solves. Some of those companies are too simple to need you. Some solve the problem in a way that doesn’t involve software at all. If realistically 60% could be category buyers, your 20,000 becomes 12,000.

Then multiply by what a customer is worth. At €25k ACV, that’s €300 million.

That’s the size of the prize, and essentially your SAM. A more honest one than most, because it only counts companies that could realistically buy the category. It’s a useful number. It’s also where most analyses stop and reach for a percentage.

Two checks before moving on.

1. Is that pool big enough for the growth you need?
   That depends on your ambition and your ACV. The same market means something very different to a company that needs 50 new customers a year than to one that needs 500.
2. Is there a structural ceiling?
   Some markets have a fixed population. There are only so many hospitals, universities or municipalities in a country, however fast the category grows.

But the real problem with this number is what it doesn’t tell you. How many of these companies will enter a buying cycle? How many already have a solution? How often do they reconsider it? How hard is it to make them switch? And who else is competing for them?

Opportunity Flow: How Much Comes Into Play?

Organizations can sit in your segment for years without buying anything. They have the problem. They tolerate it. Then something changes.

That’s the mechanism behind every market: a trigger that turns latent need into active demand. Broadly, buying cycles start when:

• The current way stops working at scale
  Growth adds complexity, fragmentation or effort until the existing approach isn’t good enough anymore.
• Requirements change inside the company
  New leadership, a restructuring, an acquisition, a new strategic priority.
• The definition of “good enough” changes
  Regulation, technology or competitive pressure makes the existing approach less viable.
• The cost of the status quo becomes visible
  An incident, a missed target or a compliance issue turns a tolerated problem into a priority.

So opportunity doesn’t just depend on how many organizations are in the segment. It depends on how often they enter a buying cycle.

Does the Trigger Create a Real Buying Cycle?

Not every trigger is equal. It helps to be honest about which kind of urgency your market runs on.

That last type, GTM-dependent urgency, isn’t necessarily a bad market. But it’s a very different one to go after. You’re not capturing demand, you’re creating it.

And that takes a lot more marketing. You have to make buyers aware of a problem they’ve learned to live with, convince them it’s worth solving now, and help your champion build the business case internally. Account by account, and for much longer.

So the question isn’t only whether the market is attractive. It’s whether you can afford the effort it takes to put buyers in motion. Do you have the budget, the team and the runway to create that demand, and the patience to wait for it to convert?

Is the Flow Expanding, Stable or Contracting?

Then look at trajectory. Not as a classification exercise, but because it tells you where growth has to come from.

• Expanding
  In an expanding market, new buyers keep replenishing the pool. Growth can come from greenfield and from replacement.
• Stable
  In a stable market, new buyers broadly replace the ones that leave. Growth has to come from laggards and from replacing incumbents.
• Contracting
  In a contracting market, buyers disappear faster than new ones arrive. You need to take share faster than the market shrinks.

Putting a Number on It

Now estimate how many accounts actually enter a buying cycle in a typical year. How often does the trigger happen? How long are contracts and renewal cycles? Does the trigger create a buying cycle, or just interest?

It won’t be precise. It doesn’t need to be. What matters is the order of magnitude compared to your market size.

And that’s usually sobering. A market worth hundreds of millions often turns into a few thousand, sometimes a few hundred, real buying conversations a year.

Contestability: Can You Actually Win It?

When an opportunity comes into play, is it actually open to you?

Opportunity flow asks why they started buying. Contestability asks whether that buying cycle is one you can realistically win.

Two forces decide it: incumbency and competition.

Is the Seat Already Taken?

Every opportunity sits somewhere on a scale of switching friction.

Greenfield: nothing in place

No incumbent to displace. Sounds ideal, but only if you understand why nothing is there.

Maybe the market is being created. New technology, regulation or a new use case creates a need that didn’t exist before. Maybe the market is catching up. The category is proven elsewhere, and this geography or segment simply adopts later. Both are good signs.

But maybe the category is already mature for comparable buyers, and this segment still hasn’t bought. That’s persistent non-adoption. It usually points to low urgency, weak economics or poor fit.

Greenfield isn’t the same as untapped demand. The question isn’t whether nothing is there. It’s why nothing is there.

Replaceable: an incumbent is in place

In one sense that’s good news. Budget exists, and they’ve proven they’ll pay for the category. But you need a reason to switch that outweighs the cost and risk of switching.

That reason usually comes from one of four places:

• The incumbent isn’t good enough anymore.
• The buyer’s requirements changed.
• The alternative is materially better, enough to justify the effort.
• The incumbent is going away: the product is sunset, put into maintenance mode or acquired.

That last one can change a market overnight.

A marketing leader at a SaaS company once told me about a period when they suddenly got a lot of inbound requests. Demo requests were up, pipeline was up, and the obvious explanation was that marketing was finally working.

Then they took a closer look at where the requests were coming from. A large part came from customers of one competitor. That competitor was forcing its customers to migrate to a different solution. Customers who had been fine for years were suddenly unhappy. And since they had to go through a migration anyway, they started looking around.

The marketing was fine. But the real driver was a buying situation someone else had created.

That changes how you read the numbers. This wasn’t a new, permanent level of demand. It was a switching window. It would stay open while the forced migration lasted, and close once those customers had moved or settled. Great to capture. Dangerous to base next year’s targets on.

It also shows something that’s easy to miss: the same event can trigger a buying cycle and make an incumbent vulnerable at the same time.

Entrenched: the incumbent is deeply embedded

Data and history that would need migrating. Integrations with other systems. Workflows built around the tool. Habits and training. Contracts, bundles, procurement. Every layer adds friction.

And this is where dissatisfaction can mislead you. An unhappy customer isn’t necessarily a contestable customer.

The question is whether the value of switching outweighs the cost and risk of leaving.

Who Else Is Reaching for It?

An open opportunity is still a contested one. Three things to look at.

1. The field
   How many credible competitors show up per deal? Is there a default vendor buyers start with? Fragmented markets leave room. Concentrated ones rarely do.
2. Substitutes
   What else competes for the same budget? Adjacent platforms, internal builds, a different approach altogether, or doing nothing. Your real competitor often isn’t in your category.
3. Differentiation
   Does your difference matter for what this buyer actually decides on? Being different isn’t enough. And the only real test is win/loss evidence, not your positioning claims.

Where to Find the Numbers

Each of the three questions draws on different data, and it comes from different places.

• Market size
  Official business statistics give you the number of companies by industry and size band: Eurostat for Europe, national statistics offices like CBS in the Netherlands or Destatis in Germany. Company databases like LinkedIn Sales Navigator or Dealfront let you filter on the exact dimensions of your segment.
• Category relevance and incumbency
  Technology lookup tools like BuiltWith or HG Insights show which software companies already run. Review sites like G2 show which vendors buyers compare. And your own lost deals tell you who you actually lose to.
• Opportunity flow
  This one rarely comes from outside data. Contract lengths and renewal timing in your CRM, and the triggers that show up in your win/loss data, tell you how often accounts enter a buying cycle.

Outside data gives you the pool. Your own data tells you how it moves.

What the Numbers Actually Look Like

Let’s go back to the 20,000 companies.

After category relevance, 12,000 potential buyers remain. 9,600 of them already use a competitor. 2,400 have no solution.

In a typical year:

• 480 of the greenfield accounts start looking
• 1,680 incumbent customers hit a renewal or reconsider their current solution
• Of those, maybe a quarter are genuinely willing to switch: 420

That’s 2,160 accounts entering a buying cycle, and around 900 that are genuinely contestable.

20,000 companies on the slide. Around 900 real, winnable opportunities this year. And you still have to compete for every one of them.

That’s where SOM should start. Not as a share of a static pool, but as the number of deals that actually come into play each year, and how many of those you can realistically win.

Now go back to that 2%. 2% of 20,000 is 400 customers. That means winning more than four out of every ten contestable buying cycles in the market, in year one, against everyone else chasing the same deals.

“We’ll capture 2% of the market.”

2% of what, exactly?

When a Clear ICP Isn’t Enough

This works the other way too.

I once defined the ICP for a SaaS company based on three years of win/loss analysis. The pattern was clear: companies in one specific size band were far more likely to close. They were big enough to need the product, but didn’t yet have anyone who owned the problem.

A clear ICP, backed by solid evidence. But without an owner, nothing forced a decision. The competition wasn’t other vendors. It was inertia.

We knew exactly who to target. There just weren’t enough of them with a reason to act.

That’s what made me dig deeper into what actually makes a market attractive. And, eventually, it’s why I wrote this article.

From Diagnosis to Decision

This is where it becomes useful: comparing markets on what can actually produce revenue.

Take two markets.

On a TAM slide, B wins. On every question that decides whether you’ll actually generate revenue, A does.

In A, buyers are being created, something reliably puts them in motion, and the ones in motion are winnable. In B, the pool is big, but demand has to be manufactured and most of it is already locked up elsewhere.

That’s a judgement across all three questions, not a score. I’d be wary of turning this into a weighted spreadsheet. The value is in understanding why a market works or doesn’t, not in the decimal points.

And there’s one more layer: what a won opportunity is worth. Two segments can each have 500 contestable opportunities a year and still be very different businesses. €8k ACV, a 30-day sales cycle and 80% retention is not the same as €40k ACV, a 180-day sales cycle and 95% retention. ACV feeds market size. The rest of your customer economics decide whether winning is worth the effort.

The Market Worth Pursuing

Enough potential buyers.

Enough of them entering a buying cycle.

Enough of those you can realistically win.

Size the prize. Understand what puts it in motion. Know what you can actually win.

Market size tells you the theoretical opportunity. Market attractiveness tells you whether there’s a credible path to revenue.

So don’t ask which market is biggest.

Ask which one has the most credible path to the growth you need.

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