When pitching market size, how you calculate it matters as much as the number. Investors have seen thousands of top-down slides with the same Gartner report. A bottom-up analysis shows you understand your actual customers.
Top-down market sizing
Method: Start with an industry report and carve out your percentage.
Example: "The global HR software market is $16.5B (Gartner, 2025). We focus on SMB payroll, which represents 15% of the market = $2.5B TAM."
Pros: Fast. Uses credible third-party sources.
Cons: Imprecise. Anyone can find a big number. Doesn't show customer understanding. Investors often dismiss top-down slides as "we know you used a Gartner report."
When to use: For context and credibility signal from authoritative sources. Always pair with bottom-up.
Bottom-up market sizing
Method: Count potential customers and multiply by average revenue.
Example for a B2B HR tool: - Target: US companies with 20–200 employees in professional services - Data source: Bureau of Labor Statistics + LinkedIn search - Count: ~180,000 companies match - Filter: ~60% have HR systems, 40% are dissatisfied with current solution = 72,000 active prospects - Average ACV: $8,000/year
Bottom-up TAM = 72,000 × $8,000 = $576M
Pros: Specific. Defensible. Shows you understand your buyer.
Cons: Time-consuming. Requires data that may not be public. Estimates compound.
Building a bottom-up model
Step 1: Start with firmographic data Use LinkedIn Sales Navigator, Bombora, ZoomInfo, or Apollo to count companies matching your ICP. Filter by size, industry, geography, and tech stack.
Step 2: Estimate the subset with your problem Survey data, customer interviews, or proxy data (e.g., job postings for the role you solve for) help estimate what percentage of your ICP actually has the problem you solve.
Step 3: Estimate conversion and average ACV Use your current conversion rate and ACV as a proxy. Acknowledge that these may change as you move upmarket or expand features.
Step 4: Triangulate with top-down If your bottom-up TAM ($576M) is close to 15% of the industry report's figure ($600M from your Gartner carve-out), they validate each other. If they diverge significantly, investigate why.
Presenting both in a pitch
| Slide layout | Content |
|---|---|
| Left panel | Top-down: "The global HR software market is $16.5B — we operate in the SMB payroll segment ($2.5B)" |
| Right panel | Bottom-up: "180k US companies match our ICP. 40% have the problem = 72k companies × $8k ACV = $576M" |
| Footer | "Our first 24 months focus on the $576M US SMB opportunity; international expansion by year 3." |
This layout shows rigor and triangulation. Investors see both methods agreeing.
Model your TAM at the TAM SAM SOM Calculator.