Market sizing for startups: Top-down vs bottom-up guide

Last updated: June 2025

When investors look at your pitch deck, there’s one thing they care about even more than your MVP, team, or forecast—your market.

VCs see dozens of “breakthrough” products daily, all built by “seasoned” executives.

In the early stages, investors aren’t judging whether your product works. Instead, they’re asking: Is the market big enough? Is now the right time? And do you understand it well enough to win? 

If you’re too humble with your market size, not ready to explain your TAM numbers, or unsure whether the market is even worth entering—you’re likely out.

When done right, market sizing isn’t just a number, it’s your answer to the “Why now?” and “Why this?” narrative—the most important part of your pitch deck. It shows you’ve thought deeply about where you’re playing, who you’re serving, and how you plan to win.

So—what is market sizing, how do you calculate TAM/SAM/SOM, which method should you use to get your market size right, and how do you make sure it all lands in your deck clearly? These are the questions we’re going to cover in this guide. 

Let’s dive in!

Market sizing: The what

Market sizing is the process of estimating the size of the market that your startup will call home. 

It’s an industry standard now to include market sizing in a pitch deck, regardless of your startup’s stage. The purpose behind this is really simple: 

• Investors LOVE startups that take off in big and dynamic markets.

• Investors NEED ambitious companies that will take a big share of a big market.

• Investors HATE when the team is not aware of the size and trends of their product’s market.

The go-to framework for market sizing has been the same for decades: break your market down into three parts:

Market sizing: The why

If all this number talk made you think about endless research and spreadsheets, don’t worry. A really good market sizing calculation isn’t about complex math. It’s about knowing your business model, your ICP, and, of course, your go-to-market strategy.

Here’s a real-life success case from our practice:

A global footwear brand entered the South Korean golf market, thinking premium pricing and global ads would be enough. Five years in—sales were flat, and market share was falling.

When our Waveup team stepped in, we saw that the issue wasn’t the product. It was a poor fit in terms of pricing, audience, and distribution.

With the right market size analysis, new partner, and localized strategy, our client turned things around, and sales grew 25% in a year.

The moral of the story: Investors don’t care about fancy graphs. They care if you actually understand your market.

So, the goal of a good market size slide is to show investors that you actually know your market as well as you know your product. On top of that, it’s also proof that your GTM strategy is scientifically benchmarked. 

Here’s a list of things you need to demonstrate in your slide:

1. The problem really exists. Your problem is your opportunity, and what’s the best way to sell an opportunity? In purely economic terms! Here, you must make sure you know the problem you’re solving and that your opportunity is clearly shown in $ terms.

2. There are people who are really ready to pay or already pay to solve the problem. What does market sizing prove? It proves that the market exists! It is direct proof of demand that you can present to the investor, especially in the early stages. This is one of the earliest indicators for product-market fit.

3. There’s a way to monetize the market opportunity. We will explain more about how you can involve pricing and other customer metrics in your market sizing, but for now, keep in mind that a good Market Size slide is indicative of a certain price you can charge in that market.

4. You’re aware of how your market will be reached. As you will see later in the article, your Market Size slide is closely tied together with your go-to-market strategy; they’re codependent when you are developing them. A good Market Size slide shows the investor that you’re able to explain how you will materialize your SOM into reality.

Here are a few market slides we created for clients—investors really liked them, and the founders ended up raising successfully:

Market sizing: The how

Now, let’s explore the ways in which you can actually calculate your market size—TAM, SAM, and SOM. There are two main methods that you can follow: top-down vs. bottom-up market sizing. 

Let’s compare them!

Top-down approach

As the name indicates, top-down market sizing creates a macro analysis of the market (you start with the big picture). 

Here, you’re basically looking for existing market data from reports, analysts, or research firms—and work your way down.

1. Let’s start with TAM. Say you’re building a SaaS product. According to Statista, the global SaaS market is expected to hit $390B in 2025, growing to over $790B by 2029. That’s your TAM—the total market if there were no limits. When calculating your TAM, be careful—it’s easy to get it wrong, as it happened to Vori (a B2B software company). In a TechCrunch teardown of Vori’s pitch deck, the team used $765B in total grocery store consumer spending as their market size. But they weren’t running a grocery store—they were building tools for them. As TechCrunch pointed out, you can’t claim your customer’s total revenue as your TAM. Your TAM isn’t what your customers earn—it’s what you can earn from them.

2. Now, we’re going to get your SAM—just narrow down that TAM. Maybe you’re only targeting North America or targeting mid-sized companies instead of everyone.

3. Then comes SOM—the part of the market you can realistically capture. Many founders just guess a percentage here, so be careful not to rely too heavily on assumptions without context. That’s why this method is easier and faster but often less precise.

Advantages:

• Quick and easy. This is because startups don’t need to dive deeply into every single part of their activities to calculate market size. All you need is to pull the data from a credible analytical report.

• Optimistic. Gives insight into what is possible in the market; that’s why, in most cases, it provides an optimistic number of the market size.

• Works well for big, established markets with lots of existing data.

Disadvantages:

• Can give the wrong impression. If your top-down calculation is just about copying numbers from reports without context, it may seem like you haven’t done the work. And if you can’t explain the logic behind the numbers, investors will notice.

• Inaccurate. It’s based on broad assumptions, not real data. Investors might like the big numbers, but they’ll want to see a clear plan for how you’ll actually get there.

• Too generic. This might not always be correctly reflected in your sales expectations if you simply take X percentage of a market.

• Not appropriate for new markets and disruptive products. Top-down approaches often don’t consider that a startup can change the actual size of the market size.

Bottom-up approach

While top-down market analysis is usually easy to do, it can be misleading. Can you really reach that entire market? Even if you could, what costs would that involve? 

The good news is that bottom-up market sizing gives us the answers and a more accurate picture.

Instead of starting with a huge market number (as the top-down market analysis approach suggests), you start with your product, your price, and your customers—then work up from there.

When doing bottom-up analysis, you should take your GTM strategy into account. You look at how many ideal customers (ICPs) you can realistically reach, what they’d pay (ARPU or CLTV), and multiply. It’s not about the whole market—it’s about what you can capture.

Since in the bottom-up market analysis, you’re working with the basic units of your business (e.g., your product, price, and customers), trying to estimate how far you can scale them up, here’s what you need to consider:

• How much have people paid (or are willing to pay) for the product or service

• Your potential target market segments

• The distribution channels and limitations

A market sizing bottom-up approach is about setting your price and counting how many people might buy. And here are three simple steps to see what your company can achieve in sales:

Step 1: Set your product price. This step depends on whether your startup is just an idea or an existing business. If your startup is new, base your price on industry benchmarks—look at what customers pay for similar products and what they might be willing to spend.

If you already have a business, use your own data. Look at your past revenue, expenses, and number of customers to guide your estimate.

Step 2: Estimate the size of the potential audience. Do some research to find out how many people or companies match your ideal customer profile. Consider these questions:

• Who is your specific client?

• How many of them are in the market?

• What part of them can you realistically reach?

• What price are they ready to spend for your product?

• Most importantly, how much or how often will they buy from you?

Step 3: Apply the formula. Bottom-up market analysis has a very simple formula:

Bottom-up market sizing example:

Let’s take a startup with a mobile accounting app that charges $100 per year. Based on their marketing and sales reach, they estimate they can realistically reach 500,000 companies.

That gives them a SOM of $50M:

$100 × 500,000 = $50M

From there, they can scale outward:

• Their SAM might include 2 million similar companies in markets they plan to target soon.

• And their TAM could be all businesses globally that fit their ICP—say 10 million companies, which would be a $1B total market.

Advantages:

• Accurate. This method gives more detailed data and helps you understand how each part of your business impacts the bigger picture.

• Good for new markets. Bottom-up market sizing works well when you’re entering a new space or offering something truly different.

• Clearly defines ICPs. It helps you see which products make the most money so you can make smarter decisions about where to invest.

Disadvantages:

• Time-consuming. Bottom-up analysis takes more time and effort than top-down because it requires a deeper look into your business.

• Demands precision. Small mistakes at the start can snowball into big errors later, so it’s important to get the details right.

Wrap-up: So, top-down or bottom-up market sizing?

Actually, both approaches have their place. That’s why they’re still the go-to models for market sizing in startup finance. What matters most is knowing the pros and cons of each so you can use them appropriately.

That said, always keep the investor perspective in mind.

Remember, investors expect founders to go beyond big numbers. They want to see how your pricing works, how well you understand your niche, and whether they can trust you to execute.

At Waveup, we always use the bottom-up approach. Why? Because it shows the work. It’s grounded in real customer data, not assumptions. We’ve seen too many great startups miss their chance because they were “too humble” with their market—or couldn’t back up their numbers.

We always make sure that every market sizing we do is well-researched, accurately calculated, and tightly linked to the go-to-market strategy. That’s why bottoms-up analysis has never failed us.

If you’re still unsure about your numbers, pitch deck, or financial model, contact our team; we’d be happy to help.

Related read:

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