Bottom-Up Market Sizing

Estimating a market by counting specific potential customers and multiplying by a realistic price, rather than starting from an industry total.

Example

28,000 independent practices at 2,400 a year, with 10% reachable in five years, gives 6,720,000 of revenue.

Important

Its value is that every assumption can be checked, which exposes exactly where the risk is.

Related terms

• Total Addressable Market (TAM) — The total revenue available if a product captured all potential customers in a defined market.
• Annual Recurring Revenue (ARR) — The yearly value of subscription or contracted revenue that is expected to repeat.

Lessons that explain it

• A market is the customers you can name, times what they will pay — Commercial diligence tests market claims by building them from countable customers and realistic prices, then checking the parts the company can actually reach. (10 min)
• One percent of a huge number is not a market size — Top-down market sizing starts with a large industry figure and assumes a share. Bottom-up sizing counts real customers and prices. Only the second tells you anything reliable. (12 min)

All 578 terms in the Investing glossary