When you’re starting a business or launching a new product, one of the first questions you should ask is:
👉 “How big is the market I’m entering?”
That’s where market size estimation comes in.
In this blog post, we’ll break down what market size estimation is, why it’s important, and how you can do it yourself without needing a PhD in economics.
🧠 What is Market Size Estimation?
Market size estimation is the process of calculating how much potential demand exists for your product or service. It’s not just a random number it’s a tool that helps you understand whether your business idea is a small side hustle or a billion-dollar opportunity.
Whether you are selling kosher hotdogs, or building the next innovative food delivery platform, knowing your market size is important as it sets the foundation for the total number of potential buyers of a product or service.
💡 Why Does It Matter?
Here’s why market size estimation is a must-do for entrepreneurs, founders, and product managers:
- Informs Your Strategy: Knowing your market size helps you set realistic goals and allocate resources effectively.
- Attracts Investors: A well-refined market estimate shows that you are not just building your product or service based on guesswork. By presenting data driven cases, you won’t be making decisions based on vibes alone.
Avoids Wasted Effort: If you come to find out that the market is too small or already saturated, you might want to pivot early before wasting time and money.
🔍 The Three Key Market Sizes
When estimating your market, you’ll often hear about TAM, SAM, and SOM. Let’s break them down using a realistic example. Say you’re starting an online coffee brand. You roast beans locally and plan to sell directly to customers through your website.
1. TAM (Total Addressable Market)
This is the entire coffee market i.e. if your business had no limits.
Global coffee industry revenue in 2024 is estimated at over $495 billion.
This includes everything from Starbucks and grocery store instant coffee to espresso machines and coffee beans.
💡 So your TAM is $495B, but obviously, you’re not going to reach every coffee drinker on Earth.
2. SAM (Serviceable Available Market)
Now we narrow that down to your specific business model and market:
You’re targeting online coffee sales in the United States.
The U.S. coffee market is worth around $110 billion.
Of that, e-commerce makes up roughly 15%, or about $16.5 billion.
💡 So your SAM is $16.5B these are the people who already buy coffee online in the U.S.
3. SOM (Serviceable Obtainable Market)
Now, what can you realistically capture?
You’re a small brand with limited ad spend and distribution.
Let’s say you aim to reach 0.1% of the SAM in your first year.
0.1% of $16.5 billion = $16.5 million.
But even that’s ambitious. Let’s say you sell a $20 bag of coffee, and your goal is to get 10,000 repeat customers who buy 6 times per year.
Here’s the math:
10,000 customers × 6 orders × $20 = $1.2 million in annual revenue.
💡 So your SOM, in this more grounded case, is around $1.2M for your first year.
📈 How Do You Estimate Market Size?
You can use different methods depending on what data you have:
🏗️ Top-Down Approach
Start with large industry reports (like from Statista or McKinsey), then narrow down to your niche.
🧮 Bottom-Up Approach
Start with your own numbers—like your pricing, number of potential customers, and sales projections—and build up from there.
💰 Value Theory Approach
Estimate how much value your product creates for a customer, and how many customers would be willing to pay for it.
Check out our blog post “Top 10 Market Size Estimation Methods” if you want to read more about various market size estimation methods.
✅ Final Thoughts
Market size estimation isn’t about showing off big numbers—it’s about understanding your business’s true potential. A solid estimate helps you make smarter decisions, attract the right investors, and scale at the right pace.
Whether you’re building the next tech behemoth or a simple coffee roastery, knowing your market size can make all the difference. Because at the end of the day, you can’t hit a target that you can’t see.
🎯 Ready to Get a Clearer Picture of Your Market?
If you’re still guessing how big your market is for your product or service, we built a simple tool to help you figure it out—no spreadsheets, no MBA required.
👉 Try our free market size estimator
Check it out here → Zeta Resolutions
No jargon. No spreadsheets. Just a straightforward way to size things up and make smarter decisions.