Side-by-side comparison
| Top-down | Bottom-up | |
|---|---|---|
| Starting point | Industry report total | Count of real buyers |
| Typical formula | Market × segment % × share % | Buyers × annual price |
| Speed | Fast | Slower |
| Defensibility | Low — percentages are guesses | High — each input has a source |
| Best use | Sanity check, very early ideas | Pitch decks, investment memos, planning |
Top-down example
The global dental software market is reported at $3bn. Assume 40% is practice management, 20% of that is scheduling and you win 5%: $3bn × 0.4 × 0.2 × 0.05 = $12M. Every percentage is an assumption, and none of them is tied to the sales plan.
Bottom-up example
There are 42,000 dental clinics in the target countries, each paying $3,600 a year: TAM ≈ $151M. 18,000 already use cloud software and speak English: SAM ≈ $65M. Six reps each closing 120 clinics a year for four years reach about 2,900 clinics: SOM ≈ $10M ARR. Each number can be checked against a source or the hiring plan.
How to combine them
- Build bottom-up first, then compare with a top-down estimate.
- If the two differ by more than about three times, revisit the buyer count or price.
- Show both in the memo, but lead with bottom-up.
- Use the TAM/SAM/SOM calculator to build the bottom-up version from unit inputs.
Part of a guide
Market sizing: TAM, SAM and SOM done properly
How to build market size from the bottom up: what belongs in TAM, SAM and SOM, how to calculate serviceable obtainable market from channel capacity, and how sizing interacts with defensibility.