Task: Market size

Required Question

What is your actual addressable market size (calculate an estimate)?

Don't take this lightly. If you are targeting a country with less internet users, you have to make sure you have a good reason to do so.

Market Size

Case Study: When Pinterest started, they only had around 3000 early adopters during the initial months, which was not a lot. However, most smaller countries have only 1/10 of the population in the states, so in a smaller country, your service would probably only have around 300 early adopters in the beginning. There is a big difference in the speed of content creation between 3000 and 300 users.

While there is also less competition in the less saturated countries, it also means there aren't as many marketing channels or users to help you grow your company. This is a very practical way to see this problem. However, we aren't saying that either way is better than the other. There isn't a sure formula on knowing where to start, or who to start with.

Your final decision should depend on:

1. The competition

2. The total population of your target audience

3. The available (free) channels that will allow you to market your product

How to calculate market size?

There are 2 types of calculation methods. One is "top down" and another is "bottom up". Calculating market size a big key point that drives VCs to invest in your company. When they see and believe that you are tackling a huge market, they will do the calculation themselves and know what kind of upside there are with your business. In terms of the actual calculation VCs like both methods (if they are realistic), so if you can come up with both, it'd definitely help you. Also, you should also do these estimates just because it's important to do due diligence for your own future! The key is to be realistic.

Top down market estimate:

This is where you take a forecast by a market research company like Gartner or Nielson, and multiply that by the number of potential customers, and then multiply that by the % of customers you think you can actually acquire - which would then give you your addressable market.

If you want to get the revenue estimate, you then multiply that number with the price of your product which would give your revenue. Remember to always site  your sources so that it's more believable.


There are 300M people in the US.

50% of those are internet users.

50% of those are obese

You can capture 10% of that market

You will make $200 off each user per year

Addressable market: 300M * 50% * 50% * 10% = 7.5M

Yearly revenue: 7.5M * $200 = $1.5B

Bottom-up market estimate:

This kind of calculation method is where you try to make the estimate according to the actual business situation instead of just taking a raw data and jamming out an estimate. This method is more realistic, so that often times VCs really like this method.


Each sales person can call at least 20 prospects a day

there are 240 working days a year

5% of the calls will convert

Each sale is $300

We have 10 sales people

Yearly revenue: 10 sales * 20 calls * 5% * 240 days * $300 = 10*20

Another good thing to do is to use your competitors' data. Say your  competitor has 1M users, and you feel that they've only captured 10%. So you can say that the market has at least 10M users, and each user spends $2000, which comes out to be 20B. It's a 3rd method to add on to the 2 methods above.

When you are calculating your total addressable market, there are a couple of ways to do it. There isn't a real answer to it. Some people accept a number where you assume that you have no competition, and you are able to reach all of your target audience. However, this is quite ideal and it really depends on who your audience is. For your own due diligence, it's best to be thorough and be realistic with the actual addressable market.
Another calculation is that you do it your way, where you take the total market, and factor in: # of potential customers that go online, and then the market you feel that you can actually capture (10%? 20%? - whereas this number could be based on how big of the population your marketing channels can actually get to, and factoring in conversion).
Another way to do this, is just to use your competitors' data. Say there is another venue booking competitor, and they have 1M users, and you feel that they've only captured 10%. So you can say that the market has at least 10M users, and each user spends $2000, which comes out to be 20B.
I've heard VCs that want the 2nd way, and I have also see VCs okay with the first way.
When you want to be exact, you want to do it for yourself. If you have valid data to back up your numbers, then VCs will be fine with it.