How to calculate market size for a niche B2B product: count the businesses that fit, multiply by your price, then compare with the customers you need.
By Sergey BruhPublished 8 min read
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TAM SAM SOM in plain words: the three layers of market size, how to calculate each with a worked example, and when the acronym actually helps.
If you're wondering how to calculate market size for a niche product, the reliable way is bottom-up market sizing: count the customers who could actually buy your product and multiply by your price, instead of taking a share of a big number from a market report. For a niche B2B product that's a four-step chain: how many businesses of your type exist, what share fits your product, what share you can reach in the next few years, and what you charge each of them. Then compare the result with the number of customers you need. Below is the whole chain on one example, including how to check the assumptions in an afternoon.
"The pet-care market is worth billions; if we take 1%, we're rich." That sentence has two problems. The billions include food, medicine and toys, nothing your software competes for. And the 1% is a wish, not a plan: it doesn't say who the customers are or how you'll reach them.
A bottom-up estimate starts from individual customers. Every number in it is something you can check by looking up a list, visiting a few businesses or making a few calls. That makes it smaller and far more useful.
Iryna and Bohdan build VetNote, a web app for small veterinary clinics: appointment booking, patient records per animal and vaccination reminders to owners. It costs 1,200 UAH a month. They have 30 paying clinics in two cities and want to know whether the market can carry a real business.
The formula behind the four steps: market size = businesses of your type × share that fits × share you can reach and win × price. The figures below are illustrative, made up for this example. Use them to follow the method, not as data about the Ukrainian vet market.
From public business registers, online maps and supplier directories, the founders estimate about 2,400 veterinary clinics and practices in the country.
VetNote is built for small clinics with a reception desk and appointments. Two filters:
For the next three years the founders can sell in person and through two veterinary suppliers in six regions, which hold about 45% of the fitting clinics: 1,344 × 0.45 ≈ 605. If they win about one clinic in five of those, that's 121 clinics.
The three results have common names (each is explained in TAM, SAM and SOM):
In yearly terms the SAM is 1,344 × 1,200 × 12 = 19,353,600 UAH, about 19.4 million. The number to plan with is the last row: roughly 145,000 UAH of monthly revenue within reach.
A market size means nothing on its own. Compare it with your targets:
Ramen profitability for both founders. They need 60,000 UAH a month for living costs and tools. After roughly 8% for taxes and payment fees:
That's 4.1% of the SAM and 9.1% of the reachable 605. Achievable. (The method: ramen profitability.)
Market-rate pay for both plus one hire. Say 250,000 UAH a month: 250,000 / 1,200 ≈ 208.3, so 209 clinics, 15.6% of the SAM and well above the 121 they can realistically win.
So the market is big enough for the first goal and too small, as defined today, for the second. That's a common result, and it's useful: it tells the founders when they will need to widen the market, years before they hit the ceiling.
Be wary of the shortcut: signing a few big clinic chains. It fills the gap quickly, but a customer that makes up a large share of your revenue brings its own risk; see customer concentration.
Each percentage in the chain is a guess until you test it. The founders open an online map of one city, list 40 veterinary clinics and check their websites and a few by phone:
Close enough to keep the estimate. If the sample had shown 40% instead of 70%, the whole SAM would shrink by nearly half, which is exactly why the check is worth an afternoon.
The reach and win-rate assumptions are harder to test in advance. Revisit them every six months against real sales: how many clinics in a region you've contacted, and how many bought.
A realistic SOM of about 145,000 UAH a month can support two founders and a small team. It will not produce the kind of exit a venture investor needs, which makes it a good fit for a self-funded business. The reasoning is in bootstrapping vs venture capital.
Top-down takes a large published market figure and assumes a share of it. Bottom-up counts the actual customers who fit and multiplies by your price. For a niche B2B product, bottom-up is more accurate and shows where the customers are.
TAM is the revenue if every possible customer bought. SAM is the part your product actually fits. SOM is the part you can realistically win in the next few years with your channels and team. To run the three levels on your own numbers, use the free TAM SAM SOM calculator.
Big enough that your realistic SOM covers the founders' pay and the team you plan to hire, with room to spare. If your targets need more than a fifth or so of the market you can reach, plan how to widen it early.
Public business registers, online maps, industry associations, suppliers who sell to that niche and trade fair exhibitor lists. Combine two sources and check a sample by hand.
The lesson The market, bottom up sizes the market for a product for car repair shops step by step, with numeric exercises and a practice task checked by AI. The case Another city or another kind of shop? shows how to choose where to grow when one city is not enough. Both are part of the course From Idea to Profitable Product: Building Without Investors.
