Why Global Market Size Is Tough to Calculate

Many tech-focused companies struggle to measure their market size in a way that is clear, concise, and consistent. Why is it such a difficult chore? It relates to the fact that many businesses with a digital offering are not just addressing a known market, but also, a market that isn’t yet addressed. They see great potential for their company, thanks to their digital and potentially disruptive offering.

But calculating market size is a tough exercise, even if just for a company’s home market. For digital companies, which go global from their earliest days, figuring out true market size can be pretty blurry. That’s mostly because there are many different ways to do it.

TAM Is OK, But Falls Short for Global Use

Generally, when a company is fundraising, the founders need to come up with a basic total available market (TAM) calculation in order to convince anyone to make an investment. At a high level, the TAM is the number of customers in your home market (such as the United States), multiplied by the average price of whatever you’re selling.

Often, companies can easily calculate (or at least estimate) the number of target customers in their home market, which is a market they know pretty well. The problem is that when companies try to expand this notion globally, they start to trip up. They might think they are measuring “global TAM,” when in reality what they’re looking at is potential available market (PAM) instead.

PAM Is Better for Global Companies, but Far More Complex

The potential available market (PAM), also sometimes called total potential market (TPM), is the number that entrepreneurial dreamers and growth-minded leaders really care about. It’s the number that embodies their big visions and answers the question, “If I were able to sell my product to every buyer on earth who could use it, what would the market size be?” Here’s where things start getting fun, but also tricky.

For TAM, you simply take the number of potential buyers in the market, and multiply by your average price. Easy, right? So for PAM, you’d just assume you can figure out the number of buyers in each country of the world, in the same way. But what people are willing to pay in each country will vary. Most companies can’t realistically calculate this number until they have a solid footprint in many markets, because figuring out your ideal pricing and packaging for every country actually takes time, dedicated resources, and actual experience with international markets. How do you make sure those calculations are accurate?

Well, if you wait until you have customers in all those markets, you’ll be waiting a while. Not only that, but the data you get in the early days is likely to be misleading. Often, what early adopters in a new market are willing to pay is higher than what mainstream customers will pay. So, you might find that your “average price” in the Netherlands goes down over time instead of up, as you begin to hit the mainstream in your market, unless you find ways to continually increase the average price over time by adding more value for your customer.

Crossing the Chasm Complicates Matters Further

International expansion is basically an exercise of crossing the chasm, over and over, one country at a time. If you’re good at going to market internationally, you should get faster at it over time, but it doesn’t mean it will be less painful. Creating a “complete product” to make it attractive to the majority of the market usually means you’ll need to invest in product globalization (making sure your product supports multiple markets) website globalization (making sure your website does too), as well as localization (making sure underlying processes and systems are not only globalized, but appropriate for local markets as well).

Here’s how this relates to your market size calculations. The first people to buy your product, innovators, make up only a small fraction of the market, just 2.5%. Early adopters make up 13.5%. But the early and late majority makes up 68% of your available market. The rest, 16%, are the laggards who may come in at the very end.

How to Calculate Your Global Market More Accurately

Most companies don’t have a clear way to calculate their PAM, because they lack high-quality data that is reflective of markets they don’t yet have much experience with, because they are usually still in the early adopter phase when they start thinking about PAM in the first place.

What are some realistic ways to address these complicating factors in a data model?

  1. Bake in assumptions for price discounts into the calculations. Instead of using your current average price, consider grouping like countries, and applying a similar price based on economy size.
  2. Include some assumptions to accommodate for the phases of market adoption. Always assume that your early traction in new markets will be higher, and that it will trail off as you run out of early adopters.

As a simple example, let’s assume we’re selling a software product that costs $500 for an annual license. Now, let’s assume there are 1,000,000 potential customers who could buy your product throughout the world. A simplistic way to calculate PAM would be to multiply $500 by your potential customers. You’d have a market size of $500M, but it would not account for economic differences, let alone for phases of technology adoption.

So, first, let’s assume that 30% of these customers are in developed countries and 70% are in emerging markets. Let’s assume the discount requires for your software will be 50%. At a basic level, here’s your first pass at a more realistic PAM.

Market TypeDevelopedDeveloping
Number of Customers300,000700,000
Average Price$500$250
Estimated Market Size
$150M$175M

This gives you a more accurate market size of $325M. Interestingly, the opportunity is higher for developing markets than for developed markets, but you can’t easily build a complete product for developing markets until you’ve done that for your home market first.

If you want to go more granular, you can absolutely do this exercise at a country level, but just beware that every country has different data sources, some of which are more credible than others.

How to Account for Market Adoption Phases

So, now you have a better sense of your developed versus developing market size cuts and what your global total might be. Next, you may want to look at how many customers you can potentially address at each phase. The more disruptive your product, the more important this becomes.


PAMInnovatorsEarly AdoptersEarly MajorityLate MajorityLaggards
Developed$150M$3.75M$20.25M$51M$51M$27M
Developing$175M$4.38M$23.63M$60M$60M$28M

If you like, you can apply slight adjustments to each of these depending on trends you’re seeing in the market. Do you have a competitor with a more complete product than you do? Are they charging more, or less? By what percentage? Perhaps you should taper down your estimate of market size for early and late majority. Seeing that your early customers in a developed market will pay more? Perhaps you adjust those numbers accordingly.

Even after you’ve adjusted it, this “dream big” model helps better explain to your CEO, your executives, or your investors why your company’s current market penetration might look so low — it usually will when you’re measuring against PAM. Realistically, once you get past the innovator phase, many companies can grow their revenue in a new market pretty rapidly through early adopters. But once you start hitting the majority, things start to feel harder, and especially when you’re in a lot of markets simultaneously.

You’re not imagining it — this type of global growth is very difficult. It probably feels more complex than you’d think is natural. But the reason is that you’re crossing the chasm, many times over, into multiple markets simultaneously — and with this comes serious growing pains. As you’re growing in so many directions, your product has to be “complete” in multiple ways, for more customers, in order for you to achieve good product-market fit.

Honorable Mention: SAM and SOM

A more conservative measure than PAM is your serviceable available market, or SAM. This reflects the customers you can actually reach, the ones who are able and ready to buy a product in your category. In other words, even if you think there are 1,000,000 companies globally of the type that buy your product (PAM), how many of these could actually be customers? If you’re selling software that requires online access, for example, you’ll have to look at internet penetration rates to downsize your numbers further. If there are a certain number of companies of a given size range, for example, not all of them will have internet.

Lastly, there is the serviceable and obtainable market (SOM), which looks at what percentage is services by yourself and your competitors. This is usually the smallest “known” market size estimate you can use.

While these estimates are the more conservative ones that probably explain your current penetration rates more accurately, these are usually the least interesting to the people who dream big for your company, so your CEO, execs, and investors will not be so interested in these. And usually, the market size estimates published by major market research firms hover most closely to these estimates, simply because these are the most defensible.

Putting It All Together

At the end of the day, the most important thing is to have a model that your company believes it can rely on, and is defensible to those who have a stake in it. Generally, a model that accounts for local pricing variations from early on is best for companies going global at a fast pace. If you’re going to rely on your own data for it, just know that it might give you false market signals in the early adopter phase, until you’re confident you have a sizeable share of the market to ensure that data isn’t skewed toward just the innovator and early adopter section.

One last suggestion — keep it updated. Your product is likely to evolve, you might make acquisitions, and you might pivot along the way. Your pricing and packaging strategies will evolve, and so will your target customers, especially as you keep expanding your business across borders. Creating this type of model is what strategists and analysts do best, but if you don’t have any yet focused on international, this article at least provides some basic guidance until you do someday.

Nataly Kelly

Nataly is vice president of international operations and strategy at HubSpot and has previously held diverse roles leading marketing, research, product development, and localization. She writes for Harvard Business Review on topics of international marketing and business. Nataly grew up in rural Illinois, lives in Boston, and has visited 57 countries (so far).

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