As a business professional with a passion for wellness, you might think that market sizing in a business plan is just a formality—something to satisfy investors so you can focus on the real work of building your business.

But after years of experience on both sides of the table—first as a founder and now as a venture investor—I’ve learned that this mindset is a mistake. Understanding your market is not just a box to check; it’s crucial for shaping your growth strategy and ensuring long-term success.

To help you navigate this critical aspect of launching a wellness business, I’m going to break down three key pillars to understanding your market:

1. Calculate a market size

2. Refine your growth strategy

3. Determine market penetration

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WELLNESS BUSINESS TIPS

A Guide to Understanding Your Market

💡Know the lingo

First, let’s define some key terms to make sure we’re all on the same page. The Serviceable Obtainable Market (SOM) is the market size of your target customer—it’s a subset of your total market that you believe you can capture the most market share in.

Next is your Serviceable Available Market (SAM), which includes your target customer plus the most closely related (horizontal or vertical) customer bases you can reasonably expect to capture.

Finally, your Total Available Market (TAM) represents the total market value of any customer base that might use your product or service—it’s the maximum possible value if every single customer in your market buys your product.

📊Calculate a market size

To best understand your market potential, I recommend a bottoms-up market sizing approach. This method uses your company’s unit economics to estimate the market opportunity, making it ideal for startups that have already achieved product-market fit.

For example, let’s say you’re developing a B2C mental wellness platform called “ExecWell,” specifically designed for women in executive leadership roles within the US. Assume that ExecWell has found product-market fit with C-suite executives, VPs, and senior directors at Fortune 1000 companies.

These women are your target market, and you charge $200 per month for access. There are approximately 50,000 women in these positions across Fortune 1000 companies in the US.

To calculate your Serviceable Obtainable Market (SOM), multiply the price of your product by the number of potential customers:

• SOM Calculation: $200 per month × 12 months × 50,000 potential customers = $120 million annually.

This $120 million SOM represents the market size you can realistically target within the executive women’s leadership segment. It reflects the immediate opportunity available to your company based on your existing product and customer base.

🔄Refine your growth strategy

When estimating your SAM and TAM, think critically about your expansion plans once you’ve reached a certain level of market penetration in your SOM. For example, does it make more sense to expand vertically by offering additional services such as nutrition coaching alongside mental health services, or horizontally into a new customer segment like executive men?

In this scenario, let’s say you decide to expand vertically into other wellness services that complement your existing mental health platform. You might introduce nutrition coaching, fitness coaching, and executive coaching as new offerings. Each of these vertical expansions represents an opportunity to increase revenue by providing more value to your existing customer base.

Serviceable Available Market (SAM) calculation:

• Nutrition Coaching for Executive Women: 50,000 potential customers × $150/month × 12 months = $90 million

• Fitness Coaching for Executive Women: 50,000 potential customers × $100/month × 12 months = $60 million

• Executive Coaching for Executive Women: 50,000 potential customers × $200/month × 12 months = $120 million

Summing these up, your SAM for the United States would be:

• SAM Total: $120 million (Mental Health Services) + $90 million (Nutrition Coaching) + $60 million (Fitness Coaching) + $120 million (Executive Coaching) = $390 million annually.

This vertical expansion strategy allows you to deepen your engagement with your existing customer base by offering a more comprehensive suite of services that address multiple aspects of their wellness needs. As a result, you can significantly increase your potential revenue and market share without the added risk of entering entirely new customer segments.

Finally, consider your Total Available Market (TAM), which would encompass all executive women globally who might benefit from these services. Let’s say you determine there are roughly 5x the US market opportunity globally. Citing this research, you might estimate your TAM as:

• TAM Calculation: $390 million (US SAM) × 5 (global expansion) = $1.95 billion annually.

This $1.95 billion TAM represents the maximum potential market size if you successfully expand your platform globally across all relevant wellness services.

🧠Strategic considerations

As you build out your bottoms-up market size for these expanded vertical markets, prioritize which services you’ll introduce next and for what strategic reasons. For instance, you might focus on launching executive coaching first due to its high-value potential and alignment with the mental health services already valued by your existing clients. Alternatively, you might choose to roll out nutrition coaching if it offers faster adoption rates or faces less competition in the wellness space.

💸Pricing strategy

It’s also crucial to consider your pricing strategy when estimating the expanded market size. Will your existing customers have the same willingness to pay for these additional services? For example, executive coaching might command a higher price point than fitness coaching, but it could also have a longer sales cycle. Understanding these dynamics will help you accurately project the revenue potential of each new service and prioritize your expansion efforts effectively.

🎯Market penetration

What I often see in early-stage founders is a tendency to overlook market penetration, leading to overly optimistic financial projections. While optimism is important, projecting $100M in revenue over five years with a $100M obtainable market size implies you’ll capture 100% of every possible dollar in your market—an extremely unrealistic scenario. There will always be competition, and market penetration is almost always more challenging than expected.

Early-stage market penetration benchmarks

Use your financial projections to check your expected market penetration at year 5. As a general guideline, early-stage companies should aim for less than 5% market penetration of their obtainable market (SOM) and less than 1% of their total market (TAM) over 5-year financial projections.

FREE STARTUP COACHING

Free Business Advice from a Venture Capitalist and Wellness Founder

Are you a wellness founder looking for more help? Join me on Friday, August 23rd at 1 pm CST for a free 30-minute group Zoom call. The session is first come, first serve and will be open Q&A with other founders. Spots are limited so register today before slots fill up!