Niche-Down or Go Broad? Choosing the Right Market Size for Your SaaS Idea

One of the most paralyzing decisions facing SaaS founders is market sizing. Should you build a narrow tool for dental practices in Ohio, or create project management software for "all businesses"? The answer determines everything from your development roadmap to your marketing budget to your likelihood of success.

This isn't a theoretical question. Your market size decision directly impacts whether you'll face venture-backed competitors with millions in funding or whether you can profitably serve customers that larger companies ignore. When evaluating saas ideas, getting market sizing right is often more important than the features you build.

Let's examine how successful founders make this decision and what the data tells us about niche versus broad market strategies.

The Niche-Broad Spectrum: Understanding Your Options

Market sizing isn't binary. It exists on a spectrum with multiple strategic positions:

Ultra-Niche (Micro-SaaS) Serving 500-5,000 potential customers with highly specific needs. Example: Compliance software for Canadian chiropractors.

Vertical Niche Targeting 5,000-50,000 potential customers in a specific industry. Example: Inventory management for craft breweries.

Horizontal Niche Solving one specific problem across industries for 50,000-500,000 customers. Example: Invoice reminder automation for all service businesses.

Broad Horizontal Addressing common needs across industries with millions of potential customers. Example: Team communication platforms.

Each position has distinct advantages and challenges that directly affect your path to profitability.

When Niche Markets Make You More Money

Countintuitively, smaller markets often generate higher profits per founder hour invested. Here's why:

Reduced Customer Acquisition Costs

In a well-defined niche, your customers congregate in predictable places. Dental practice management software can advertise in three dental journals, sponsor two annual conferences, and reach 80% of their market.

Broad market products face fragmented audiences across hundreds of channels. A generic "productivity tool" must compete for attention across LinkedIn, Twitter, Product Hunt, dozens of subreddits, and countless other venues. The data-driven method for finding profitable SaaS ideas shows that customer acquisition costs in niche markets run 3-7x lower than broad markets.

Premium Pricing Power

Specialized solutions command specialized pricing. When you solve industry-specific problems with industry-specific language and workflows, customers perceive higher value.

A generic CRM might charge $29/month. A CRM built specifically for insurance agents with built-in policy tracking, commission calculations, and carrier integrations can charge $199/month because it eliminates three other tools.

Our analysis of real SaaS ideas that generated $10K MRR in year one found that vertical niche products averaged 2.4x higher pricing than horizontal equivalents.

Faster Product-Market Fit

With fewer customer segments to satisfy, you can deeply understand one group's needs rather than superficially addressing many groups' requirements.

This focus accelerates validation. When researching how to find SaaS ideas that people already want to buy, niche markets provide clearer signals because pain points are more uniform.

You can interview 15 veterinary clinic owners and get remarkably consistent feedback. Interview 15 "small business owners" and you'll hear completely different needs from a coffee shop owner versus a consulting firm versus a retail store.

Defensibility Through Specialization

Once established in a niche, you're harder to displace. Your product accumulates industry-specific features, integrations, and knowledge that generic competitors can't easily replicate.

A broad project management tool can add a "construction mode," but they'll never match the depth of a purpose-built construction project management system with submittal tracking, RFI management, and punch list workflows.

When Broad Markets Offer Better Opportunities

Broad markets aren't wrong—they're different. They offer advantages that niche markets can't match:

Larger Exit Potential

Investors and acquirers pay premiums for large addressable markets. A company serving 100,000 customers is more attractive than one serving 2,000, even at similar revenue levels.

If your goal includes raising funding or achieving a significant exit, broad markets provide more options. The SaaS idea landscape in 2025 shows that acquisition multiples correlate strongly with market size.

Multiple Expansion Paths

Broad horizontal products can expand into adjacent use cases without changing their core positioning. Slack started as team communication but expanded into workflow automation, app integration, and enterprise collaboration.

Niche products eventually hit market saturation. Once you've captured most dental practices in your region, growth requires geographic expansion or moving into adjacent niches—both essentially starting over.

Platform Economics

Broad markets enable network effects and platform dynamics that niche markets rarely support. When your product improves as more people use it (like marketplaces, social tools, or integration platforms), broad markets accelerate that flywheel.

Talent Attraction

Top developers and designers often prefer working on products with broad impact and recognition. "I build software for orthodontists" generates less excitement than "I'm building the future of team collaboration."

This matters for solo founders less than teams, but even solo builders benefit from community support, open-source contributions, and partnership opportunities that broad-market products attract more easily.

The Market Size Decision Framework

Here's how to evaluate whether your SaaS idea should niche down or go broad:

Step 1: Calculate Your Minimum Viable Market

Work backwards from your revenue goals:

• Target annual revenue: $100,000
• Expected conversion rate: 2%
• Expected annual churn: 20%
• Average customer value: $1,200/year

You need approximately 100 paying customers to hit $100K ARR. At 2% conversion, you need 5,000 qualified prospects in your addressable market. Factor in churn and you need access to at least 7,500-10,000 potential customers.

If your niche has fewer than 10,000 potential customers, you'll struggle to build a sustainable business unless you can charge significantly more or achieve higher conversion rates.

Step 2: Assess Competition Intensity

Map existing solutions on a niche-broad spectrum:

Red flags for broad markets:

• 5+ well-funded competitors
• Market leaders with 90%+ name recognition
• Venture-backed companies actively advertising
• Commoditized pricing (race to bottom)

Green lights for broad markets:

• Existing solutions have low NPS scores
• Frequent complaints about specific missing features
• Market leaders are enterprise-focused (leaving SMB opportunity)
• Emerging technology shift (AI, blockchain, etc.) creating new approaches

Red flags for niche markets:

• Entrenched incumbent with 70%+ market share
• High switching costs (data migration, training)
• Long sales cycles (12+ months)
• Regulatory moats protecting existing players

Green lights for niche markets:

• Industry using generic tools poorly adapted to their needs
• Frequent complaints in industry forums about existing options
• Growing industry with emerging businesses
• Regulatory changes creating new requirements

Our guide on reverse-engineering successful SaaS ideas provides detailed competitor analysis frameworks.

Step 3: Evaluate Your Unique Advantages

Your personal background often determines which market size works best:

Niche advantages:

• Deep industry experience (you were a physical therapist for 10 years)
• Existing network in the industry
• Understanding of industry-specific regulations
• Access to potential customers for validation
• Native fluency in industry terminology

Broad market advantages:

• Strong technical differentiation (novel AI approach, superior performance)
• Significant funding or resources
• Exceptional marketing/distribution skills
• Platform or ecosystem you can leverage
• Team with complementary skills

The founder-first method for finding SaaS ideas emphasizes matching opportunities to your specific advantages.

Step 4: Test Market Receptiveness

Before committing, validate market interest:

For niche markets:

• Join 3-5 industry communities (Facebook groups, Slack channels, forums)
• Interview 10-15 potential customers
• Create a landing page with industry-specific messaging
• Run small LinkedIn or Google ads targeting the niche
• Attend an industry conference or trade show

For broad markets:

• Analyze search volume for problem-related keywords
• Study Product Hunt launches in the category
• Review competitor pricing pages and feature sets
• Test messaging across different customer segments
• Assess content marketing competition

The SaaS idea validation checklist walks through comprehensive validation steps.

The Hybrid Strategy: Start Narrow, Expand Later

Many successful SaaS companies resolve the niche-broad dilemma by starting narrow and expanding strategically:

The Wedge Approach

Enter through a specific niche, then expand horizontally:

1. Launch: Accounting software for e-commerce businesses
2. Establish: Become the dominant choice for online retailers
3. Expand: Add features for SaaS companies (similar needs)
4. Broaden: Evolve into accounting software for all digital businesses
5. Scale: Eventually compete as general small business accounting

This approach combines niche advantages (easier initial customer acquisition, faster product-market fit) with broad market benefits (larger eventual opportunity).

The Vertical-to-Horizontal Pivot

Some companies discover that their vertical solution solves a horizontal problem:

• Start: Appointment scheduling for hair salons
• Discover: The core scheduling engine works for any appointment-based business
• Expand: Reposition as scheduling software with salon-specific features
• Scale: Add industry-specific templates while maintaining broad appeal

When to Expand

Signals that you're ready to broaden from a niche:

• 40%+ market penetration in your initial niche
• Customers asking for features that serve adjacent markets
• Declining growth rate in core market
• Strong brand recognition within your niche
• Operational efficiency enabling you to serve broader segments profitably

Expanding too early dilutes focus. Expanding too late leaves money on the table. The SaaS idea funnel framework helps identify the right expansion timing.

Common Market Sizing Mistakes

Mistake 1: Confusing TAM with Accessible Market

Total Addressable Market (TAM) analysis often misleads founders. "There are 500,000 dental practices in the US" sounds promising, but your accessible market is much smaller:

• Only 200,000 use practice management software
• Only 50,000 are actively looking to switch
• Only 10,000 match your ideal customer profile
• Only 2,000 will discover you in year one

Your real addressable market might be 2,000, not 500,000. Plan accordingly.

Mistake 2: Choosing Niches Based on Personal Interest

You're fascinated by aquaponics, so you decide to build software for aquaponics farms. But passion doesn't validate market viability.

Better approach: Find markets with demonstrated pain, budget, and growth—then develop interest in solving their problems. The B2B SaaS ideas guide focuses on problems businesses actively pay to solve.

Mistake 3: Going Too Niche Too Soon

"Inventory management for vegan bakeries in the Pacific Northwest" might be too narrow. You'll hit market saturation before achieving sustainability.

Test broader positioning first: "Inventory management for specialty food producers." You can always niche down based on which segments convert best.

Mistake 4: Staying Too Broad Too Long

Trying to be everything to everyone means you're nothing to anyone. "Project management for all teams" faces entrenched competition and lacks differentiation.

Even if your ultimate vision is broad, start with a specific wedge: "Project management for creative agencies" or "Project management for remote teams" or "project management for construction."

Market Size Scenarios: Which Path Fits Your Situation?

Scenario 1: Solo Developer, No Funding, Need Revenue Quickly

Recommendation: Ultra-Niche (Micro-SaaS)

Target 2,000-10,000 potential customers in a specific vertical. You need quick validation, low customer acquisition costs, and the ability to charge premium prices.

Example: Appointment reminder system specifically for optometry practices, with insurance verification features built in.

This approach aligns with how solo developers find million-dollar SaaS ideas without teams or funding.

Scenario 2: Technical Team, Some Funding, 12-Month Runway

Recommendation: Vertical Niche with Horizontal Potential

Target 20,000-100,000 customers in an industry with clear expansion paths. You have time to build deeper features and can invest in content marketing and industry positioning.

Example: Customer feedback management for SaaS companies, with plans to expand to all subscription businesses.

Scenario 3: Experienced Founder, Strong Network, Significant Funding

Recommendation: Broad Horizontal with Initial Focus

Target millions of potential customers but focus initial efforts on one segment. You can afford longer sales cycles and have resources for competitive differentiation.

Example: AI-powered document analysis for all businesses, initially focusing on legal firms to establish credibility and refine features.

Scenario 4: Domain Expert, Industry Connections, Bootstrap Intent

Recommendation: Vertical Niche

Leverage your expertise to dominate a specific industry. Your insider knowledge and network provide unfair advantages that compensate for limited resources.

Example: Former restaurant manager builds shift scheduling software specifically for restaurant chains, with features addressing industry-specific challenges like tip pooling and break compliance.

Measuring Your Market Size Decision

Once you've chosen your market positioning, track these metrics to validate your decision:

For Niche Markets:

Market Penetration Rate Track what percentage of your addressable market knows about you. In a true niche, you should reach 20-30% awareness within 12 months.

Customer Acquisition Cost vs. Lifetime Value Niche advantages should yield CAC:LTV ratios of 1:5 or better. If you're below 1:3, your niche might be too competitive or poorly defined.

Feature Utilization Depth Niche products should see 60%+ of customers using specialized features. Low utilization suggests your niche differentiation isn't valuable.

Expansion Indicators Track requests for features that serve adjacent markets. High volume signals readiness to broaden.

For Broad Markets:

Segment Performance Variance If certain customer segments have 3x better retention or conversion than others, you might need to niche down to those segments.

Competitive Win Rate In broad markets, you should win 30%+ of competitive evaluations. Lower rates suggest insufficient differentiation.

Viral Coefficient Broad market products should achieve some organic growth through word-of-mouth or network effects. If growth is purely paid, reassess your positioning.

Development Efficiency Broad products often suffer from feature bloat. If less than 40% of features are used by 40% of customers, you're spreading too thin.

Making the Final Decision

Use this scoring system to evaluate your SaaS idea's optimal market size:

Score each factor from 1-5:

Niche Indicators:

• Your domain expertise in the industry (5 = deep insider, 1 = no experience)
• Market's willingness to pay premium prices (5 = high, 1 = commoditized)
• Ease of reaching target customers (5 = concentrated, 1 = fragmented)
• Specificity of customer needs (5 = highly specific, 1 = generic)
• Your resource constraints (5 = very limited, 1 = well-funded)

Broad Market Indicators:

• Your technical differentiation (5 = breakthrough innovation, 1 = incremental)
• Available funding and runway (5 = significant, 1 = bootstrapped)
• Team size and capabilities (5 = full team, 1 = solo)
• Market fragmentation opportunity (5 = many weak competitors, 1 = strong incumbents)
• Exit/growth ambitions (5 = venture scale, 1 = lifestyle business)

If niche score > broad score by 5+ points: Start with ultra-niche or vertical niche positioning.

If broad score > niche score by 5+ points: Pursue broad horizontal market with strong initial focus.

If scores within 5 points: Use the wedge strategy—start narrow, plan to expand.

Your Next Steps

Market sizing isn't a one-time decision. It's an ongoing strategic choice that evolves with your business.

Start by honestly assessing your advantages, resources, and goals. Then choose the market size that maximizes your probability of reaching profitability before running out of time or money.

For most indie hackers and solo founders, that means starting narrower than feels comfortable. The riches really are in the niches—not because broad markets are bad, but because niche markets are more accessible to resource-constrained builders.

Ready to find your ideal market? Explore validated micro-SaaS ideas from real users or discover underrated niches no one is talking about to identify specific opportunities that match your chosen market size strategy.

The right market size amplifies your strengths and mitigates your weaknesses. Choose wisely, validate quickly, and adjust as you learn.